India Strikes Back, Trades Forward

May 09, 2025 • Estimated Reading Time: 9 minutes

Welcome to another Friday, chief!

In today’s edition — India goes ahead with targeted military strikes in Pakistan and Pak-occupied Kashmir in response to the brutal Pahalgam attack on April 22, while securing a historic agreement with the UK. Operation Sindoor marks a tough military response, even as Moody’s warns of fiscal risks. Both strategies highlight the importance of balancing defence and growth. Meanwhile, Elon Musk turns West Lake Hills, Texas, into a security circus with his $6M mansion.

Dual Strategy of Defence & Diplomacy

Vishwas Ved

India is at a critical point where it is battling soaring regional tensions with Pakistan and at the same time going ahead with a crucial trade agreement with the UK, unlocking about £25 billion ($34 billion) in new opportunities.

The country is dexterously navigating the possibility of a dangerous conflict even as it pursues economic diplomacy on the international stage, which promises long-term dividends.

Operation Sindoor

The Indian armed forces launched ‘Operation Sindoor’, targeting nine terror sites in Pakistan as well as Pakistan-occupied Kashmir (PoK), in the early hours of May 7.

The strikes came in response to the April 22 terror attack in Pahalgam, where 26 civilians were killed. 

The military response was expected after widespread global and domestic outrage over the Pahalgam attack. Now, the strategic calculus between the two neighbours has changed at least in the short term.

Moody’s Flags Fiscal Impact

Reacting to rising tensions between the two countries, Moody’s Ratings reaffirmed that while India’s macros remain largely stable, an increase in defence expenditure could weigh on fiscal health. 

In its May update of the Global Macro Outlook, it also lowered the country's economic growth projection for 2025 to 6.3% from its earlier forecast of 6.5%, citing risks to the economy from India-Pakistan tensions and the US tariff policy uncertainty.

The agency also cautioned that military responses could affect India’s fiscal consolidation where progress had been made in the past few years.

Pakistan, expectedly, finds itself economically and diplomatically isolated. Despite securing a $7-billion IMF bailout in 2024, its forex reserves of $15.25 billion remain critically low.

UK Trade Pact Offers Cushion

Despite being on the brink of war with Pakistan, India signed a Free Trade Agreement (FTA) with the UK this week, aiming to lower tariffs considerably on several goods.

According to the deal, India will gradually reduce duties on UK imports, making most of the imported goods free of tariffs within a decade. 

Reciprocally, the UK will remove all tariffs on 99.1% of imports as soon as the FTA comes into effect.

Additionally, items such as whisky and gin will see tariffs go down from 150% to 75%, before settling near 40% within a decade. Besides that, tariffs on automobiles will be reduced from over 100% to 10%.

Final Words

India’s strategic call to close a robust trade agreement with the United Kingdom in the middle of a military conflict with Pakistan indeed reflects the country’s maturity in handling crises and opportunities with an equal amount of deftness.

As pointed out by Moody’s, India’s fiscal health is likely to come under pressure due to its current defence and military exigencies, but through the strategic pursuit of its long-term goals, the country is indeed fortifying itself against economic headwinds. 

In all likelihood, ‘Operation Sindoor’ will reshape the political, financial and strategic dynamics in South Asia, but India has chances to come out of the current quagmire with minor scratches if its focus on fiscal discipline remains reasonably intact.

Musk Moves In, Peace Moves Out

Life in West Lake Hills, Texas, was peaceful and quiet. Birds tweeted, really, and neighbors smiled and waved to each other. Then the unthinkable happened: Elon Musk bought a mansion down the street for $6 million in 2022.

Soon, the street got way busier and noisier than it was used to. The once-peaceful cul-de-sac of four homes turned into a grating movie that was rated 1 star by the neighbours.

The first problem to come up was a 16-foot chain-link fence, followed by a metal gate with a camera, according to The New York Times. Then appeared gladiators in Teslas, doubling as mansion guards, doing shift changes like clockwork.

Naturally, locals were not thrilled.

Sooner than later, the mansion began looking like Fort Musk. But neighbours got no friendly intro. Not even a box of muffins.

And then came the uprising. The NYT report said that one Paul Hemmer, a retired real estate agent and the unofficial sheriff of the street, took a hard look at the circus and said, “Enough.” 

Hemmer turned on his personal heckling mode. He flew drones over the property, registered complaints with the local council, and even set up his own surveillance. 

At one point, Musk’s team accused him of standing naked in the street. Hemmer did go a bit overboard, but insisted he was in his underwear.

Anyway, things escalated.

Then it turned out that Musk’s team didn’t bother with permits for the gate and the fence, the report said. The team even said mea culpa, but the city’s zoning board voted against him unanimously and practically told him: Nothing doing, X-man! 

Musk’s representatives argued the obvious: the fence is needed because he’s a high-profile guy. People might, you know, storm the mansion, they said. 

The homeowner should be exempt because he is a “federal public official,” one of Musk’s employees wrote in an email to the city.

But neighbors ignored all the noise about his security troubles; they just wanted their quiet back.

Now, the matter is with the West Lake Hills City Council, which will decide on May 14 whether Elon gets to keep his fence or if he’ll have to follow the rules.

The drama on the street is on. Perhaps Mars would have been more peaceful for Musk.

$1 Billion

The World Bank announced this week a package of $1 billion over three years to support job creation and develop private sector growth in Sri Lanka. The initiative aims to expand economic opportunity, strengthen local industry and attract private capital to support long term growth. The World Bank estimates that nearly one million young people would enter Sri Lanka's work force over the next decade, yet only 300,000 jobs are projected to be created over the same period.

—MTNL defaults on interest payment. Debt-ridden state-owned telecom operator MTNL has failed to make interest payments of sovereign guarantee-backed ₹6,100 crore bonds as per stipulated norms, the company said. MTNL issued 5,000 government-guaranteed, unsecured, rated, listed, redeemable, non-convertible, and taxable bonds in the nature of debentures for an aggregate amount of ₹6,109.6 crore in November 2022.

—Samsung fights $520-mn tax demand. Samsung has asked an Indian tribunal to quash a $520-million tax demand for allegedly misclassifying imports of networking gear, arguing officials were aware of the practice as India's Reliance imported the same component in a similar manner for years. Tax authorities in January asked Samsung to pay $520 million for evading the 10-20% tariffs by misclassifying imports of a key mobile tower equipment, which it then sold to billionaire Mukesh Ambani's telecom giant, Reliance Jio, from 2018 to 2021.

—KV Subramanian’s stint at IMF Terminated. The IMF said this week that the Indian government had decided to terminate the services of executive director K V Subramanian. The services of Subramanian were terminated six months ahead of his three-year tenure. According to sources, concerns were raised over an “impropriety” relating to the promotion and publicity of his latest book. It was alleged that Subramanian used his official position to pressurise some institutions to purchase his book.

—BluSmart barred from selling 220 EVs. The Delhi High Court this week barred Gensol Engineering and its all-electric ride-hailing subsidiary BluSmart Mobility from transferring or selling over 220 electric vehicles (EVs) leased from SMAS Auto Leasing India Pvt Ltd and Shefasteq OPC Pvt Ltd. Till now, the court has restricted Gensol and Blusmart from transferring or selling over 490 EVs by creating third-party rights. The lessors claimed both companies failed to pay rental payments and fleet-management charges.

ICYMI | Frozen by Babus, Thawed by Court

Missed last week's update? A Delhi steelmaker had their bank account frozen for nearly a year without any notice or charges, affecting their entire operations until the Delhi High Court intervened and told the taxmen to back off. Meanwhile, ChatGPT got unbearably polite, dishing out unnecessary compliments. Both remind us that unchecked systems, whether tax offices or AI, need boundaries. Process matters. So does tone.

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