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The Economic and Infrastructural Fallout of a Major Terror Attack in Pahalgam: An Assessment for Jammu & Kashmir

By Dicson

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1. Introduction: J&K’s Economic Trajectory and the Specter of Renewed Instability

1.1. Setting the Context

In recent years, the Union Territory (UT) of Jammu and Kashmir (J&K) had embarked on a path characterized by cautious economic optimism, underpinned by government initiatives aimed at fostering stability and development following the constitutional changes of August 2019. Economic indicators reflected this momentum. For the fiscal year 2023-24, J&K demonstrated commendable performance, with real Gross State Domestic Product (GSDP) projected to grow at 7.41 percent and nominal GSDP anticipated to increase by 9.92 percent, reaching approximately Rs 2.46 lakh crore.1 Projections for 2024-25 suggested continued growth, with real GSDP expected to expand by 7.06% and nominal GSDP by 11.19% to Rs 2.65 lakh crore.2 This trajectory indicated a compound annual growth rate (CAGR) in real GSDP of 5.13% from 2019-20 to 2023-24, slightly surpassing the 4.81% CAGR recorded between 2011-12 and 2019-20.1 Per capita income was also on an upward trend, estimated to reach Rs 1,80,428 (at current prices) in 2023-24 and projected to rise further to Rs 1,54,703 (NSDP at current prices) in 2024-25, reflecting a growth rate better than several northern states.1

A significant factor contributing to this positive economic sentiment was a reported decline in security incidents. Official figures indicated a drop in terror-related events from 228 in 2018 to just 46 in 2023.2 Similarly, incidents of stone-pelting drastically reduced from 2,654 in 2010 to zero in 2023, alongside a cessation of organized strikes.9 This improved security environment, coupled with government efforts, fostered a narrative of returning normalcy and paved the way for increased focus on economic development and investment attraction.10

1.2. The Centrality of Tourism

Central to J&K’s economic structure and its recent revival narrative is the tourism sector. Widely recognized as the main driver of the UT’s economy, tourism contributes significantly to its GSDP, estimated at around 7-8%.2 This translates to an annual value between Rs 18,500 and Rs 21,200 crore.2 Furthermore, the sector is a major source of employment, supporting approximately 1 million people directly and indirectly across various skill levels – skilled, semi-skilled, and unskilled.15 The importance of tourism is underscored by its high employment generation potential compared to other sectors; estimates suggest an investment of 10 lakh rupees in tourism generates around 90 jobs, significantly higher than agriculture (45 jobs) or manufacturing (13 jobs).18

Reflecting the improved security situation and promotional efforts, including hosting the G20 Tourism Working Group meeting in Srinagar in 2023 1, J&K witnessed a surge in tourist arrivals. Total visits reached a record high of 2.11 crore in 2023, and further increased to 2.36 crore in 2024.1 Foreign tourist arrivals also saw a significant increase, rising 2.5 times in 2023 compared to the previous year, reaching over 65,000 in 2024.1 This growth prompted ambitious government targets to potentially double tourism’s share of GSDP within five years.2

1.3. The Pahalgam Attack Scenario

Against this backdrop of economic recovery and burgeoning tourism, a hypothetical large-scale terror attack in Pahalgam represents a profound shock. Pahalgam, known for its scenic beauty including alpine meadows like Baisaran (often called “mini Switzerland”), pine forests, and trekking routes, is a quintessential tourist destination in South Kashmir and a base for the Amarnath Yatra pilgrimage.22 An attack here, particularly one deliberately targeting tourists, constitutes a direct assault on the heart of J&K’s tourism-driven economy and the narrative of restored peace and stability. Historically, while civilians and pilgrims have been targeted, attacks of this scale directly aimed at general tourists have been rare.2 Such an event, therefore, carries implications far beyond the immediate casualties, threatening to reverse recent gains and reshape the region’s economic future.

1.4. Report Objectives and Structure

This report provides a geopolitical risk analysis of the potential economic and infrastructural consequences stemming from a major terror attack targeting tourists in Pahalgam, Jammu & Kashmir. It examines the immediate shock to the tourism sector and local livelihoods, assesses the potential strain on ongoing and future infrastructure projects, analyzes the ripple effects on ancillary sectors and supply chains, evaluates the long-term impact on investment climate and growth trajectory, considers the historical context of violence and economic impact in the region, and discusses the potential shifts in government policy and the broader geopolitical landscape. The analysis synthesizes findings from available data and reports to provide an overall assessment of the attack’s potential effects on J&K’s economic and infrastructural resilience.

Table 1: J&K Economic & Tourism Snapshot (Pre-Incident Baseline)

IndicatorValue (Most Recent Pre-Attack Data/Projection)Source Snippets
Economic Indicators
Nominal GSDP (2023-24 Est.)Rs 2.46 lakh crore1
Real GSDP Growth (2023-24 Est.)7.41%1
Nominal GSDP (2024-25 Proj.)Rs 2.65 lakh crore2
Real GSDP Growth (2024-25 Proj.)7.06%2
Per Capita Income (NSDP, Current, 24-25 Proj.)Rs 1,54,7032
Sectoral Contribution to GSVA (2024-25 Proj.)Primary: 20.0%, Secondary: 18.3%, Tertiary: 61.7%31
Unemployment Rate (2023-24)6.1% (down from 6.7% in 2019-20)21
Tourism Indicators
Total Tourist Arrivals (2024)2.36 crore (Record High)5
Foreign Tourist Arrivals (2024)~65,0005
Tourism Contribution to GSDP~7-8%2
Estimated Employment (Direct & Indirect)~1 million15

Note: GSDP and sectoral contribution figures may vary slightly between different Economic Survey reports/projections.

The baseline data presented in Table 1 establishes the economic context immediately preceding the hypothetical Pahalgam incident. It portrays an economy showing signs of recovery and growth, heavily reliant on a booming tourism sector that had become a symbol of returning normalcy. This context is crucial for understanding the potential magnitude of the disruption caused by the attack.

2. The Immediate Shock: Tourism and Local Economy Paralysis

2.1. Decimation of the Tourism Sector

The immediate aftermath of a major terrorist attack targeting tourists in a prime location like Pahalgam would be catastrophic for Jammu and Kashmir’s tourism industry. Reports following such a hypothetical incident suggest an almost instantaneous collapse of the sector, driven by fear and widespread cancellations.7 Travel agents and hoteliers reported receiving waves of cancellations, reaching up to 90% in some segments shortly after the news broke.2 Key source markets, such as West Bengal, which reportedly accounts for approximately 30% of Kashmir’s tourist inflow, saw particularly high cancellation rates.2

This wave of cancellations would translate into a visible exodus of tourists from the Valley. Popular destinations like Pahalgam, described as transforming from a “mini-Switzerland” to a “ghost town” 32, and Srinagar’s iconic Dal Lake would become deserted, a stark contrast to the bustling activity expected during the peak season.27 Flights leaving Srinagar would likely be packed, while those arriving would be largely empty, signifying a rapid retreat of visitors.33

The economic implications of this sudden halt are severe. Given that tourism contributes 7-8% to J&K’s GSDP (annually Rs 18,500 – Rs 21,200 crore), an attack occurring at the onset of the peak tourist season (typically April to October) maximizes the financial damage.2 The loss of revenue during these crucial months could run into billions of rupees, crippling businesses that depend on this period for the bulk of their annual income.20 Beyond the quantifiable financial loss, the psychological impact is profound. An atmosphere of fear and uncertainty would replace the cautious optimism that had been building.7 The targeted nature of the violence against tourists, a group previously considered relatively safe from large-scale attacks 2, creates a particularly chilling effect that could deter visitors for a prolonged period.

The selection of Pahalgam, a renowned tourist hub, during the peak season, and the deliberate targeting of tourists, points towards a calculated strategy by the perpetrators. It suggests an intent beyond inflicting casualties, aiming instead to strike at the heart of J&K’s recovering economy and shatter the carefully constructed narrative of normalcy and safety.2 By attacking the tourism sector, the perpetrators target a visible symbol of stability and economic progress, seeking to maximize both economic disruption and psychological fear, potentially as a form of economic warfare.

2.2. Devastation of Local Livelihoods in Pahalgam and Beyond

The collapse of tourism translates directly into devastating consequences for the local population whose livelihoods are intricately tied to the sector. In Pahalgam and other tourist-dependent areas, hotel owners and their staff, restaurant workers, taxi and bus operators, tour guides, pony handlers (‘ponywallas’), shikara owners on Dal Lake, and artisans selling handicrafts face an abrupt and complete loss of income.2

The impact is particularly acute for those at the lower rungs of the economic ladder within the tourism ecosystem. As noted by Professor Nimit Chowdhary, formerly of the Indian Institute of Tourism and Travel Management, individuals like tour guides, shikara drivers, and horse ride facilitators, who primarily earn daily wages, are the most severely affected in the short run.15 Their income stream vanishes overnight, leaving them with little or no safety net. A veteran chef in Pahalgam, with three decades of experience, lamented, “My entire livelihood depends on tourists… Now the loss will run into billions. I have nothing to fall back on”.32 Another local chef echoed this sentiment, highlighting the poverty in the area and the precarious financial situation of many: “People here are poor. Many took out loans ahead of the season. This attack has brought everything to a halt”.32

This highlights a critical vulnerability: many small operators, including hoteliers and transporters, reportedly took out loans or sold assets in anticipation of continued growth and a busy season.2 The sudden cessation of business activity transforms these investments and financial commitments from potential growth opportunities into significant liabilities, raising the specter of widespread loan defaults and deepening financial distress.2 The immediate economic shock, therefore, falls disproportionately on informal workers and small, often indebted, businesses. This heightened vulnerability not only causes immediate destitution but also carries the potential for secondary social consequences stemming from widespread economic hardship. The ripple effects of such a tragedy, as locals fear, could take many years to recover from.32

3. Infrastructure Under Strain: Projects and Planning

3.1. Risks to Ongoing Development Projects

A major security incident like the hypothesized Pahalgam attack inevitably casts a shadow over ongoing infrastructure development efforts in Jammu & Kashmir. The region has a significant portfolio of projects underway, many funded under the Prime Minister’s Development Package (PMDP) announced in 2015, aimed at improving connectivity, power supply, health services, and tourism facilities.37 Key examples include upgrades to the critical Srinagar-Jammu National Highway (including tunnels like Panthal-Magarkote and Digdole-Khooni Nallah), the strategic Zojila Tunnel connecting Kashmir with Ladakh, the establishment of AIIMS in both Jammu and Kashmir divisions, an IIM in Jammu, power transmission system upgrades, and flood management works.37 As of late 2024/early 2025, significant progress had been reported, with around 23-33 out of 53 J&K-specific PMDP projects completed or substantially completed.37

However, a severe deterioration in the security environment poses multiple risks to these projects. Heightened security measures, potential movement restrictions or curfews, and an atmosphere of fear could lead to significant delays.44 Labor availability might be affected if workers, particularly those from outside the region, feel unsafe. Security forces might also be diverted from providing protection to project sites towards immediate counter-terrorism operations, potentially halting work in sensitive areas.9

These delays inevitably translate into increased project costs. Additional security overheads for protecting personnel and equipment, the financial impact of extended timelines, and potentially higher insurance premiums or financing costs due to increased risk perception can escalate expenditures.44 This is particularly concerning given that infrastructure projects in India, and especially in challenging terrains like J&K, already face inherent hurdles such as delays in land acquisition, forest clearances, regulatory approvals, and geological surprises.37 The Zojila tunnel project, for instance, while progressing, faces completion targets extending to 2026, and the Srinagar Semi Ring Road had faced delays even before the hypothetical attack.37 The power T&D projects under PMDP also saw cost revisions and faced delays, with some packages needing re-tendering or facing funding issues.42 A major security shock would likely exacerbate these existing vulnerabilities, creating a compounding effect on timelines and budgets.

3.2. Reassessment of Future Infrastructure Priorities

Beyond impacting ongoing work, a significant terror attack could force a reassessment of future infrastructure planning and investment priorities in J&K. The UT faces substantial existing infrastructure deficits in critical areas like road connectivity, water supply, sewerage, tourism facilities, and power, requiring significant financial resources and continued central government support.30 The J&K Budget Speech 2025-26 explicitly acknowledges these deficits and the fiscal stress faced by the UT, where own revenues cover only about 25% of budgetary needs.30

In the wake of a major attack, there is a strong possibility of resource reallocation. Funds earmarked for development projects might be diverted towards immediate security enhancement, intelligence strengthening, and counter-terrorism operations.9 This creates a direct conflict for finite government resources. The necessary increase in security spending – covering personnel, equipment, technology, and fortifications – inevitably reduces the capital available for productive infrastructure investments.47 This “crowding out” effect could slow down J&K’s long-term growth potential and hinder efforts to bridge the existing infrastructure gap.30

Furthermore, the attack might lead to a reprioritization of the types of projects pursued. Investments directly enhancing security infrastructure might gain precedence over those focused purely on economic or social development. Projects specifically linked to tourism development, such as the plan to develop 75 new tourist destinations 22 or upgrades to existing resorts, could be particularly vulnerable to being paused or cancelled given the immediate collapse of the sector and the uncertain timeline for its recovery.2 The government’s focus might shift towards consolidating security in existing areas rather than expanding infrastructure into potentially vulnerable new locations.

Table 2: Status of Key PMDP Infrastructure Projects in J&K (Illustrative)

Project NameSectorSanctioned Cost (Rs Cr – Approx/Part of larger pkg)Implementing AgencyStatus (% Phy. Progress – Approx. as of late 2024/early 2025)Target / Expected CompletionPotential Impact/Delay Risk due to Security SituationSource Snippets
Jammu Semi Ring RoadRoad2024NHAI98% (Road), 46% (Tunnel)June 2025Moderate (Security focus may delay final stages)37
Srinagar Semi Ring RoadRoad1860NHAINot Started / Early StagesDelayedHigh (Land acquisition/start likely delayed further)37
Zojila TunnelRoad/Strategic9090NHIDCL58%Sep 2026Moderate to High (Strategic importance vs. Security)37
AIIMS JammuHealth2000 (Part of larger health pkg)MoHFW/CPWDCompletedCompletedN/A (Operational impact possible)37
AIIMS Kashmir (Awantipora)Health2000 (Part of larger health pkg)MoHFW/CPWDSubstantially Completed / OngoingNear CompletionLow to Moderate (Final stages might see minor delays)39 (Implied)
IIM JammuEducation1000MoECompletedCompletedN/A (Operational impact possible)37
Upgradation Srinagar-Jammu NH (Multiple Sections – e.g., Udhampur-Ramban, Ramban-Banihal, Qazigund-Banihal Tunnel)RoadVariable (e.g., 2137, 2169, 1987 per section)NHAIVariable (e.g., 70%, 26%, 95% respectively)Ongoing (Various targets)High (Critical route, prone to disruptions)38
Power Transmission Upgrades (PMDP-15)Power2065 (Revised Total)PGCIL/JKPTCL/RECPDCL27/32 packages completed; 5 pendingProgressively by Oct 2025Moderate (Delays in pending packages possible)42
Flood Management Project (Jhelum) Phase-ICrisis Mgmt399MoWR/J&K GovtNearing Completion (80%+)OngoingLow (Mostly complete)40
Flood Management Project (Jhelum) Phase-II (Part A)Crisis Mgmt1623MoWR/J&K GovtUnder Execution (e.g., 16/30 bank works complete)OngoingModerate (Ongoing work vulnerable to disruption)40

Note: Status and costs are indicative based on available snippets and may be subject to change. PMDP costs often cover multiple components.

This table illustrates the significant infrastructure development program underway through PMDP. The varied progress highlights that even before the hypothetical attack, project execution faced challenges. The attack introduces a new layer of uncertainty, potentially delaying crucial projects designed to improve connectivity, power reliability, and disaster resilience, thereby impacting the timeline for J&K’s overall development.

4. Economic Ripples Beyond Tourism (Short-to-Medium Term)

The economic shockwaves from a major terror attack targeting tourists extend far beyond the immediate paralysis of the tourism sector, impacting supply chains, ancillary industries, and overall regional employment in the short-to-medium term.

4.1. Supply Chain and Transportation Bottlenecks

Heightened security measures inevitably disrupt the flow of goods and people. Increased checks at numerous points, potential imposition of curfews or movement restrictions, road closures during security operations, and a possible reduction in the availability or willingness of transport operators to ply routes can create significant bottlenecks in supply chains.49 Transportation disruptions lead to interruptions in goods flow, affecting product mobility across the entire supply chain, potentially causing delays, rerouting, increased costs, and even operational shutdowns for businesses reliant on timely logistics.50

These disruptions pose a particular threat to Jammu & Kashmir’s vital agriculture and horticulture sectors, which are significant contributors to the regional economy.1 The region is known for high-value produce like apples, saffron, cherries, walnuts, almonds, and other fruits and vegetables.21 If security-related transport delays coincide with harvest or shipping seasons, the consequences can be severe. Perishable goods like cherries or fresh fruits risk spoilage if transit times increase, leading to significant income loss for farmers.54 Access to markets, both domestic and export, can be hampered, potentially leading to farmers having to dump produce or sell at distress prices.54 The apple trade in Sopore, with an annual turnover touching Rs 7,000 crore in 2024, sustains livelihoods across several districts and is vulnerable to such disruptions.17 Delays in procuring inputs like fertilizers and pesticides due to transport issues can also impact crop quality and quantity.54

Similarly, the renowned handicraft sector, dependent on intricate supply chains for raw materials (like Pashmina wool, walnut wood) and for shipping finished products (carpets, shawls, wood carvings) to domestic and international markets, can suffer.2 Disruptions can increase costs and delay order fulfillment, impacting the livelihoods of artisans. Furthermore, the reported closure of the Attari Integrated Check Post (ICP) as part of India’s response directly impacts cross-border trade, affecting not only bilateral trade with Pakistan but also the transit of Afghan goods like dry fruits destined for India.2

4.2. Impact on Ancillary Sectors

The downturn in tourism triggers negative knock-on effects in various ancillary sectors. Transport operators (taxis, buses) face drastically reduced demand.2 Retail businesses, particularly those in tourist areas or selling goods favored by visitors (souvenirs, local specialties), experience a sharp decline in sales.2 The banking sector faces increased risk from potential loan defaults by tourism-related businesses (hotels, transport operators, etc.) who took loans anticipating a good season.2

Even sectors seemingly less connected, like agriculture and horticulture, can feel the impact. Reduced tourist arrivals mean lower seasonal demand for local produce from hotels and restaurants, adding to the woes caused by direct supply chain issues.2

The handicraft sector is doubly hit. Beyond potential supply chain issues, the sharp drop in tourist footfall eliminates a major source of direct sales for artisans and craftspeople.2 Furthermore, the negative international publicity surrounding a major terror attack can damage the ‘Kashmir’ brand globally, potentially impacting export orders for high-value items like Pashmina shawls and carpets.25 This is significant as the sector provides employment to a large number of artisans (estimated around 4.22 lakh) and handicraft exports had shown strong recovery post-COVID, reaching Rs 1,162.29 crore in 2023-24.55 The recent recognition of Srinagar as a ‘World Craft City’ was expected to boost this sector further, but the attack threatens to undermine these potential gains.60

4.3. Regional Employment and Economic Activity Slowdown

The combined impact of the tourism collapse and stress on ancillary sectors inevitably leads to a broader slowdown in regional economic activity and a likely rise in unemployment. J&K had seen improvement in its employment figures, with the unemployment rate declining from 6.7% in 2019-20 to 6.1% in 2023-24 (or 4.4% in 2022-23 according to other figures).1 Layoffs in the extensive tourism industry (hotels, transport, guides) and related businesses could reverse this positive trend.2

Reduced economic activity in major centers like Srinagar and Pahalgam creates negative ripple effects throughout the UT’s economy.2 Lower incomes and job losses curb consumer spending, impacting local markets and businesses far removed from the direct tourist trail. The overall business sentiment turns negative, discouraging new ventures and potentially leading to closures. Even the burgeoning start-up ecosystem, which had seen a 287% increase in DPIIT-registered ventures since 2020 2, faces the risk of stagnation as confidence evaporates and potential funding sources dry up in the face of heightened instability. The attack thus demonstrates the deep interconnectedness of J&K’s economy, where a shock to one major sector like tourism can cascade through multiple related industries, leading to a generalized economic downturn.

5. Long-Term Scars: Investment, Growth, and Sentiment

The repercussions of a major terrorist attack extend far beyond the immediate economic disruption, potentially inflicting long-lasting damage on investor confidence, investment flows, and the overall economic growth trajectory of Jammu & Kashmir.

5.1. Erosion of Investor Confidence

High-profile acts of violence, particularly those targeting civilians and tourists in areas previously considered relatively safe, significantly elevate the perceived risk for potential investors, both domestic and foreign.2 Such incidents create an environment of uncertainty and instability, which is inimical to long-term capital investment. Increased uncertainty typically leads to higher risk premiums demanded by investors, making projects less financially viable.47

This heightened risk perception can easily overshadow positive economic indicators or government efforts to attract investment through incentive schemes, such as the New Central Sector Scheme (NCSS) 2021.58 While such schemes offer financial benefits, they may prove insufficient to counteract the deep-seated concerns about security and stability triggered by a major attack.46 The negative international media coverage and potential issuance of adverse travel advisories by foreign governments further compound the problem, deterring both tourists and investors.25

Crucially, the attack directly challenges the narrative of improved security and returning normalcy that the government had actively promoted post-August 2019.12 This narrative was a cornerstone of efforts to pitch J&K as an attractive destination for tourism and investment.8 A significant security lapse resulting in mass casualties among tourists creates a substantial credibility gap, making it considerably harder to convince investors of the region’s safety and long-term potential.10 Investors are likely to become more skeptical of official assurances and factor in a higher risk premium, potentially stalling investment decisions.

5.2. Impact on Investment Flows

The erosion of confidence is likely to translate into a tangible reduction in investment flows. Existing investment plans, especially those in sectors directly affected like tourism-related real estate, hospitality, and supporting infrastructure, may be put on hold indefinitely or cancelled altogether.2

Foreign Direct Investment (FDI) is likely to be particularly sensitive. J&K has historically attracted negligible FDI compared to other Indian states; one report cited an inflow of only US $0.21 million in 2020-21, starkly contrasting with states like Haryana.46 International investors are generally more averse to geopolitical risk and rely heavily on international media reports and government advisories.56 A major attack would likely reinforce negative perceptions and deter foreign capital, hindering J&K’s integration into global investment networks. Studies suggest that, on average, a standard deviation increase in terrorist risk can be associated with a fall in net foreign direct investment positions equivalent to about 5% of GDP in affected countries.61

The attack also casts doubt on the viability of the large volume of investment proposals reportedly received by the J&K government in the period leading up to the incident. Reports from early 2025 indicated over 8,300-8,500 applications received via the single window portal, proposing investments worth Rs 1.63 to 1.69 lakh crore with the potential to generate around 6 lakh jobs.57 While impressive on paper, the materialization of these proposals hinges critically on a stable and secure environment. The Pahalgam attack severely jeopardizes this prerequisite, making it uncertain how many of these proposals will translate into actual ground-level investment and job creation. Much of the anticipated economic boost remained aspirational, dependent on sustained stability that the attack undermines.

5.3. Recalibrating J&K’s Economic Growth Trajectory

The cumulative impact of reduced tourism revenues, lower domestic and foreign investment, potential capital flight by entrepreneurs wary of instability, and the diversion of government resources from productive activities towards security can significantly lower Jammu & Kashmir’s long-term economic growth potential.46 Terrorism acts as a negative supply-side shock, increasing costs and inefficiencies across the economy.47

Persistent instability hinders crucial efforts towards economic diversification. An over-reliance on the vulnerable tourism sector becomes harder to overcome if the security situation discourages investment in alternative industries like manufacturing, IT, or high-value agriculture processing.18 While J&K possesses potential in sectors like horticulture, handicrafts, and potentially even mining (e.g., lithium reserves in Reasi 45), realizing this potential requires a secure and predictable environment that encourages long-term investment and skill development.

Furthermore, prolonged conflict and instability can have detrimental effects on human capital development. Disruptions to education, as witnessed during previous periods of turmoil 70, limit opportunities for the youth. An environment perceived as unsafe or lacking opportunity can also lead to a ‘brain drain’, where skilled individuals seek prospects elsewhere, further diminishing the region’s long-term growth capacity.46 The attack, therefore, not only impacts current economic activity but also casts a long shadow over the future development prospects of the UT.

Table 3: Recent Investment Trends and Proposals in J&K (Pre-Incident)

IndicatorValue / Status (Recent Data up to early 2025)Source Snippets
FDI Inflow (2020-21)US $0.21 million46
Operationalized Industrial Units (Since 2019 – Dec 2024)1,984 units57
Investment in Operationalized Units (Since 2019 – Dec 2024)Rs 9,606.46 crore57
Employment Generated (Operationalized Units since 2019)63,710 jobs57
Investment Proposals Received (via Single Window Portal by early 2025)8,306 – 8,537 applications57
Value of Investment Proposals ReceivedRs 1.63 – 1.69 lakh crore57
Potential Employment from Proposals5.90 – 6.06 lakh jobs57
Key Investment SchemeNew Central Sector Scheme (NCSS) 2021 (Outlay Rs 28,400 Cr)58
NCSS Approved Registrations (by Sep 2024 deadline)971 applications (Investment Rs 10,471 Cr, Employment 51,897)57
Startup Growth (DPIIT Registered)237 (2020) to 917 (2024) (287% increase)2
Startups Registered with EDI>1,600 (Threefold rise)57
J&K Startup PolicyNew Policy 2024-27 launched57
Venture Capital FundRs 250 crore fund announced (Rs 25 Cr initial infusion)62

Note: Figures represent reported data/proposals up to early 2025, prior to the hypothetical attack.

This table quantifies the investment momentum J&K appeared to be building before the attack, driven by government policies and a period of relative stability. The substantial value of pending proposals highlights the significant potential economic impact that is now jeopardized by the resurgence of large-scale violence and the likely chilling effect on investor sentiment.

6. Echoes of the Past: Historical Context of Violence and Economic Impact

Understanding the potential ramifications of the Pahalgam attack requires examining the historical relationship between conflict, terrorism, and economic development in Jammu & Kashmir. The region’s economy has long been vulnerable to the cycles of violence that have plagued it for decades.

6.1. Review of Previous Incidents and Economic Aftermath

The onset of armed militancy in the late 1980s and early 1990s dealt a devastating blow to J&K’s economy, particularly the tourism sector.18 Tourist arrivals, which numbered in the millions during the 1980s, plummeted dramatically.67 Studies using time series data from 1990-2019 confirm a statistically significant negative relationship between violence (measured by fatalities and/or incidents) and tourist arrivals, especially in the long run.68 One quantitative analysis suggested that each unit increase in annual fatalities led to a decrease in Net State Domestic Product (NSDP) by Rs 0.065 billion and a decline in tourist arrivals by 232 visitors (using data up to approx. 2014).68

Specific incidents targeting civilians or pilgrims have historically triggered sharp downturns. The massacre of 32 people, including 21 Hindu pilgrims, in Nunwan, Pahalgam, in August 2000 marked a grim precedent.24 Similarly, attacks on Amarnath pilgrim buses in 2017 (killing 8) and on a pilgrim bus in Reasi in June 2024 (killing 9) caused immediate security concerns and impacted pilgrimage/tourism sentiment.10 The unrest and prolonged shutdowns in 2016 also resulted in significant economic losses, estimated at Rs 16,000 crore by the state government at the time.74 The period following the abrogation of Article 370 in August 2019, marked by lockdowns and communication blockades, further dented the local economy, with losses estimated at Rs 17,878 crore by the Kashmir Chamber of Commerce and Industry within the first few months.71

Beyond tourism, the conflict has historically impacted other vital sectors like agriculture, horticulture, and handicrafts, preventing the region from fully realizing its economic potential.68 During the peak militancy of the 1990s, there was widespread destruction of public infrastructure, including hundreds of schools, hospitals, bridges, and government buildings, further crippling the economy and requiring substantial resources for rebuilding.70 The conflict environment created fiscal stress, eroded the tax base, and made it difficult for businesses to operate or attract investment.70

6.2. Patterns of Recovery and Resilience

Despite this history of disruption, J&K’s economy, particularly its tourism sector, has also demonstrated resilience during periods of relative calm. Following the peak militancy years, gradual improvements in the security situation led to a revival of tourism, although numbers often remained below pre-militancy highs.18 The recent surge in tourism to record levels before the hypothetical Pahalgam attack exemplifies this pattern of recovery when violence subsides.8

Historically, the impact of turmoil has not always been uniform across the UT. The Jammu region, primarily attracting religious tourism (Vaishno Devi shrine), often proved more resilient and less affected by downturns compared to the Kashmir Valley and Ladakh, which are more reliant on leisure and adventure tourism.72

However, the nature of the Pahalgam attack scenario – a large-scale, deliberate massacre targeting general tourists indiscriminately – raises questions about whether past patterns of resilience will hold. Previous major attacks often focused on security forces or specific groups (pilgrims, minority communities), allowing a degree of psychological distancing for the average tourist.2 An attack perceived as targeting any tourist fundamentally alters the risk calculus and could instill a deeper, more widespread fear, potentially leading to a more severe and protracted downturn than experienced after previous incidents. The historical cycle is clear: violence triggers economic decline, followed by recovery during peace. The Pahalgam attack risks initiating a new, potentially deeper, downturn, erasing recent gains and necessitating a prolonged period to rebuild the trust essential for economic revival.13

Table 4: Documented Economic Impact of Past Terror Incidents/Periods in J&K

Period/IncidentNature of Incident/PeriodDocumented Impact on TourismDocumented Impact on EconomySource Snippets
Late 1980s / Early 1990sOnset and peak of armed militancyDrastic fall in arrivals (millions to thousands); Kashmir Valley severely hit; Jammu less affected.Collapse of tourism sector; damage to agriculture, horticulture, handicrafts; destruction of infrastructure (schools, bridges); fiscal crisis, erosion of tax base; reluctance of businesses to invest.18
August 2000Nunwan (Pahalgam) MassacreTargeting of Amarnath pilgrims (32 killed); negative impact on pilgrimage and general tourism sentiment.Contributed to ongoing economic disruption from militancy.24
July 2017Attack on Amarnath Pilgrim Bus8 pilgrims killed; heightened security concerns for pilgrimage; temporary dip in sentiment.Localized impact primarily on pilgrimage-related activities.28
2016 UnrestProlonged civil strife, shutdowns, curfewsSignificant impact on tourist season.Estimated loss of Rs 16,000 crore; tourism and related sectors severely affected; industrial production hit.72
Post-Aug 2019Abrogation of Article 370, lockdowns, communication blockadeImmediate advisory led to tourist exodus; prolonged restrictions hampered recovery.Estimated loss of Rs 17,878 crore (KCCI estimate); severe blow to all industries, job losses; impact on education, healthcare.71
June 2024Reasi Pilgrim Bus Attack9 pilgrims killed; raised security concerns for pilgrimage routes in Jammu region.Localized impact, reinforced concerns about militant presence in Jammu region.10

Note: Economic loss figures are estimates reported at the time and may vary.

This historical overview underscores the profound and recurring negative impact of violence on J&K’s economy. Past incidents demonstrate the vulnerability of tourism and the broader economy to security shocks, providing essential context for evaluating the potential long-term consequences of the Pahalgam attack. The data suggests that while recovery is possible during periods of stability, major attacks can cause significant setbacks lasting years.

7. Policy Crossroads: Security, Development, and Diplomacy

A major terrorist incident invariably forces governments to reassess policies across security, development, and diplomatic domains. The Pahalgam attack scenario triggers immediate responses and raises critical questions about long-term strategy for Jammu & Kashmir.

7.1. Shifts in Security Posture and Expenditure

The immediate security response involves reinforcing the security grid. This typically includes deploying additional forces, increasing the frequency and intensity of patrols and frisking operations, establishing more checkpoints, and launching extensive combing operations to track down perpetrators.27 Security is particularly heightened around sensitive installations, tourist hotspots, and accommodation facilities.49

Beyond the immediate tactical response, such an attack would likely prompt a strategic review and potentially significant increases in security expenditure. Resources may be allocated towards enhancing intelligence gathering capabilities, acquiring new surveillance technologies, strengthening border management, and potentially expanding the presence of security forces.9 The Indian government’s stated ‘Zero Terror Plan’, aiming for complete implementation by 2026, involves not just eliminating terrorists but also dismantling their entire ecosystem, including terror financing networks.9 Actions like registering cases related to terror finance, arresting individuals, and seizing properties linked to funding are part of this broader strategy.9 Security protocols for protecting tourist areas and critical infrastructure projects would likely undergo rigorous review and strengthening.11

7.2. Implications for Development Strategy and Economic Support

The devastating economic impact, particularly on the tourism sector and local livelihoods, would necessitate consideration of government support measures. This could involve financial relief packages or stimulus measures for affected businesses (hotels, transporters, artisans) and individuals who have lost income or face loan defaults.15 Schemes like PARVAZ, aimed at supporting the transport of perishable goods, might see renewed focus.77

However, the attack creates a fundamental policy dilemma regarding the balance between security imperatives and development goals. On one hand, the government might choose to double down on its development agenda, viewing economic progress and job creation as a long-term antidote to radicalization and instability.14 This could mean pushing forward with infrastructure projects and investment promotion policies like the NCSS 2021 58 and the Holistic Agriculture Development Plan.1 On the other hand, overwhelming security concerns could lead to a more cautious approach, potentially slowing down project implementation and diverting funds away from development towards immediate security needs.30 Striking the right balance is critical: prioritizing security too heavily at the expense of development could stifle economic recovery and alienate the population, while prioritizing development without ensuring adequate security risks further incidents that undermine progress.9

7.3. Geopolitical Fallout and Strategic Responses

A terror attack of this scale, particularly one where perpetrators are suspected to have cross-border links, inevitably triggers significant geopolitical and diplomatic responses. In the Pahalgam scenario, India’s reported reaction included a series of strong measures targeting Pakistan.2 These reportedly encompassed summoning Pakistan’s envoy, closing the Attari-Wagah border crossing, cancelling visas issued under the SAARC exemption scheme, expelling military advisors, and, most significantly, suspending the Indus Waters Treaty (IWT) of 1960.36

The suspension of the IWT marks a major strategic shift. This treaty, brokered by the World Bank, had governed the sharing of waters from the Indus river system between the two nuclear-armed neighbours for over six decades, surviving previous wars and crises.2 India’s justification for the suspension explicitly linked it to “sustained cross-border terrorism by Pakistan targeting… Jammu and Kashmir,” arguing that the resulting security uncertainties impede India’s ability to fully utilize its rights under the treaty and citing Pakistan’s alleged breach of treaty conditions.78 This move effectively weaponizes a crucial resource-sharing agreement, directly tying adherence to the treaty to Pakistan’s actions on terrorism. Given Pakistan’s heavy dependence on the Indus river system for agriculture (feeding 80% of irrigated land), hydropower, and water supply to major cities 2, this action carries profound implications and risks significant escalation of regional tensions. Pakistan reportedly reacted strongly, terming any attempt to divert waters an “act of war” and announcing retaliatory diplomatic measures.36

The attack also drew widespread international condemnation, with leaders from various countries expressing solidarity with India.23 This international reaction plays into the broader diplomatic landscape, potentially influencing future interactions between India, Pakistan, and global powers regarding Kashmir and regional security. The incident underscores the fragility of the security situation and its potential to trigger wider geopolitical instability.

8. Overall Assessment: J&K’s Economic and Infrastructural Resilience Tested

8.1. Synthesized Impact on Growth Trajectory

The hypothetical terror attack in Pahalgam, targeting tourists at the peak season, represents a severe blow to Jammu & Kashmir’s economic and infrastructural development trajectory. The immediate and drastic collapse of the vital tourism sector, coupled with the subsequent negative ripple effects across ancillary industries, supply chains, and local employment, halts the region’s recent positive economic momentum.2

Furthermore, the incident threatens long-term prospects by eroding investor confidence, potentially delaying critical infrastructure projects under schemes like PMDP due to heightened security concerns and resource reallocation, and casting doubt on the viability of substantial investment proposals received prior to the attack. The deliberate targeting of tourists, a shift from some historical patterns, could lead to a more prolonged and deeper downturn than previously experienced after security shocks. Overall, such an event significantly sets back J&K’s aspirations for sustained economic growth, diversification, and integration, pushing the timeline for achieving robust development further into the future.

8.2. Key Vulnerabilities Exposed

The Pahalgam attack scenario starkly exposes several underlying vulnerabilities in Jammu & Kashmir’s economic and security landscape:

  1. Over-reliance on Tourism: The immediate and widespread economic paralysis following the attack underscores the UT’s heavy dependence on the tourism sector. While a source of growth and employment, its extreme sensitivity to security perceptions makes the entire economy vulnerable to shocks.2 Diversification efforts remain crucial but challenging in a volatile environment.
  2. Persistent Security Gaps: Despite official narratives of improved security and normalcy, the ability of militants to carry out a large-scale attack in a popular, supposedly secured tourist area highlights persistent gaps in the security and intelligence apparatus.10 It challenges the notion that the region had achieved comprehensive stability.
  3. Infrastructure Project Vulnerability: The incident reveals the susceptibility of large-scale infrastructure development projects to security disruptions. Delays, cost escalations, and potential reprioritization due to security concerns can hinder the timely completion of projects vital for long-term economic enablement.30 The conflict between allocating resources for security versus development becomes acute.
  4. Fragility of Investor Confidence: The attack demonstrates how quickly investor sentiment can sour in response to tangible security threats. Years of effort to build confidence and attract investment through policy incentives can be undone by a single major incident, highlighting the paramount importance of sustained, credible security for attracting long-term capital.46

8.3. Potential Mitigating Factors and Path Forward

The ultimate trajectory of J&K’s economy and infrastructure following such a shock depends on several factors:

  1. Government Response: The effectiveness and calibration of the government’s response are critical. This includes not only robust security measures to prevent recurrence and restore a sense of safety but also timely and adequate economic relief for affected sectors and individuals.14 A continued, visible commitment to key development projects, balanced with security needs, can signal long-term resolve.
  2. Community Resilience: The reaction of the local population plays a significant role. Widespread condemnation of the violence, expressions of solidarity with victims, and community-led efforts to maintain peace and assist recovery efforts can help mitigate the negative atmosphere and demonstrate resilience.10
  3. Geopolitical Dynamics: The evolution of India-Pakistan relations following the incident and the responses from the international community will shape the broader security environment. De-escalation versus sustained confrontation will significantly impact the prospects for stability within J&K.36
  4. Long-Term Diversification: The incident reinforces the need for concerted, long-term efforts to diversify J&K’s economy beyond tourism. Sustained support for agriculture, horticulture, handicrafts, and emerging industries is essential to build broader economic resilience against future shocks.3

Ultimately, the core challenge lies in bridging the gap between the perception of high risk, amplified dramatically by the attack, and the desired reality of a secure environment conducive to investment and growth. Rebuilding trust – among potential tourists, investors, and the local populace – is a complex, long-term task that requires more than just immediate security responses or financial aid. It demands sustained stability, effective governance, consistent economic opportunities, and a credible narrative of peace and progress.2

9. Conclusion

A major terrorist attack targeting tourists in Pahalgam, Jammu & Kashmir, would represent a profound setback for the region’s economic and infrastructural development. The immediate consequences would include the near-total collapse of the vital tourism sector, severe hardship for local communities dependent on it, and significant disruption to associated businesses and supply chains. The incident would likely trigger mass cancellations, an exodus of visitors, and substantial revenue losses, occurring at the strategically damaging start of the peak tourist season.

Beyond the immediate shock, such an attack would cast a long shadow over J&K’s future prospects. It would severely damage investor confidence, potentially stalling or reversing recent gains in attracting domestic and foreign investment, despite government incentive schemes. Critical infrastructure projects under the PMDP face risks of delays and cost overruns due to heightened security measures and potential resource diversion towards immediate security needs, further hindering long-term development goals. The attack exposes the vulnerabilities inherent in an economy heavily reliant on tourism and highlights persistent security challenges despite narratives of returning normalcy.

Historically, J&K’s economy has shown resilience, recovering during periods of relative peace. However, the specific nature of this hypothetical attack – the direct, large-scale targeting of general tourists – could instill a deeper and more lasting fear, potentially prolonging the recovery period compared to past incidents.

The government’s response, encompassing security enhancements, economic support measures, and diplomatic actions (such as the significant step of suspending the Indus Waters Treaty), shapes the immediate aftermath. However, the long-term recovery hinges on navigating the complex dilemma between prioritizing security and fostering development, and crucially, on rebuilding the perception of safety and stability. Bridging the gap between the perception of risk created by the attack and the reality of a secure environment necessary for sustained economic growth remains the most critical challenge for policymakers and stakeholders invested in the future of Jammu & Kashmir.

*This Report and Images are made with assistance of AI & various websites, Agentkart is not responsible for the content in the follow links below.

10. Bibliography/References

1

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