Gokarn talked to The Financial Express on how the war-like situation in Kargil would impact the Indian economy. According to Gokarn, India will emerge stronger from the Kargil conflict if it is able to exploit the opportunities that will arise out of the situation. On being asked to comment on finance minister Yashwant Sinha's assurance that the Kargil situation would not hit the economy, Gokarn says that there would be both positive and negative impacts. As a result, the two will cross each other out, and overall, there may not be much impact on the economy, he explains.Sinha, however, had mentioned at a recent press conference thatthe country would not lag behind in providing support to the armed forces. The defence allocation would be increased to meet any challenge, he had said. And the $3.32-billion foreign exchange reserve could be used for the purpose, he had added. But Sinha had also reiterated that the Kargil crisis would not lead to any inflation in prices.

That only time will tell. Meanwhile, talking macro-economics, NCAER's Gokarn says that India is as comfortable as it can be. He lists out the positive features of the Indian economy: The forex reserve is at the highest; the annual rate of inflation based on the wholesale price index is at an all-time low; food production has been remarkably good in the past two cycles; oil prices have slackened. On the whole, he says, we have a fairly good economic cushion right now.

According to Gokarn, there's sizeable room for the government to use the Kargil conflict as an opportunity. For he believes that the Kargil crisis will overcome the country's resistance on many fronts. Andthat crisis precipitates reforms.

J D Agarwal, an economist of repute and director of the Indian Institute of Finance, says on the subject, ``The Kargil situation has diverted our attention from a peaceful economic growth focus to a war-like situation.'' He adds: ``So far, the Kargil situation has not directly affected or put pressure on the economic and financial issue of India.''

But, says Agarwal, if the situation persists for a longer time, India will have to make additional allocations for defence. That will, in turn, force the government to think of generating additional revenues and creating revenues from new resources, he says. Otherwise, there will be a fiscal deficit, Agarwal adds.

On the cost factor, NCAER's Gokarn says that it's difficult to visualise war in terms of cost. ``Although there are figures floating around about how much a war will cost, the open-endedness about it all must be realised,'' he says. He adds that there cannot be an upper limit to the fiscal cost of a war, especiallybecause one cannot make a rational assessment about how far Pakistan will go.

But IIF's Agarwal says that the impact of Kargil on our economy could be quantified in terms of the expenditure incurred, the losses due to Indian casualties-both in the armed forces and among civilians, loss to public and private property and compensation paid to the victims and the cost of rehabilitation.

Like Gokarn, Agarwal, too, looks at the Kargil conflict as an opportunity for India. Says Agarwal: ``In my opinion, the Kargil situation will bring about positive results as it would largely bring an end to the insurgency and militancy forced on India by Pakistan.''

He adds that India has been spending to the extent of Rs 2,500 crore every year on counter-insurgency operations, besides paying large amounts as compensation to victims and suffering casualties. Agarwal points out that the losses due to counter-insurgency operations have been much heavier than the losses suffered in Kargil in the past two months.

But, saysAgarwal, the impact of the Kargil conflict will be felt on the economy after a while. For instance, if the conflict continues and the country is required to spend heavily to replenish its stocks of arms and ammunition, the economy will certainly feel the pressure. Also, as rehabilitation of the civilians and families of the soldiers killed begins, it won't be easy on the economy. Finally, if the situation converts into a real war, the economy cannot escape unhurt, he says.

Gokarn, too, says that the impact of Kargil will be felt by the country only when the situation prolongs. And the economy will feel the pull when it's time to replenish the inventory, he says.

To correct the Kargil-hit economy, Gokarn has a few suggestions. The increase in defence expenditure, he says, must be offset with significant cuts elsewhere. For that, the government must work out strategies. For instance, cuts in subsidies; reduction in government size; practical budget initiatives. And most important, the government should shedall resistance towards privatisation. For that will cut down government expenditure heavily, he says.

What about corporates? How can they chip in to correct the Kargil-hit economy? Gokarn says corporates must not resist competitive forces. Also, they must be as efficient as possible. They should deal with competition and not look for protection and government support. And if need be, taxes must be raised, Gokarn says.