Tourism Collapse in Kashmir: A Geopolitical Storm Threatening India’s Economic Recovery

The scenic valleys of Kashmir, long a symbol of India’s natural beauty and a vital pillar of its tourism economy, now lie at the center of a geopolitical crisis. On April 22, 2025, a deadly attack in Pahalgam killed 26 tourists, triggering immediate security measures that shuttered over half the region’s tourist spots. The fallout has exposed vulnerabilities in India’s economic strategy for the region and raised alarms about broader geopolitical risks. . For investors, the question is clear: Can the tourism-dependent economy recover, or will this attack mark the start of a prolonged downturn?

The Immediate Economic Fallout

The attack’s economic ripple effects were swift and severe. Hotels, which had been fully booked through June, saw cancellations surge to 80–90% overnight. Travel agencies like Go Jammu and Kashmir reported losses of ₹40 million (~$468,000) within days, while taxi operators and shawl vendors faced existential threats. The region’s tourism sector, contributing 3% to Kashmir’s GDP indirectly, now faces a collapse. . Analysts warn that reduced GST revenues and stranded logistics could further strain an economy already reeling from geopolitical instability.

Geopolitical Risks Escalate

The Indian government’s response compounded the crisis. It suspended its participation in the Indus Water Treaty—a 1960 pact critical to regional water stability—and closed the Attari-Wagah border crossing, a key trade route. These measures, framed as punitive against Pakistan, risked triggering a water war and isolating border communities. “The suspension of the Indus Treaty isn’t just a security move—it’s economic warfare,” said Srinagar-based economist Ejaz Ayoub. “Pakistan’s agriculture, which relies on Indus Basin waters, could collapse, with spillover effects on regional trade.”

Meanwhile, the attack reignited fears of military escalation. India’s 2019 Balakot airstrikes, launched after a similar attack, underscore the risk of cross-border retaliation. . Investors in sectors like infrastructure or hospitality should brace for prolonged uncertainty.

Long-Term Implications for Investors

The tourism sector’s recovery hinges on restoring trust in Kashmir’s safety. Yet, the attack targeted civilians in a region marketed as “normal” after India’s 2019 revocation of Article 370. “This isn’t just about cancellations—it’s about trust,” said Mushtaq Ahmad, a hotelier in Pahalgam. “When will tourists return if militants can strike in a military-heavy zone?”

The government’s ₹64 billion tourism infrastructure plan, announced pre-attack, now seems precarious. With pilgrimages like the Amarnath Yatra facing heightened security scrutiny, the region’s peak tourist season may never fully recover. For investors in travel and hospitality stocks, the risk of prolonged underperformance is stark. .

Conclusion: A Fragile Recovery Amid Geopolitical Crosscurrents

The Pahalgam attack has dealt a body blow to Kashmir’s tourism economy. With cancellations at catastrophic levels and geopolitical tensions flaring, the region’s GDP contribution from tourism—already 3% indirectly—faces irreversible damage. The suspension of the Indus Water Treaty and border closures threaten to destabilize regional trade and agriculture, further complicating economic recovery.

Investors should heed the warning signs:
- Immediate Impact: Tourism-dependent sectors (hotels, transport, handicrafts) face a 30–40% revenue drop in 2025, per local business estimates.
- Long-Term Risks: Geopolitical instability could deter foreign investment for years. The attack’s targeting of civilians risks a permanent shift in traveler sentiment.
- Systemic Threats: Water resource disputes and military tensions could disrupt broader sectors like energy and manufacturing.

For now, the ghost town of Pahalgam is a microcosm of a larger crisis. Until India and Pakistan find a path to de-escalation, the region’s economic future remains as fragile as the meadow where the attack unfolded. Investors would be wise to tread carefully in sectors tied to regional stability—and to monitor the Indus Waters Treaty’s fate as a barometer of broader risks.