The conflict comes at a sensitive time for both economies.
India's economic growth, hit by weaker domestic demand, slowed to a nearly four-year low of 6.5% in the financial year ended in March. The government of Prime Minister Narendra Modi is negotiating a trade deal with the U.S. to avert higher tariffs on its exports, and had just completed a long-discussed trade deal with Britain a day before the news of strikes inside Pakistan was disclosed.
By contrast, Pakistan's economy, less than one-tenth the size of India's, only recently emerged from an economic crisis as the government struggles to shore up its finances and make progress on a $7 billion International Monetary Fund loan programme agreed to last year.
Moody's Ratings, in a statement before this week's escalations, warned that "sustained escalation in tensions with India would likely weigh on Pakistan's growth and hamper the government's ongoing fiscal consolidation".
Moody's added that it does not expect major disruptions to India's economic activity because it has minimal economic relations with Pakistan.
"However, higher defence spending would potentially weigh on India's fiscal strength and slow its fiscal consolidation," it said in its May 5 report.
The earliest economic and business casualties have been travel and tourism.
Airlines have had to reroute and cancel flights as airports near sensitive zones were closed and as both sides restricted the use of their airspace to each other.
Click on this graphics-based report to see how the India-Pakistan conflict pushed planes off course.
Tourism on both sides of the border, which had flourished especially on the Indian side of Kashmir where spectacular mountain scenery had lured middle-class vacationers, has come to a standstill.
Meanwhile, New Delhi is working to advance its hydropower capacity in the Himalayan region after it suspended a water sharing treaty with Islamabad, which sparked panic across Pakistan.
This factbox explains why that treaty could prove to be a powerful economic weapon.
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