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India does not have any economic leverage to punish Pak economically.I don't think its a prudent approach to go a bullet for a bomb approach. Pakistanis live for this.
We have to go about this an innovative way. We need to put economic pressure on Pakistan, and at the same time stoke the fires of division there as a response.
One thing I proposed was to put a Anti-terrorism tax on those MNC's also operating in Pakistan, to force them to leave Pakistan.
Another thing we can do, is to put pressure on neighbours dealing with Pakistan, to stop doing so.
And then we should obviously support the Baloch, the Sindhis, the Seraikis, the Barelvis, the Shiites, the Ahmadis, the Xtians etc. to put pressure on Pak.
Yes to all other point about encouraging the separatists in Pak but that should be an overall foreign policy goal.
In the short term, bullet for bomb is quite and answer. Well it will certainly raise stakes and put economic pressure on Pak as well to sustain any escalation.