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Robots and happy workers: Productivity surge helps explain US economy's surprising resilience

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Robots and happy workers: Productivity surge helps explain US economy's surprising resilience

WASHINGTON (AP) — Trying to keep up with customer demand, Batesville Tool & Die began seeking 70 people to hire last year. It wasn’t easy. Attracting factory workers to a community of 7,300 in the Indiana countryside was a tough sell, especially having to compete with big-name manufacturers nearby like Honda and Cummins Engine.

Job seekers were scarce.

“You could count on one hand how many people in the town were unemployed,” said Jody Fledderman, the CEO. “It was just crazy.’’

Batesville Tool & Die managed to fill just 40 of its vacancies.

Enter the robots. The company invested in machines that could mimic human workers and in vision systems, which helped its robots “see” what they were doing.

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The Batesville experience and others like it have been replicated countlessly across the United States for the past couple of years. Chronic worker shortages have led many companies to invest in machines to do some of the work they can’t find people to do. They’ve also been training the workers they do have to use advanced technology so they can produce more with less.

The result has been an unexpected productivity boom, which helps explain a great economic mystery: How has the world’s largest economy managed to remain so healthy, with brisk growth and low unemployment, despite brutally high interest rates that are intended to tame inflation but that typically cause a recession?

A Halter robot collects a finished piece for blood pressure pumps from a Mazak Integrex at Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

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To economists, strong productivity growth provides an almost magical elixir. When companies roll out more efficient machines or technology, their workers can become more productive: They increase their output per hour. A result is that companies can often boost their profits and raise their employees’ pay without having to jack up prices. Inflation can remain in check.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, has likened surging productivity to “magic beanstalk beans for the economy. … You can have faster income increases, faster wage growth, faster GDP without generating inflation.’’

Joe Brusuelas, chief economist at the tax and consulting firm RSM, said, “The last time we saw anything like this was the late 1990s.”

That was when a productivity surge — an early payoff from the sudden embrace of laptops, cellphones and the internet — helped allow the Federal Reserve to keep borrowing rates low because inflation remained under control even as the economy and the job market sizzled.

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A worker at Reata Engineering and Machine Works programs a Mazak Variaxis machine used to make semiconductor pieces, Thursday, Feb. 15, 2024, in Englewood, Colo. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufacturing processes. It's also been training workers to use more sophisticated equipment. (AP Photo/David Zalubowski)

A worker at Reata Engineering and Machine Works programs a Mazak Variaxis machine used to make semiconductor pieces, Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

This time, the Fed’s aggressive streak of rate hikes — 11 of them starting in March 2022 — has managed to help cool inflation from a four-decade high of 9.1% to 3.1% while causing little economic hardship.

“I would have said it’s not possible,’’ said Sal Guatieri, senior economist at BMO Capital Markets. “But that’s exactly what happened.’’

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A year ago, nearly every economist was warning that a recession was all but inevitable. Fed Chair Jerome Powell himself warned in 2022 that beating inflation would inflict “some pain” in the form of widespread layoffs and higher unemployment.

By last month, Powell was sounding a different note. With unemployment barely above a half-century low, the Fed chair told reporters, “We’ve had a very strong labor market, and we’ve had inflation coming down.”

He did caution that the central bank wants to see further progress in slowing inflation. Yet the Fed is so optimistic that inflation is heading toward its 2% goal that it hasn’t raised rates since July and is expected to cut rates multiple times this year.

A box of parts for blood plasma pumps sits ready for shipping from Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. At Reata, which makes parts for aircraft and medical device manufacturers,

A box of parts for blood plasma pumps sits ready for shipping from Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

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Perhaps the likeliest explanation is the greater efficiencies that companies like Batesville Tool & Die have managed to achieve in the past year or so. Before productivity began its resurgent growth last year, a rule of thumb was that average hourly pay could rise no more than 3.5% annually for inflation to stay within the Fed’s 2% target. That would mean that today’s roughly 4% average annual pay growth would have to shrink. Yet higher productivity has changed that equation: There’s now more leeway for wage growth to stay elevated without igniting inflation.

“A lot of that pressure on business finances — that normally causes them to raise prices — has been offset by strong productivity growth,’’ Guatieri said.

At a news conference this month, Powell was asked whether he believed higher productivity helps explain why the economy has kept growing steadily even while inflation has tumbled.

“That’s one way to look at it — yeah,” Powell replied.

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The productivity boom marks a sharp shift from the pre-pandemic years, when annual productivity growth averaged around a tepid 1.5%, according RSM’s calculations. Everything changed as the economy rocketed out of the 2020 pandemic recession with unexpected vigor, and businesses struggled to re-hire the many workers they had shed.

The resulting worker shortage sent wages surging. Inflation jumped, too, as factories and ports buckled under the strain of rising consumer orders. Parts shortages arose.

Desperate, many companies turned to automation. Investment in equipment and in research and development and other forms of intellectual property accelerated. The efficiency payoff began to arrive almost a year ago. Labor productivity rose at a 3.6% annual pace from last April through June, 4.9% from July through September and 3.2% from October through December.

At Reata Engineering & Machine Works, “efficiency was kind of forced on us,’’ CEO Grady Cope said. With the job market roaring, the company, based in Englewood, Colorado, couldn’t hire fast enough. Meantime, its customers were starting to balk at paying higher prices.

Semiconductor pieces sit in a shipping box as they are produced in a Mazak Variaxis machine at Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufacturing processes. It's also been training workers to use more sophisticated equipment. (AP Photo/David Zalubowski)

Semiconductor pieces sit in a shipping box as they are produced in a Mazak Variaxis machine at Reata Engineering and Machine Works Thursday, Feb. 15, 2024, in Englewood, Colo. (AP Photo/David Zalubowski)

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So Reata installed robots and other technology to produce more with less. Software allowed it to automate the delivery of price quotes to customers. That process used to require two weeks. Now, it can be done in 24 hours.

Many economists and business people say they’re hopeful, if not certain, that the productivity boom can continue. Artificial intelligence, they note, is only beginning to penetrate factory floors, warehouses, stores and offices.

“Right now, AI is not a critical enabler for us; it’s an assistant and accelerator in certain roles,’’ said Peter Doyle, CEO of Hirsh Precision, which makes parts for the aerospace and medical device industries. “The world is still trying to understand what AI is capable of doing and how quickly it will advance.’’

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The early evidence suggests that AI could sustain the productivity gains. A study last year by Erik Brynjolfsson of Stanford University and Danielle Li and Lindsey Raymond of the Massachusetts Institute of Technology tracked 5,200 customer-support agents at a Fortune 500 company who used a generative AI-based assistant in 2020 and 2021. The AI tool provided suggestions for dealing with customers and links to useful internal documents.

Those using the chatbot were found to be 14% more productive than colleagues who didn’t use the tool. They handled more calls and completed them faster. The biggest gains in productivity — 34% — came from the least-experienced, least-skilled workers.

Automation tends to raise fears that machines will replace human workers and thereby kill jobs. Some workers supplanted by robots do often struggle to find new work and end up settling for lower pay.

Yet history suggests that in the long run, technological improvements actually create more jobs than they destroy. People are needed to build, upgrade, repair and operate sophisticated machines. Some displaced workers are trained to shift into such jobs. And that transition is likely to be eased this time by the retirement of the vast baby boom generation, which is causing labor shortages.

Some of today’s productivity gains may be coming not just from advanced technology but also from more satisfied workers. The tight labor markets of the past three years allowed Americans to change jobs and find others that pay better and make them happier and more productive.

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One of them was Justin Thompson, of Kalamazoo, Michigan, who had felt burned out by his job as a police officer, with its 16-hour workdays .

“I was literally running myself into the ground,’’ he said.

Thompson’s wife saw a job posting for operations manager at a charter airline. Even without airline experience, his wife felt he could use skills he gains as a Marine Corps infantryman — handling logistics for missions — during tours in Iraq and Afghanistan.

She was right. Omni Air International hired him in 2019.

Thompson, 43, said he he loves the new job, which allows him to work from home when he’s not traveling. And his Marine experience — which included developing ways to improve efficiency — has proved invaluable. Technology helps, too: Thompson travels with a laptop, iPad and mobile printer and uses proprietary software to manage logistics.

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Other workers have switched from low-skill jobs to those that pay better and are more productive.

“The people who were rolling tacos on Dec. 31, 2019 … yeah, they’ve moved up,’’ RSM’s Brusuelas said. “They’re doing other things and making a lot more money.”

At Reata Engineering, staffers were trained to use new sophisticated equipment. One 19-year-old employee, a university engineering student, has used AI tools to make company training materials less cumbersome and time-consuming.

“The whole point is not to lay people off,’’ said Cope, the CEO of Reata Engineering. “The point is to make people do jobs that are more interesting’’ — and pay better, too.

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Video: Pakistan Launches Airstrikes on Afghanistan

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Video: Pakistan Launches Airstrikes on Afghanistan

new video loaded: Pakistan Launches Airstrikes on Afghanistan

Tensions between Afghanistan and Pakistan escalated on Friday as the two countries clashed.
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State Dept authorizes non-essential US Embassy personnel in Jerusalem to depart ahead of possible Iran strikes

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State Dept authorizes non-essential US Embassy personnel in Jerusalem to depart ahead of possible Iran strikes

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The State Department is allowing non-essential personnel working at the U.S. Embassy in Jerusalem to leave Israel ahead of possible strikes on Iran. The embassy announced the decision early Friday morning and said that “in response to security incidents and without advance notice” it could place further restrictions on where U.S. government employees can travel within Israel.

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The decision came after meetings and phone calls through the night Thursday into Friday, according to The New York Times, which reviewed a copy of an email that U.S. Ambassador to Israel Mike Huckabee sent to embassy workers.

The Times reported that the ambassador said in his email that the move was a result of “an abundance of caution” and that those wishing to leave “should do so TODAY.” He reportedly urged them to look for flights out of Ben Gurion Airport to any destination, cautioning that the embassy’s move “will likely result in high demand for airline seats today.”

The U.S. has authorized non-essential embassy personnel to leave Israel amid escalating tensions with Iran. (Al Drago/Bloomberg via Getty Images; Iranian Leader Press Office/Anadolu via Getty Images)

In the email, Huckabee also said that there was “no need to panic,” but he underscored that those looking to leave should “make plans to depart sooner rather than later,” the Times reported.

“Focus on getting a seat to anyplace from which you can then continue travel to D.C., but the first priority will be getting expeditiously out of country,” Huckabee said in the email, according to the Times.

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Former Arkansas Gov. Mike Huckabee, U.S. President Donald Trump’s nominee to be ambassador to Israel, arrives to testify during his Senate Foreign Relations Committee confirmation hearing at the Dirksen Senate Office Building on Mar. 25, 2025, in Washington, D.C. (Kevin Dietsch/Getty Images)

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The embassy reiterated the State Department’s advisory for U.S. citizens to reconsider traveling to Israel and the West Bank “due to terrorism and civil unrest.” Additionally, the department advised that U.S. citizens not travel to Gaza because of terrorism and armed conflict, as well as northern Israel, particularly within 2.5 miles of the Lebanese and Syrian borders because of “continued military presence and activity.” 

It also recommended that U.S. citizens not travel within 1.5 miles of the Egyptian border, with the exception of the Taba crossing, which remains open.

“Terrorist groups, lone-actor terrorists and other violent extremists continue plotting possible attacks in Israel, the West Bank, and Gaza. Terrorists and violent extremists may attack with little or no warning, targeting tourist locations, transportation hubs, markets/shopping malls, and local government facilities,” the embassy said in its warning. “The security environment is complex and can change quickly, and violence can occur in Israel, the West Bank, and Gaza without warning.”

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Israeli and U.S. flags are placed on the road leading to the U.S. consulate in the Jewish neighborhood of Arnona, on the East-West Jerusalem line in Jerusalem, May 9, 2018. (Corinna Kern/picture alliance via Getty Images)

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While the embassy did not specifically mention Iran in its warning, it referenced “increased regional tensions” that could “cause airlines to cancel and/or curtail flights into and out of Israel.”

Fox News Digital reached out to the State Department and the White House for comment on this matter.

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Has India’s influence in Afghanistan grown under the Taliban?

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Has India’s influence in Afghanistan grown under the Taliban?

Pakistan has accused Afghanistan’s Taliban of serving as a “proxy” for India, amid escalating hostilities between Islamabad and Kabul.

Just hours after Pakistan bombed locations in Kabul early on Friday, Pakistan’s Minister of Defence Khawaja Asif wrote on X that after NATO forces withdrew from Afghanistan in July 2021, “it was expected that peace would prevail in Afghanistan and that the Taliban would focus on the interests of the Afghan people and regional stability”.

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“However, the Taliban turned Afghanistan into a colony of India,” he wrote and accused the Taliban of “exporting terrorism”.

“Pakistan made every effort, both directly and through friendly countries, to keep the situation stable. It carried out extensive diplomacy. However, the Taliban became a proxy of India,” he alleged as he declared an “open war” with Afghanistan.

This is not the first time that Asif has brought India into tensions with Afghanistan.

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Last October, he alleged: “India wants to engage in a low-intensity war with Pakistan. To achieve this, they are using Kabul.”

So far, Asif has presented no evidence to back his claims and the Taliban has rejected accusations that it is being influenced by India.

But India has condemned the Pakistani military’s recent actions in Afghanistan, adding to Islamabad’s growing discernment that its nuclear rival and the Taliban are edging closer.

Earlier this week, after the Pakistani military carried out air raids inside Afghanistan on Sunday, India’s Ministry of External Affairs said in a statement that New Delhi “strongly condemns Pakistan’s airstrikes on Afghan territory that have resulted in civilian casualties, including women and children, during the holy month of Ramadan”.

After Friday morning’s flare-up between Pakistan and Afghanistan, India’s foreign ministry spokesperson Randhir Jaiswal again said New Delhi “strongly” condemned Pakistan’s air strikes and also noted that they took place on a Friday during the holy month of Ramadan.

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“It is another attempt by Pakistan to externalise its internal failures,” Jaiswal said in a statement on X.

Has India’s influence in Afghanistan grown under the Taliban and what is India’s endgame with Afghanistan?

Here’s what we know:

How have relations between India and the Taliban evolved?

When the Taliban first rose to power in Afghanistan in 1996, India adopted a hostile policy towards the group and did not recognise its assumption of power. India also shunned all diplomatic relations with the Taliban.

At the time, New Delhi viewed the Taliban as a proxy for Pakistan’s intelligence agencies. Pakistan, together with Saudi Arabia and the United Arab Emirates, were the only three countries to have also recognised the Taliban administration at that point.

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Then, in 2001, India supported the US-led invasion of Afghanistan, which toppled the Taliban administration. India then reopened its embassy in Kabul and embraced the new government led by Hamid Karzai. The Taliban, in response, attacked Indian embassies and consulates in Afghanistan. In 2008, at least 58 people were killed when the Taliban bombed India’s embassy in Kabul.

In 2021, after the Taliban returned to power, India closed its embassy in Afghanistan once again and also did not officially recognise the Taliban as the government of the country.

But a year later, as relations between Pakistan and the Taliban deteriorated over armed groups which Pakistan accuses Afghanistan of harbouring, India began engaging with the Taliban.

In 2022, India sent a team of “technical experts” to run its mission in Kabul and officially reopened its embassy in the Afghan capital last October. New Delhi also allowed the Taliban to operate Afghanistan consulates in the Indian cities of Mumbai and Hyderabad.

Over the past two years, officials from New Delhi and Afghanistan have also held meetings abroad, in Kabul and in New Delhi.

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In January last year, the Taliban administration’s Foreign Minister Amir Khan Muttaqi met India’s Foreign Secretary Vikram Misri in Dubai, the United Arab Emirates.

Then, in October 2025, he visited New Delhi and met Indian foreign minister Subrahmanyam Jaishankar.

After this meeting, Muttaqi told journalists that Kabul “has always sought good relations with India” and, in a joint statement, Afghanistan and India pledged to have “close communication and continue regular engagement”.

Taliban Foreign Minister Amir Khan Muttaqi arrives at Darul Uloom Deoband, an Islamic seminary, in Deoband in the northern state of Uttar Pradesh, India [File: Anushree Fadnavis/Reuters]

Besides beefing up diplomatic ties, India has also offered humanitarian support to Afghanistan under the Taliban’s rule.

After a magnitude 6.3 earthquake struck northern Afghanistan in November last year, India shipped food, medicine and vaccines, and Jaishankar was also among the first foreign ministers to call Muttaqi and offer his support. Since last December, India has also approved and implemented several healthcare infrastructure projects in Afghanistan, according to a December 2025 report by the country’s press information bureau.

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Praveen Donthi, senior analyst at the International Crisis Group, told Al Jazeera that the costs of avoiding engagement with the Taliban in the past have compelled the Indian government to adopt strategic pragmatism towards the Afghan leadership this time.

“New Delhi does not want to disregard this relationship on ideological grounds or create strategic space for India’s main strategic rivals, Pakistan and China, in its neighbourhood,” he said.

Raghav Sharma, professor and director at the Centre for Afghanistan Studies at the OP Jindal Global University in India, added that the current engagement also stems from New Delhi’s pragmatic realisation that the Taliban is now in charge in Afghanistan and that there is no meaningful opposition.

“States engage in order to protect and further their interests. While there is little by way of ideological convergence, there are areas of strategic convergence, which is what has pushed India to engage with the Taliban, some of their unpalatable policies notwithstanding,” he said.

Is this a new stance towards Afghanistan?

No. India’s growing influence and engagement with Afghanistan began well before the Taliban returned to power in August 2021.

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Between December 2001 and September 2014, during the US presence in Afghanistan, New Delhi was a strong supporter of the Karzai government, and then of his successor, Ashraf Ghani’s government, which was in power from September 2014 until August 2021, when the US withdrew from the country.

In October 2011, under Karzai, India and Afghanistan renewed ties by signing an agreement to form a strategic partnership. New Delhi also pledged to support Afghanistan in the face of foreign troops in the nation as a part of this agreement.

Under both Karzai and his successor, Ghani, India invested more than $3bn in humanitarian aid and reconstruction work in Afghanistan. This included reconstruction projects like schools and hospitals, and also a new National Assembly building in Kabul, which was inaugurated in December 2015 when Indian Prime Minister Narendra Modi visited Afghanistan for the first time.

India’s Border Road Organisation (BRO) also assisted Afghanistan in the development of infrastructure projects like the 218km Zaranj-Delaram highway in 2009 under Karzai’s government.

Under Ghani, New Delhi undertook building the Salma Dam project to help with irrigating Afghanistan. In June 2016, when Modi visited Afghanistan once again, he inaugurated this $290m dam project. In May 2016, Iran, India and Afghanistan also signed a trilateral trade and transit agreement on the Chabahar port.

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Modi and Ghani
India’s Prime Minister Narendra Modi (L) and Afghan President Ashraf Ghani hold sweets as they inaugurate Afghanistan’s new parliament building in Kabul, Afghanistan [File: Stringer/Reuters]

During this period – 2001-2021 – Pakistan’s unease with New Delhi and Kabul’s new partnership grew.

In October 2011, after signing a strategic agreement with India, Karzai had assured Islamabad that while “India is a great friend, Pakistan is a twin brother”.

But Karzai was critical of Pakistan’s support for the Taliban. In his last speech as president of Afghanistan in Kabul in September 2014, he stated that he believed most of the Taliban leadership lived in Pakistan.

In a 2011 report by a Washington, DC-based think tank, the Center for Strategic and International Studies, Amer Latif, former director for South Asian affairs in the US Office of the Undersecretary of Defense for Policy, noted that Karzai was walking a “fine line between criticising Pakistan’s activities while also referring to Pakistan as Afghanistan’s ‘twin brother’.”

“It is in this context that Karzai appears to be looking to solidify long-term partnerships with countries that will aid his stabilisation efforts,” he said, referring to Karzai’s visit to India and his efforts to improve relations with the subcontinent.

When Ghani rose to power in September 2014, he tried to reset ties with Pakistan and also visited the country in November that year. But his efforts did not result in improved ties due to border disputes with Pakistan continuing until his administration was overthrown by the Taliban in August 2021.

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So why has India maintained ties with Afghanistan under the Taliban?

Initially, when the Taliban returned to power in 2021 following the withdrawal of the US, political analysts largely expected Pakistan to lead the way in recognising the Taliban administration as the official government of Afghanistan, improving bilateral relations which had turned icy under Karzai and Ghani.

But relations turned hostile, with Pakistan repeatedly accusing the Taliban of allowing anti-Pakistan armed groups like the Pakistan Taliban (TTP) to operate from Afghan soil. The Taliban denies this.

Then, the deportation of tens of thousands of Afghan refugees by Pakistan in recent years further strained ties between the two neighbours.

India has ultimately taken a pragmatic approach to the Taliban in order to maintain the good relations it built with Afghanistan from 2001 to 2021, and has somewhat leveraged poor relations between Pakistan and Afghanistan to cement these.

“With Pakistan’s increasingly strained relations with Afghanistan, the logic of ‘enemy’s enemy’ is acting as a glue between Kabul and New Delhi,” International Crisis Group’s Donthi said.

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He added that despite the fact that India’s Bharatiya Janata Party (BJP)-led government opposes Islamist organisations, “the strategic necessity to counter Pakistan has led it to engage with the Taliban proactively”.

India and Pakistan are nuclear-armed rivals which engaged in a four-day conflict in May 2025 after armed rebels killed Indian tourists in Pahalgam, a popular tourist spot in Indian-administered Kashmir, last April. New Delhi accused Pakistan of supporting rebel fighters, a charge Pakistan strongly denied.

For its part, Afghanistan took the opportunity to strongly condemn the Pahalgam attack and the Indian Ministry of External Affairs expressed “deep appreciation” to the Taliban for its “strong condemnation of the terrorist attack in Pahalgam … as well as for the sincere condolences”.

India has also condemned Pakistani military action in Afghanistan and has provided aid to thousands of Afghan refugees displaced from Pakistan.

So what is India’s endgame in Afghanistan?

Sharma, the OP Jindal Global University professor, said India wants to ensure that Pakistan and China, whose influence has grown in South Asia in recent years, “do not have a free run”, as “there is a divergence of interest on Afghanistan” with both Pakistan and its ally, China.

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“There are security interests New Delhi is keen to further and protect for which engagement [with the Taliban] is the only option,” he added.

Anil Trigunayat, a former Indian diplomat, noted that while Afghanistan and Pakistan relations have their own dynamic, currently the Taliban leadership, even if not a monolith, refuses to play to the tunes of the Pakistan military and its intelligence agency.

“Hence they [Pakistan] accuse Indian complicity in Taliban actions in Pakistan,” he said.

But the Taliban, he said, “understands and appreciates India’s intent, policies and [humanitarian] contributions”, making its leaders keen to continue collaboration with New Delhi.

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