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When India and Pakistan became independent states after the Partition in 1947, they inherited a similar economic legacy of underinvestment and neglect from Britain. Their colonial economies were among the poorest in the world, and both nations saw strong growth and significant gains in education, healthcare, and other areas of development following their independence.

However, during the first four decades or so, Pakistan experienced faster growth rates than India, while India lagged behind. Around the 1990s, their roles reversed, and India surpassed Pakistan, eventually becoming the world’s third-largest economy by purchasing power and the “I” in BRICS.

What led to India’s growth spurt? Economics enables us to look at the grand political and economic changes in history and explain them, using economic factors. In other words, it is a branch of historical materialism. Decisions driven by economic factors shape societies and make them change.

Taking this definition of economics, I argue a big contributor to the different trajectory of the two economies lies in the evolution of their respective governments and institutions.

Post-Independence growth, led by Pakistan

After achieving independence, economic growth picked up, with both nations growing at a rate of 3 percent to 4 percent in the initial decade as the respective governments focused on developing their economies.

However, differences emerged soon after. While both economies were mostly under state control, India’s government restricted exports and implemented a protectionist trading policy in the 1960s that hindered growth. Pakistan, on the other hand, benefited from substantial trade from its East Pakistan region. Pakistan’s growth was further aided by the billions of dollars of military aid it received from the US, as well as donations from other oil-rich Muslim countries in the Middle East.

Pakistan’s growth rate accelerated to about 6 percent per year from 1961 to 1980, compared to 4 percent for India. However, Pakistan’s growth engine came to a halt in 1971 when East Pakistan broke away from West Pakistan and declared independence as Bangladesh.

To add insult to injury, its Prime Minister at the time Zulfiqar Ali Bhutto nationalized major industries in Pakistan which led to a bloated and ineffective public sector mired with corruption resulting in inefficient State-Owned Enterprises (SOEs) and overall loss of economic momentum.

India vaults ahead

In the 1990s, India’s growth rate accelerated to 6 percent per year, surpassing Pakistan’s 4 percent. Several factors contributed to this role reversal, including economic and political factors.

Compared to India, Pakistan has historically relied more on external sources of funding, having received $73 billion in foreign aid between 1960 and 2002. Today, Pakistan continues to rely on institutions such as the International Monetary Fund for crisis lending and foreign governments like China for aid and infrastructure development.

While this aid has provided a lifeline for Pakistan’s economy, it has also allowed the country to postpone much-needed reforms, such as expanding the tax base and addressing energy and infrastructure problems. As a result, Pakistan’s growth has not been as sustainable, and the country now carries a large debt burden. Undertaking these reforms could have put Pakistan on a more stable growth trajectory and encouraged greater foreign investment, in my opinion.

For instance, The South Koreans built a self-sustaining economy with a cumulative aid input from the US of only $15 billion since 1950 by avoiding confrontation with America and by cooperating with erstwhile enemy Japan. Pakistan received $40 billion in bilateral US aid over the same period. Instead of utilising aid as a catalyst for indigenous growth, Pakistan has ended up becoming dependent on aid. Donor funding serves as a substitute for revenue generation while wars and terrorism have deterred investment.

Air Marshal Nur Khan, a war hero and former Pakistan air force chief, had once likened Pakistan’s aid dependency to ‘taking opium’. Speaking to an American diplomat soon after the loss of East Pakistan in December 1971, he said, ‘Instead of using the country’s own resources to solve the country’s problems, the aid craver, like the opium craver, simply kept on begging to foreigners to bail him out of his difficulties.’

Nur Khan proposed ‘a Chinese style austerity programme’ for Pakistan although he doubted if ‘many Pakistanis had the conviction and dedication to put up with the sacrifice that such a programme would entail’. The problem was not so much receiving foreign aid as much as the country’s elite developed a dependence on it while postponing fundamental structural forms that the country needs badly even today.

India also received some aid from international organisations and a few countries like the US in the past, it did not rely on it to the extent that Pakistan did. Furthermore, India took a different approach in 1991 by reducing tariffs, liberalizing trade, facilitating the growth of domestic companies, and attracting more foreign investment.

These reforms paid off: By integrating India’s economy to the rest of the world, the reforms created market opportunities for Indian companies, made them more competitive, and that, in turn, led to higher growth rates for the overall economy.

Another way to measure the different paths is in gross domestic product per person. In 1990, India and Pakistan had almost identical per-capita GDPs, a little under US$370 per person. But by 2021, India’s had surged to $2,277, about 50% higher than Pakistan’s.

Epilogue

The divergent paths taken by India and Pakistan can be attributed largely to institutional development and politics. Pakistan has experienced almost constant political turmoil, with seven different governments in the decade from 1988 to 1998 alone, including both civilian and military administrations following coups. This instability has discouraged foreign investment and made it difficult to implement and maintain reforms.

Moreover, Pakistan’s military spending as a percentage of GDP has consistently been higher than India’s since independence. For instance, Pakistan’s poor performance in education is not a function of poverty but of according lower priority by successive governments. There are 43 countries in the world that are poorer than Pakistan on a per capita GDP basis but 24 of them send more children to primary school than Pakistan does.

Pakistan’s budgetary allocation for education — is abysmally low and actual expenditure—is even less. However, Pakistan spends around seven times more on its military than on primary education. According to one estimate, just one-fifth of Pakistan’s military budget would be sufficient to finance universal primary education.

In contrast, India has managed to maintain a stable democracy that, while far from being perfect, nonetheless has kept leaders accountable to the majority of the people. This has facilitated more inclusive growth and less reliance on foreign aid or institutions. In just one decade, India lifted more than 270 million people out of poverty and has less out of school children today than Pakistan despite having a population of 1.4 billion.

Given the current global challenges to democratic institutions, this history serves as a powerful reminder of its value.

Copyright Business Recorder, 2023

Muneeb Sikander

The writer is an economist and strategy consultant. He is also functioning in an advisory capacity for the London School of Economics Lean Launchpad and serving on the board of two global think-tanks, GAIEI and IGOAI

Twitter: @MuneebASikander

Email: muneebsikander@ hotmail.com

Comments

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TimeToMovveOn May 17, 2023 07:58am
What India did with over a billion people and a colonial legacy is nothing sort of a miracle. China did it even better. Pakistan, as one Chinese scholar put it, is not honest with itself. It has a superior sense of bravado. Also given the huge amount spent on the military, it lost all wars, lost half its country, and is unable to even provide security for elections. What is this army worth for what the people of Pakistan are paying?
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Ash Chak May 17, 2023 09:46am
The rich elite of Pakistan have no desire for change. This system suits them just fine.,While most people are fighting inflation everyday, these chosen few are completely isolated from the harsh reality of a tottering economy.
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Rizwan May 17, 2023 09:54am
Don't bore me with another cliché India Pakistan economic comparison article. Every one knows kaun kitne paani main hai. Are you out of new ideas little man?
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KU May 17, 2023 10:10am
Better be careful when writing articles on comparisons with our neighbor, it can be inferred to treason and information against the state, or much more. Now that contempt of (one that cannot be named) is becoming a law and other similar legislations are in the pipeline, we should learn to change our habits and foolish thoughts on freedom of speech.
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Usman May 17, 2023 10:14am
@TimeToMovveOn, it lost all wars ? remember Pakistan got half of Kashmir in 48 war and returned more than 1000 square miles of Indian territory at the end of 65 war.
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Usman May 17, 2023 10:29am
@Rizwan , actually this has become a fashion among youtubers and writers in Pakistan to address issues of Pakistan by comparing with other nations especially India, which a faulty approach.
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Khawaja Pervaiz Saeed May 17, 2023 10:31am
Dont title this wonderful piece as a tale .All aspects have been spelt out in understandable flow .Hope the national planners can discuss this in platforms like the National Assembly and Senate .
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Khawaja Pervaiz Saeed May 17, 2023 10:33am
@Rizwan , Why get bored .Put up something better
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Hilarious May 17, 2023 11:05am
@TimeToMovveOn, *claps* a realistic observation, hope more logical people like you exist in the country.
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Azz_Izz May 17, 2023 11:20am
Would appreciate a similar comparative analysis article between Pakistan and Bangladesh. Economic turnaround of Bangladesh is nothing short of miracle.
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Rizwan May 17, 2023 12:19pm
And here's the biggest surprise for people who are young today! The year is 2047, August 14th, you open a Pakistani newspaper, what you read? wohi economic crises, wohi ineffective and inefficient government ke nay records.
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Fastrack May 17, 2023 12:27pm
@Azz_Izz, As usual our obsession with everything India saw Indonesia and Bangladesh overtake us. Unfortunately we haven't learnt any lessons. Maybe if Afghanistan overtakes us in all parameters, then maybe we will stop these meaningless comparison articles. I think Afghanistan developing more than us is more realistic than our obsession with India.
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Rizwan May 17, 2023 12:30pm
These comparison articles are the worst. I mean we all know ke Pakistan's economy is a khatara gari, and Indian even Bangladeshi economy are like fast cars. Everybody knows the truth. And they trigger the sh** out of me because of their ridiculousness. Of course higher authorities know the stark differences between the countries yet they won't do anything about it because it doesn't fit into their narrative.
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Javed May 17, 2023 12:58pm
@Rizwan , These are click bait, barrel scraping articles. There's nothing worth while to write about. What's more shocking is in a decade we will be reading economic comparison between Pakistan and Afghanistan and how Afghanistan is doing much better than us.
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Usman May 17, 2023 01:18pm
The only way to reform the economy of pakistan. Start massive privatization and liberlization & Deregulation programme , implement fair competition to encourage investment instead of comparing apple with oranges but the comparing the economy of pakistan with other nations.
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Az_Iz May 17, 2023 05:17pm
The main problem with Pakistan is not saving enough. Compared to other countries at similar levels of development, the savings rate in Pakistan has always been about 10% less. The import and consume model of economic growth will not take the country anywhere. If people save, then they can invest in education, health etc. The country can invest in infrastructure. Unless that changes, the country will keep borrowing, just to avert crisis.
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Az_Iz May 17, 2023 05:21pm
Exports and remittances jumped from about $50 billion to about $70 billion in the last three years. That is a significant increase. But most of that gain was used for imports and consumption. And the country is again looking for loans to avert crisis. With a better handling of finances by the individuals and the country, Pakistan can do much better.
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Az_Iz May 17, 2023 05:27pm
If a country is fighting wars for others in neighboring countries, regardless of the aid it gets, it will lose big , in terms of opportunity cost. Instead of focusing on development, you will be focusing on fighting. Even after the fighting ends, a low income country cannot easily adjust back to development.
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Az_Iz May 17, 2023 05:36pm
Using nominal GDP will make the difference in per capita look much bigger than what it is. Using PPP, the difference in per capita income is lesser, although it is nothing to feel great about.
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Az_Iz May 17, 2023 06:25pm
A tale of three countries will put Bangladesh ahead of India, in nominal GDP per capita income. Pakistan was first ahead, then it was India, and now it is Bangladesh. Pakistan should stop looking for aid and loans to keep going. It should look to save, invest and grow. The other countries have saved much more, under similar and more difficult conditions.
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Muhammad Adnan Ghafoor May 19, 2023 10:41am
I am surprised with the comments of readers targeting the national institutes for no good. The article in fact brings out the ingredients needed for development of country & these are primarily loyalty to mother land (country) & stability of system. Unfortunately Pakistan is missing both. Pakistan has all the resouses required to stand in the line of developed countries is as nation we can master these two prime ingredients. Secondly we need to recall the slogan associated with birth of Pakistan is "La ilaha illallah Muhammad ur Rasulullah". This slogan demand implementation of Quran in the state. By not implementing this All present & previous governments has shown they are non loyal to Country. This is actual dilemma Pakistan is facing. In simple Pakistan is constantly facing an act of treachery by its rulers. May Allah provide us the vision and strength to become purify your hearts and become actual citizens / soldiers of Pakistan (Pure Land).
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imdad kolori May 19, 2023 02:33pm
stop comparing with india, compare with your counterparts such as chad mali and bostanwa.
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