Report on Pakistan/India

[Sanjeev Sabhlok <sabhlok@almaak.usc.edu>]

By the World Bank:

Please read it at:

http://www.erols.com/ziqbal/ih2.htm

Talks about very interesting things, including nationalization. I really
must bookmark this one.  Also, for those who do not have access to the web
(Please let me know if anyone like that is on this list), this is the
entire report without the statistics: 


                    India, Pakistan: a comparison

                             DR. ISHRAT HUSAIN

 The author is the Director, Poverty and Social Policy Department, World
Bank. The views expressed in this article are personal and
                        do not represent those of the World Bank. 


India and Pakistan are completing five decades of their independence. 
Since the partition, the relationship between the two countries has been
uneasy and characterized by a set of paradoxes.  There is a mixture of
love and hate, a tinge of envy and admiration, bouts of paranoia and
longing for cooperation, and a fierce rivalry but a sense of proximity,
too. The heavy emotional overtones have made it difficult to sift the
facts from the myths and make an objective assessment. There are in fact
only two extreme types of reactions on each side. Either there are those
who always find that the grass is greener on the other side of the pasture
or those who are totally dismissive of the accomplishments of the other
side. 

This article attempts to present an objective, empirically-based and
balanced view of the economic achievements and failures of both the
countries during the span of the last five decades. The strict comparison
becomes somewhat problematic because of the separation of East from West
Pakistan in 1971 but, the analysis and conclusions drawn by and large
remain valid. 

First, the common successes shared by both the countries: 

        Despite the prophets of gloom and doom on both sides of the fence,
both India and Pakistan have succeeded in more than doubling their per
capita incomes. This is a remarkable feat considering that the population
has increased fourfold in case of Pakistan and threefold in India. Leaving
aside the countries in East Asia and China, very few large countries have
been able to reach this milestone. The incidence of poverty (defined as $1
per day) has also been reduced significantly although the number of
absolute poor remains astoundingly high. However, the level of poverty is
lower in Pakistan. 


        Food production has not only kept pace with the rise in population
but has surpassed it. Both
        countries, leaving aside annual fluctuations due to weather
conditions, are self-sufficient in food.
        (Pakistan exports its surplus rice but imports small volumes of
wheat). 
        Food self-sufficiency has been accompanied by improved nutritional
status. Daily caloric and protein
        intake per capita has risen by almost one-third but malnourishment
among children is still high. 
        The cracks in the dualistic nature of the economy -- a
well-developed modern sector and a backward
        traditional sector -- are appearing fast in both the countries. A
buoyant middle class is emerging. The
        use of modern inputs and mechanization of agriculture has been a
leveling influence in this direction. But
        public policies have not always been consistent or supportive. 

Second, the common failures of the two countries. The relatively
inward-looking economic policies and high protection to domestic industry
did not allow them to reap the benefits of integration with the
fast-expanding and much larger world economy. This has changed
particularly since 1991 but the control mind-set of the politicians and
the bureaucrats has not changed. The centrally planned allocation of
resources and "license raj" has given rise to an inefficient private
sector that thrive more on contacts, bribes, loans from public financial
institutions, lobbying, tax evasion and rent-seeking rather than on
competitive behavior. Unless both the control mind-set of the government
and the parasitic behavior of the private industrial entrepreneurs do not
change drastically, the potential of an efficient economy would be hard to
achieve. This can be accomplished by promoting domestic and international
competition, reducing tariff and non-tariff barriers and removing
constraints to entry for newcomers. 

 

The weaknesses in governance in the legal and judicial system, poor
enforcement of private property rights and contracts, preponderance of
discretionary government rules and regulations and lack of transparency in
decision making act as brakes on broad-based participation and sharing of
benefits by the majority of the population. 

 

In terms of fiscal management, the record of both the countries is less
than stellar. Higher fiscal deficits averaging 7-8 percent of GDP have
persisted for fairly long periods of time and crowded out private capital
formation through large domestic borrowing. Defense expenditures and
internal debt servicing continue to pre-empt large proportion of tax
revenues with adverse consequences for maintenance and expansion of
physical infrastructure, basic social services and other essential
services that only the government can provide. The congested urban
services such as water, electricity, transport in both countries are a
potential source of social upheaval. 

The state of financial sector in both countries is plagued with serious
ills. The nationalization of commercial banking services, the neglect of
credit quality in allocation decisions, lack of competition and inadequate
prudential regulations and supervision have put the system under severe
pressure and increased the share of non-performing assets in the
bankssavings has been seriously compromised and the banking system is
fragile. Both countries are now taking steps to liberalize the financial
sector and open it up to competition from foreign banks as well as private
banks. 

 

Third, the areas where India has surpassed Pakistan. There is little doubt
that the scientific and technological manpower and research and
development institutions in India are far superior and can match those of
the western institutions. The real breakthrough in the Indian export of
software after the opening up of the economy in 1991 attests to the
validity of the proposition that human capital formation accompanied by
market-friendly economic policies can lift the developing countries out of
low-level equilibrium trap. 

 

Indian scientists working in India excel in the areas of defense
technology, space research, electronics and avionics, genetics,
telecommunications, etc. The number of Ph.Ds produced by India in science
and engineering every year -- about 5,000 -- is higher than the entire
stock of Ph.Ds in Pakistan. The premier research institutions in Pakistan
started about the same time as India have become hotbed of internal
bickerings and rivalries rather than generator of ideas, processes and
products. 

 

Related to this superior performance in the field of scientific research
and technological development is the better record of investment in
education by India. The adult literacy rate, female literacy rate, gross
enrollment ratios at all levels, and education index of India have moved
way ahead of Pakistan.  Rapid decline in total fertility rates in India
has reduced population growth rate to 1.8 percent compared to 3.0 percent
for Pakistan. 

 

Health access to the population and infant mortality rates are also better
in India and thus the overall picture of social indicators, although not
very impressive by international standards, emerges more favorable. The
two most important determinants of Pakistangrowth and the lack of
willingness to educate girls in the rural areas. 

 

Fourth, the areas where Pakistan has performed better than India. The
economic growth rate of Pakistan has been consistently higher than India.
Starting from almost the same level or slightly lower level in 1947,
Pakistanper capita income today in US nominal dollar terms is one-third
higher (430 versus 320) and in purchasing parity dollar terms is two-third
higher (2,310 versus 1,280). The latter suggests that the average
Pakistani has enjoyed better living standards and consumption levels in
the past but the gap may be narrowing since early 1990s. Had the
population growth rate in Pakistan been slower and equaled that of India,
this gap would have been much wider and the per capita income in Pakistan
today would have been twice as high and the incidence of poverty further
down. 

 

Although both India and Pakistan have pursued inward-looking strategies,
the anti-export bias in case of Pakistan has been comparably lower and the
integration with the world market faster. The trade-GDP ratio in PPP terms
is twice that of all South Asian countries. Pakistanhas shifted from
primary to manufactured goods; albeit the dominance of cotton-based
products has enhanced its vulnerability. 

 

Domestic investment rates in Pakistan have remained much below those of
India over the entire span primarily due to the relatively higher domestic
savings rates in the latter. But the efficiency of investment as measured
by the aggregate incremental capital-output ratio or total factor
productivity has been higher in case of Pakistan and, to some extent,
compensated the lower quantity of investment. 

 

CONCLUSION

What is the bottom line then? The overall record looks mixed. Pakistan
scores high on income and consumption growth, poverty reduction and
integration with the world economy. India has done very well in developing
its human resource base and excelled in the field of science and
technology. Both countries face a set of common problems -- the inherited
legacy of a control mind-set among the government and rent-seeking private
sector, widespread corruption, poor fiscal management, weak financial
system and congested and overcrowded urban services. But there is an
important and perceptible positive shift in most of the indicators of
India since 1991. Export growth rates have almost doubled, GDP growth is
averaging 6 to 7 percent in recent years, current account deficit is down
and foreign capital flows for investment have risen several fold. The edge
that Pakistan has gained over India in most of these indicators until 1990
is fast eroding. Pakistan, on the other hand, has made greater progress in
privatization of state owned enterprises and in attracting foreign
investors to expand power generating capacity in the country. 

How does the future look like? Since 1991, both India and Pakistan have
embarked on a policy of liberalization, outward orientation and faster
integration with the global economy. The initial responses have been very
positive. As outlined earlier, portfolio and foreign direct investment
flows in the last few years have surpassed those accumulated over the last
20-25 years. Indian exports recorded an increase of 50 percent since 1991
while Pakistan, despite a setback due to failure of successive cotton
crops, have expanded by two-thirds since 1990. The political uncertainty
in India has been minimized after the elections and adoption by the
coalition government of the Congresseconomic reforms. This combination of
political stability, economic policy credibility and well developed human
resource base places India at an advantage today. But there is no earthly
reason as to why we in Pakistan cannot put our house in order, strike a
consensus among the two major political parties on the contours of our
economic policy direction, stop brickbating each other for the larger sake
of the countrycontrived and perceived sense of economic instability. 

 

The imperatives of globalization and integration with the world economy
dictate that the countries that are not agile and do not seize the
opportunities at the right time are likely to be losers. What is
encouraging is that the economic policy stance of both major parties in
Pakistan is identical, i.e., liberalization of the economy. We have made a
headstart and let us not lose this momentum by narrow-minded and purely
self-serving interests. The destiny of a nation depends upon the hard
work, discipline and internal cohesion of its people and the vision of its
leaders. Let our future generations not blame our leaders for failing to
leave a legacy of prosperity and hope for them.