Comparison, if properly utilized is the best tool to understand, analyze and reconstruct the entire model be it economic, political, or cultural, in the most optimal or effective way. Here, we compare the economy of India and Pakistan with the motive of understanding the tradeoff between the two nations and see how there existed economic disparity between the countries that were once united. For the purpose of comparison, various aspects such as economic landscape, theoretical perspective, exploitation levels, market anomalies, national income/GDP, labor ecosystem, startup ecosystem, economic policies and their implementation, global market, and the political system, are being dissected to make a perfect comparison.
Both the economies started from the scratch or from the same pit, due to the dark pages of history played by the Britishers for their super-nominal profits. The economic history of both the nations was characterized by under-investment, de-industrialization and varying levels of economic exploitation that dragged the two economies from their inception. Now, after 77 years, if we analyze the two economies, the Indian economy is soaring high at 5th position (Source: IMF) whereas Pakistan’s economy is not even able to afford to drink tea, as their minister, two years back, urged people to drink less tea due to economic crisis and even now the situation remains unimproved.
How does one ship sink and other one float high if they were made up of by the same shipwright (here, same economic history of negligence and exploitation)?
Timeline: Pointing the Change
Before analyzing the economic disparities, it is necessary to know at which points(of time) the changes had occurred. In 1948, when India and Pakistan got independence along with economic liberty, both started to rise from the same pit. Initially, Pakistan and India’s growth rate revolved around same figures ranging between 3% to 4%. Later in 1960s, Pakistani economy surpassed the Indian economy with a 2% increase in the former’s growth rate. This was due to India’s protectionist trade policies that had limited exports, market competitiveness etc. and Pakistan started to reap the benefits from East Pakistan. Thus, the period of 1960s is the golden era of Pakistan’s economic history. Later, the period of 1970s to 1990s played a reversal role and that drew the economic ‘fate’ of both the countries. In 1970s, when Bangladesh was formed by carving out East Pakistan, it de-railed the economic stability of Pakistan that forced them to fall into the hands of foreign aids. These aids made them fall into a situation of over-dependency that affected their prioritization of economic reforms. Whereas, India in 1990s through LPG, opened the market to the world that boosted the Indian Economy.
Until 1960s – Same economic growth with the same foreign reserves.
1960s – Golden Era of Pakistani Economy while Indian Economy witnessed poor
growth that later led to the draining of foreign reserves. (Note: Indian scenario was of
early 1960s but the latter half of 1960s changed the scenario.)
1970s – Pakistan’s Economic Downfall.
1990s- Indian Economy under recovery.
Present- India’s GDP is 10.55 times higher than the GDP of Pakistan.
Economic Landscape: Whether the two nations differ?
Economic landscape in general means the economic environment of the economy such as resources, sectoral divisions, existing relations between the economic agents, role of government in economic affairs and other factors that contribute to the economy’s activities both in positive and negative terms. Since we are aware about various timelines that point to the change, it is possible to analyze the economic landscape of both the nations at different timelines and thus, understand the causes.
Now we switch on to the timeline (1947-50s, 1960s, 1970s, 1990s, 2000s) and economic landscape relations of India and Pakistan.
1947 – 1950s :
India: After gaining independence, it was tough for India to have a base for its growth and development. In 1952, India contributed only 3.8% to the world income and the economic landscape during the period was worse. Initially, the state took over the control of economic growth where centralized planning was the ‘mantra’ for economic growth of India. The focus during the initial years was given to agriculture and irrigation with aim of reducing food imports and this proved to be a success by achieving growth rate of 3.6%. During the latter half of the period the government proposed 2nd five-year plan with the motive of heavy industrialization and this proved to be a grave mistake. It made re-allocation of fund making agricultural sector with lack of funds, deficit financing and all of this pressurized the
agricultural output and reserves. This led to inflation, less agricultural produce and hence, hampering the economic growth.
Pakistan: The economic landscape of Pakistan was even worse than India yet they managed to somehow achieve growth rate like that of India and it was mainly because of their agricultural resources. Pakistan was heavily affected with the partition since the skilled, professional, and financial individuals fled back to India. There was a dearth in transportation and communication. They only had agricultural land, farmers, landless laborers, and unskilled individuals. According to “Life Magazine,” their income was ₹450M and expenses were ₹800M. But due to their agricultural development, their food needs were satisfied and food surplus got exported thus, yielding them revenue. Later in 1949, when majority countries devalued including India, Pakistan did not, and this move affected their net exports which subsequently led to trade crisis and forex started to decline. This made Pakistan to initiate economic reforms where they entitled import substitution through industrialization, making the situation even worse. It affected the agricultural output leading to food shortages and inflation.
1960s:
India: The battle with China revealed India’s economic fragility. This necessitated a shift away from centralised planning and price controls. India accepted a stronger role for private sector and international investment, while reducing the former Planning Commission’s influence. Agriculture remained an important sector, employing a large number of people. The 1960s saw the Green Revolution, which introduced high-yielding crop varieties, new agricultural practices, and new irrigation technologies. This resulted in enhanced agricultural output, particularly in wheat and rice production. Trade policies were frequently protectionist, trying to assist domestic sectors through import substitution. In comparison to the early years of independence in the 1950s, the 1960s saw more noticeable progress in industrialization, technological advancement, and agricultural productivity.
Pakistan: This time was marked by a turn towards economic liberalisation and modernization, termed as the “Decade of Development.” Policies were implemented to attract foreign investment, promote industry through import substitution, and modernise infrastructure. This covered the construction of large-scale industrial projects as well as infrastructure like dams and roadways. The 1965 conflict with India had economic consequences for Pakistan, including military spending and interruptions in commercial activities. The decade established foundations for future economic policies and development initiatives, but it also emphasised the complexities and challenges of attaining general upliftment and fair prosperity due to events such as wars. Nonetheless, it was a decade of growth for Pakistan.
1970s:
India: Prime Minister, Smt Indira Gandhi, led India during the 1970s, implementing key economic initiatives that defined the decade. The administration implemented socialist measures, including the nationalisation of banks and other such critical businesses. This was done to reduce private control over the economy and promote more governmental intervention. The impetus of the Green Revolution, which began in the 1960s, carried over into the 1970s, transforming Indian agriculture. During this time, high-yielding crop varieties, advanced agricultural practices, and irrigation technologies were more extensively used, resulting in increased food grain output. In the 1970s, public sector firms (PSUs) expanded in India, spanning industries ranging from steel and heavy machinery to telecommunications and oil refining, contributing to economic growth.
Pakistan: Pakistan suffered tremendous political turmoil in the 1970s, including the dissolution of Pakistan and the establishment of Bangladesh in 1971 as a result of the Indo- Pakistani War. Pakistan had the arduous job of rebuilding and recovering from the loss of East Pakistan (Bangladesh). Economic resources were limited, and infrastructure required reconstruction. The worldwide oil crisis of the early 1970s had an impact on Pakistani economy, increasing import costs and causing inflationary pressures. This time revealed Pakistani energy sector’s vulnerability as well as its reliance on imported oil. It remained focused on agriculture, notably wheat production but the industrial sector expanded slightly, particularly in textiles and consumer goods.
1990s:
India: The major transition in India during the 1990s was the advent of liberalisation of the economy in 1991.This time signified a shift from the preceding era of socialist-inspired policies to market-based reforms. The key changes included the elimination of industrial licencing, the liberalisation of the economy for foreign investment(FDI) and trade, the privatisation of state-owned firms and banking sector reforms. These initiatives were designed to stimulate economic growth, attract investment and integrate India into the global economy. India’s economic growth intensified throughout the 1990s, with GDP growth rates averaging approximately 6-7% each year.
Pakistan: Economic strategies were frequently inconsistent, and governance related concerns hampered long-term economic growth. Pakistan implemented some economic changes in the 1990s, including the privatisation of state-owned firms and the deregulation of some industries. However, changes were implemented at a steadier pace and with less efficacy as compared to India. Economic concerns include excessive foreign debt, fiscal deficits, and balance-of-payments issues. These limits restricted the government’s capacity to spend in infrastructure and social programmes. Pakistan experienced economic and political hurdles that hindered its development possibilities during the decade.
2000s:
India: India’s economy grew strongly throughout the 2000s, with GDP growth rates with an average of 7-9% each year. This boom was fuelled by businesses including information
technology (IT), telecommunications, services, and manufacturing. Throughout this decade, India had reinforced its status as a worldwide powerhouse for IT services and outsourcing(BPO). India maintained the economic liberalisation that began in the 1990s, with an emphasis on further opening up of the economy, privatising state-owned firms and simplifying regulatory frameworks to attract more international investments. India has strengthened its economic linkages with global markets through trade agreements, foreign direct investment (FDI), and participation in international forums. The country got more deeply connected into global supply networks and financial sectors.
Pakistan: Throughout the 2000s, Pakistan’s political instability and governance challenges, affected its economic policies and development trajectory. Corruption, bureaucratic inefficiency and security concerns steadied down economic development and investment. Pakistan continues to suffer with large levels of external debt, fiscal deficits, and balance-of- payments concerns, obstructing its capacity to invest in infrastructure and social services. Beyond this, Pakistan started to be a dependent (on foreign aids) economy, that made its economy not to prioritize economic reforms.
These economic landscapes point out the causes for wide disparities of the two economies.
Economic Policy: Differed the Economic Development?
Over the years, Indian and Pakistani economic policies have had different effects on their respective economic paths. Liberalisation policies, an emphasis on the service and IT sectors, infrastructural development and social development have all contributed to the Indian economy’s good trend. Liberalisation resulted in better economic growth rates, averaging 6- 7% each year in the 1990s and 2000s. It attracted international investment, boosted the growth of businesses such as information technology, telecommunications and services, and
deepened India’s integration into the global economy. The IT sector has become the key driver of economic growth, creating employment, increasing export income and improving India’s worldwide competitiveness in high-value-added services. The government’s initiatives to reduce poverty, promote rural development and social welfare has raised the standard of living, yet there are still gaps between rural and urban communities. This gave an advancement to the India’s economic system.
Pakistan has seen difficulties related to uneven economic transformations, ineffective bureaucracy, and political turbulence, all of which have affected the execution of policies and the trust of investors. These factors have limited economic growth in important industries, complicated the infrastructural development, and produced an unstable business climate.
The industries’ efforts to modernise and diversify have been hampered by obstacles including global market competitiveness, water management problems, and energy limitations. Long- term development prospects have been impacted by the persistent difficulty of economic instability, which has been made worse by external economic shocks and geopolitical conflicts. The political landscape and over dependence on foreign aids made the economy not to prioritize the economic reforms which was the need of the hour. While both, India and Pakistan have experienced economic hardships and have worked to reform their economies, India has outperformed Pakistan in terms of growth and development due to its more deliberate turn towards liberalisation and emphasis on services and technology.
Conclusion:
The economic landscape of India and Pakistan has been a subject of comparison for over 77 years, with both nations starting from the same point in history. Both economies were
characterized by underinvestment, de-industrialization, and varying levels of economic exploitation. The economic landscapes of India and Pakistan have evolved over time, with India’s growth rate initially ranging between 3% to 4%. In the 1960s, Pakistan’s economy surpassed India’s by 2%, thanks to protectionist trade policies and benefits from East Pakistan. However, the period between 1970s-1990s saw Bangladesh’s formation disrupt Pakistan’s economic stability, forcing it to fall in foreign aids and prioritizing economic reforms.
India and Pakistan have varying economic policies, with India experiencing better growth rates and attracting international investments due to liberalisation policies. The IT sector has become a key driver of economic growth, creating employment and increasing export income. Pakistan faces challenges due to uneven economic transformations, ineffective bureaucracy, and political turbulence, limiting economic growth in industries and creating an unstable business climate. India has outperformed Pakistan in terms of growth and development due to its more deliberate liberalisation and focus on services and technology. In short, India’s attitude towards economic policies at different economic landscapes made India the 5th largest economy and non-priority on economic reforms and over dependency on foreign aids gave different durability to cloths weaved using same thread.
Written by – Kevin Jacob
Edited by – Shruti Shiraguppi