India and Pakistan contrasted 2010
Dr. Ishrat Husain, a former World Bank senior official and an ex governor of the State Bank of Pakistan, wrote an article captioned "India, Pakistan: a comparison" at the end of the first five decades of two nations' existence as independent states. To my knowledge, Dr. Hussain has not done an update of his article since it was first published. Although about three years too late, this post is my attempt to present a comparison of the two South Asian nations after sixty years of independence.
Here is the opening paragraph from Dr. Husain's article from the late 1990s, which I believe still stands true today:
"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."
Not much has changed in the last ten years as far as the above paragraph is concerned. The relationship between the two nations remains as emotionally charged as ever.
Then Dr. Husain's essay talked about what he saw as the common successes of the two nations in the first fifty years:
1. 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.
2. The incidence of poverty (defined as $1 per day) has also been reduced significantly although the number of absolute poor remains astoundingly high. However, the level of poverty is lower in Pakistan.
3. Food production has not only kept pace with the rise in population but has surpassed it. Both countries, leaving aside annual fluctuations due to weather conditions, are self-sufficient in food. (Pakistan exports its surplus rice but imports small volumes of wheat).
4. Food self-sufficiency has been accompanied by improved nutritional status. Daily caloric and protein intake per capita has risen by almost one-third but malnourishment among children is still high.
5. The cracks in the dualistic nature of the economy -- a well-developed modern sector and a backward traditional sector -- are appearing fast in both the countries. A buoyant middle class is emerging. The use of modern inputs and mechanization of agriculture has been a leveling influence in this direction. But public policies have not always been consistent or supportive.
Here is the update to the above assessment:
1. Per capita incomes in both nations have more than doubled in the last ten years, in spite of significant increases in population. The most recent and detailed real per capita income data was calculated and reported by Asian Development Bank based on a detailed study of a list of around 800 household and nonhousehold products in 2005 and early 2006 to compare real purchasing power for ADB's trans-national income comparison program (ICP). The ABD ICP concluded that Pakistan had the highest per capita income at HK$ 13,528 (US $1,745) among the largest nations in South Asia. ADB reported India’s per capita as HK $12,090 (US $1,560). Nominal per capita GDP estimates for Pakistan range from US $1000 to US $1022, while the range for India is from US $ 1017 to US $ 1100. Purchasing power parity (PPP) per capita GDP estimates for Pakistan from various sources range from $2500 to $2644, while the same sources put the range for India's per capita GDP from $2780 to $2972.
2. The incidence of poverty (defined as $1.25 per day) has also come down in both nations, although the number of poor in South Asia still remains very high. According to the 2009 UN Human and Income Poverty Report, the people living under $1.25 a day in India is 41.6 percent, about twice as much as Pakistan's 22.6 percent. The most recent estimates by UNDP in Pakistan for 2007-2008 indicate poverty level at 17.2%.
3. Food production has barely kept pace with the rise of population, particularly in Pakistan. There have been higher food prices and shortages of various commodities such as wheat and sugar. There is widespread hunger and malnutrition in all parts of India. India ranks 66th on the 2008 Global Hunger Index of 88 countries while Pakistan is slightly better at 61 and Bangladesh slightly worse at 70. The first India State Hunger Index (Ishi) report in 2008 found that Madhya Pradesh had the most severe level of hunger in India, comparable to Chad and Ethiopia. Four states — Punjab, Kerala, Haryana and Assam — fell in the 'serious' category. "Affluent" Gujarat, 13th on the Indian list is below Haiti, ranked 69. The authors said India's poor performance was primarily due to its relatively high levels of child malnutrition and under-nourishment resulting from calorie deficient diets.
4. Though the nutritional status has improved in both nations, there are still very high levels of malnutrition, particularly among children. In spite of the fact that there is about 22% malnutrition in Pakistan and the child malnutrition being much higher at 40% (versus India's 46%), the average per capita calorie intake of about 2500 calories is within normal range. But the nutritional balance necessary for good health appears to be lacking in Pakistanis' dietary habits. Senior Indian official Syeda Hameed has acknowledged that Pakistan and Bangladesh have done better than India in meeting the nutritional needs of their populations.
5. India's economy has grown more rapidly than Pakistan's in the last ten years. However, both nations have accepted and implemented significant economic reforms that have opened up their economies and brought about rapid growth, more than doubling the size of each economy in the last ten years.
Dr. Husain's paper went on to talk about the common failures of the two countries in their first fifty years as follows:
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 banks’ portfolio. The financial intermediation role in mobilizing and efficiently allocating domestic savings 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.
Here is the update on the areas of common failures of India and Pakistan:
Though the level of globalization of the two nations remains well below China's, both India and Pakistan have made significant strides in this direction. In Pakistan, exports account for less than 15% of gross domestic product, compared with about 25% in India and 40% in China, according former Musharraf economic adviser Salman Shah. The policy changes in both nations have also opened up greater FDI inflows, though Pakistan's FDI has declined in the last two years due to security perceptions, after several years of strong FDI inflows, particularly in banking, telecommunications, real estate and oil and gas sectors.
Both countries continue to run large budget deficits. India's fiscal deficit for 2008-2009 stood at 6.5 percent of gdp and it is rising, according to Bloomberg. Pakistan has said its fiscal deficit will widen to as much as 4.9% of gross domestic product in 2009-2010, according to the Wall Street Journal.
The banking sectors in both nations have seen major improvements in delivery of new services. India and Pakistan have ranked 31 and 34 respectively, out of 52 countries in the World Economic Forum's first Financial Development Report. Both nations are ranked ahead of the Russian Federation (35), Indonesia (38), Turkey (39), Poland (41), Brazil (40), Philippines (48) and Kazakhstan (45).
Consumer and commercial credit availability and retail services have improved in the last ten years. Microfinance sectors are now well established in South Asia, helping fight poverty, and empowering women economically.
Both nations are suffering from poor governance resulting in lack of responsiveness to the basic needs of the vast majority of their people. In fact, the latest Human Development Report for 2009 shows that both major South Asian nations have slipped further down relative to other regions of the world. Pakistan's HDI ranking dropped 3 places from 138 last year to 141 this year, and India slipped six places from 128 in 2008 to 134 this year.
The level of urbanization in Pakistan is now the highest in South Asia, and its urban population is likely to equal its rural population by 2030, according to a report titled ‘Life in the City: Pakistan in Focus’, released by the United Nations Population Fund. Pakistan ranks 163 and India at 174 on a list of over 200 countries compiled by Nationmaster. The urban population now contributes about three quarters of Pakistan's gross domestic product and almost all of the government revenue. The industrial sector contributes over 27% of the GDP, higher than the 19% contributed by agriculture, with services accounting for the rest of the GDP.
The increasing urbanization has had the effect of defusing the "population bomb" in Pakistan. With increasing urbanization, Pakistan's population growth rate has declined from 2.17% in 2000 to 1.9% in 2008. Based on PAI Research Commentary by Karen Hardee and Elizabeth Leahy, the total fertility rate (TFR) in Pakistan is still the highest in South Asia at 4.1 children per woman. Women in urban areas have an average of 3.3 children compared to their rural counterparts, who have an average of 4.5 children. The overall fertility rate has been cut in half from about 8 children per woman in 1960s to about 4 this decade, according to a study published in 2009.
Third, Dr. Husain turned his attention to the areas where India 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 Pakistan’s dismal performance in social development are its inability to control population growth and the lack of willingness to educate girls in the rural areas.
Here's the update on areas where India was ahead of Pakistan ten years ago:
In response to the growing concerns about the nation lagging in higher education achievement, Pakistan launched Higher Education Reform led by Dr. Ata ur Rahman, adviser to President Musharraf in 2002. This reform resulted in over fivefold increase in public funding for universities, with a special emphasis on science, technology and engineering. The reform supported initiatives such as a free national digital library and high-speed Internet access for universities as well as new scholarships enabling more than 2,000 students to study abroad for PhDs — with incentives to return to Pakistan afterward. The years of reform have coincided with increases in the number of Pakistani authors publishing in research journals, especially in mathematics and engineering, as well as boosting the impact of their research outside Pakistan.
But India remains significantly ahead of Pakistan in higher education, with six universities, mostly IITs, ranked among the top 400 universities of the world versus only one from Pakistan, National University of Science and Technology(NUST) ranked at 350, up from 375 last year. Replication of NUST campuses, like the IIT campuses in India, can help spawn more highly rated institutions of higher learning near major cities in Pakistan.
Pakistan's information technology industry is quite young. It is in very early stages of development compared to the much older and bigger Indian IT industry, which had a significant headstart of at least a decade over Pakistan. During the lost decade of the 1990s under Bhutto and Sharif governments, Pakistani economy stagnated and its IT industry did not make any headway. However, the industry has grown at 40% CAGR during the 2001-2007, and it is estimated at $2.8 billion as of last year, with about half of it coming from exports. This pales in comparison to over $5 billion revenue a year reported by India's Tata Consulting alone.
India's literacy rate of 61% is well ahead of Pakistan's 50% rate. In higher education, six Indian universities have made the list of the top 400 universities published by Times Higher Education Supplement this year. Only one Pakistani university was considered worthy of such honor.
Pakistan has consistently scored lower on the HDI sub-index on education than its overall HDI index. It is obvious from the UNDP report and other sources that Pakistan's dismal record in enrolling and educating its young people, particularly girls, stands in the way of any significant positive development in the nation. The recent announcement of a new education policy that calls for more than doubling the education spending from about 3% to 7% of GDP is a step in the right direction. However, money alone will not solve the deep-seated problems of poor access to education, rampant corruption and the ghost schools that only exist on paper, that have simply lined the pockets of corrupt politicians and officials. Any additional money allocated must be part of a broader push for transparent and effective delivery of useful education to save the people from the curses of poverty, ignorance and extremism which are seriously hurting the nation.
A basic indicator of healthcare is access to physicians. There are 80 doctors per 100,000 population in Pakistan versus 60 in India, according to the World Health Organization. For comparison with the developed world, the US and Europe have over 250 physicians per 100,000 people. UNDP recently reported that life expectancy at birth in Pakistan is 66.2 years versus India's 63.4 years.
Finally, Dr. Hussain addressed areas where he thought Pakistan was ahead of India fifty years after independence as follows:
The economic growth rate of Pakistan has been consistently higher than India. Starting from almost the same level or slightly lower level in 1947, Pakistan’s per 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. Pakistan’s export growth has been stronger and the composition of exports has 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.
Here's the update on the above assessment:
Although Pakistan's economy has more than doubled in the last decade, the nation's economic growth has been slower than India's since the 1990s. Since 2008, Pakistan's economy has, in the words of the Economist, returned to the "bad old days" of the lost decade of 1990s. According to Economic Survey 2008-09, presented by Finance Minister Shaukat Tarin, Pakistan's economy grew by a mere 2.0 percent, barely keeping pace with population growth. The growth fell significantly short of the 4.5 percent target for the year, which was already very modest compared with an average of 7% economic growth witnessed from 2001-2008.
While it lags behind China, India now exports a larger percentage of its GDP than Pakistan. In Pakistan, exports account for less than 15% of gross domestic product, compared with about 25% in India and 40% in China, according former Musharraf economic adviser Salman Shah.
At 30% of GDP, Indians continue to save twice as much as Pakistanis who save about 15%. Indians' private savings provide a much larger pool for domestic investments than the much smaller private savings in Pakistan.
Let me conclude with an excerpt from a British writer William Dalrymple's article, published on 14 August, 2007 in The Guardian:
"On the ground, of course, the reality is different and first-time visitors to Pakistan are almost always surprised by the country's visible prosperity. There is far less poverty on show in Pakistan than in India, fewer beggars, and much less desperation. In many ways the infrastructure of Pakistan is much more advanced: there are better roads and airports, and more reliable electricity. Middle-class Pakistani houses are often bigger and better appointed than their equivalents in India.
Moreover, the Pakistani economy is undergoing a construction and consumer boom similar to India's, with growth rates of 7%, and what is currently the fastest-rising stock market in Asia. You can see the effects everywhere: in new shopping centers and restaurant complexes, in the hoardings for the latest laptops and iPods, in the cranes and building sites, in the endless stores selling mobile phones: in 2003 the country had fewer than three million cellphone users; today there are almost 50 million."
Summary:
Goldman Sachs report on "BRIC" and "Next 11" projects that India will be the fourth largest economy in the world by 2025. Goldman also forecasts Pakistan's rank moving up from the 26th largest now to the 18th largest economy in the world by 2025. If the deteriorating security situation and current economic slump in Pakistan are not contained and managed properly, there is a strong chance that Pakistan would be left significantly behind India at the time of the next update of this comparison in 2020. However, Pakistan is just too big to fail. In spite of all of the serious problems it faces today, I remain optimistic that country will not only survive but thrive in the coming decades. With a fairly large educated urban middle class, vibrant media, active civil society, assertive judiciary, many philanthropic organizations, and a spirit of entrepreneurship, the nation has the necessary ingredients to overcome its current difficulties to build a strong economy with a democratic government accountable to its people.
