Economic: India, Pakistan playing their Great Game

[ST1976]

In terms of reforms and leberalisation Pakistan has taken a leap but still lacks behind India in other fields.
Within ten years from now Pakistan will be receiving same amout of FDI as India. Heard that from some Merryl Lynch analyst.

hi Neo, infact if we have a look on FDI growth of Pakistan which was about 250% last year, with total of about $3.8bn for the financial year 2005-2006, simple calculation says it may touch even $10bn for the current financial year while $10bn FDI is even target of India for this year. but if we do analysis of the FDI pakistan received last year, out of $3.8bn, $0.7bn came through FII which look for just portfolio investments and can be taken from share market even because of a rumor. and about $1.6bn came in pakistan through privatization. and out of rest $1.5bn, about $1.0bn came in just energy sector.( please correct if I miss data’s as I don’t have time to search google for exact figures.)

infact FDI is FDI whether it comes in energy sector or in manufacturing sector, but if it comes in manufacturing sector, it directly increase export while for a non-oil exporting country like pakistan, FDI in energy sector is not going to support export of pakistan. and FDI through privatization depends on your capacity to do privatization. how much you have to privatize.

250% growth in FDI for pakistan is really impressive but it can not be said to be excellent until pakistan get more FDI in manufacturing sector. thanks

 

[ST1976]

However, India's economy is larger than Pak. by a factor of around 6 at the moment. If there is to be a change in relative sizes, its going to take at least 30 years assuming India takes a nosedive and Pak. continues on very strong growth.

sigatoka pakistani currency is over valued by atleast 20%-25% no less than that. the $138bn pakistani economy is a lie. Pakistan has suffered high inflation for a long. Indian economy wll come around no less than 9 to 10 times of pakistani economy if pakistani currency will be rightly valued. 20%-25% growth in per capita income of pakistan every year in rupees term is a lie. in real terms, pakistani per capita income grew by just 2.66% on average for last 5 years. (world bank reports, real per capita GDP growth rate of pakistan for the year 2001, 2002, 2003, 2004, 2005 was -0.3%, 1.1%, 2.9%, 4.3%, 5.3% respectively).
http://web.worldbank.org/WBSITE/EXT...2470434~piPK:2470429~theSitePK:659149,00.html

Whole world like china, india, thailand and other asian countries are keeping their currency value lower to get advantage in export. just because of lower currency value, china was taking too much advantage in trade over US and EU. and now both US and EU has made some restrictions over import from china as chineese currency is lower. while military government of pakistan wants to see high per capita income of pakistan so there is no space for trade policy makers of pakistan to depreciate pakistani currency. this is the difference between dictatorship and a democratic governments. under dictatorship, the leader wants to see growth at any cost while he doesn’t understand economic policies cant be made on gun point.

 

[ST1976]

After some time economy doesn't grow!

Pakistan will have a space to mature its economy up to 10 years.

this is a wrong assumption. if we have a look on china, her economy is growing with a rate over 9% for last 15 years while chinese economy is 2.2 times to indian economy in PPP term and 2.8 times in real term.

"Growth Potential" of india is measured highest among the BRIC economies and this is predicted that india will be able to maintain above 7% growth on average for next 30-40 years because of it's Growth Potential.
http://www2.goldmansachs.com/hkchina/insight/research/pdf/BRICs_3_12-1-05.pdf

 

[ST1976]

India would have stagnated by then?

I mean in another 10 years when Pakistan equals India?

pakistan is already almost equal to india as living standard of countries is compared on per capita income basis not on economy size basis. and if pakistani currency will be rightly valued, it will come around almost equal to that of india.

 

[sigatoka]

1. sigatoka pakistani currency is over valued by atleast 20%-25% no less than that. the $138bn pakistani economy is a lie.

2. Pakistan has suffered high inflation for a long.

3. Indian economy wll come around no less than 9 to 10 times of pakistani economy if pakistani currency will be rightly valued.

4. in real terms, pakistani per capita income grew by just 2.66% on average for last 5 years. (world bank reports, real per capita GDP growth rate of pakistan for the year 2001, 2002, 2003, 2004, 2005 was -0.3%, 1.1%, 2.9%, 4.3%, 5.3% respectively).
http://web.worldbank.org/WBSITE/EXT...2470434~piPK:2470429~theSitePK:659149,00.html

5. Whole world like china, thailand and other asian countries are keeping their currency value lower to get advantage in export. just because of lower currency value,

6. china was taking too much advantage in trade over US and EU. and now both US and EU has made some restrictions over import from china as chineese currency is lower. while military government of pakistan wants to see high per capita income of pakistan so there is no space for trade policy makers of pakistan to depreciate pakistani currency.

1. Its simply not possible for the currency to be overvalued by that amount because the central bank would run out of foreign reserves and once it was depleted the value of rupee would fall to its market determined rate. So your wrong. Also the figures i was using for GDP for Pak. and India were approx. PPP which is not affected by exchange rates.

2. What is the inflation rate right now?

3. I doubt that.

4. Lies, Lies and statistics. I dont know what to say, hasnt the economy been growing at around 5% avg. for last five years? Even accounting for pop. growth of 1-2% the per capita growth rate should be 3%.

5. Saying that those countries export a lot because of depressed currencies is a gross oversimplification of the effort they have put in developing infrastructure and so forth to develop the export sector.

6. Its possible that if all restrictions are removed, the Chinese currency could move lower because Chinese investors would move hundreds of billions of dollars of investment offshore for diversification benefits.

Depreciating currency will lower domestic consumption and raise inflation because import prices would rise dramatically.

 

[sigatoka]

"Growth Potential" of india is measured highest among the BRIC economies and this is predicted that india will be able to maintain above 7% growth on average for next 30-40 years because of it's Growth Potential.
http://www2.goldmansachs.com/hkchina/insight/research/pdf/BRICs_3_12-1-05.pdf

40 years is a long, long time. Look at Soviet Union, Argentina and Indonesia. All these nations were on a upward movement and because of certain circumstances they are much farther back than would have been led to believe from simple linear projections.

 

[sigatoka]

Oh yeah also, theres no way to "depress" value of ones currency without lowering domestic interest rates and hence fueling inflation.

 

[ST1976]

There is no reason why Pak. can't be bigger than India's, after all Japan has less land and around the same number of people as Pak's yet their economy is more than twice as big as India's. Pak. size is determined only be the economic policies pursued by the govt.

There is no word like impossible in the world, but if I dare to say, this is impossible for pakistan to get bigger economy size than india. environment in 70s and 80s was completely different when Japanese economy grew and took larger size. it was a completely different time when small economies like Japan, S Korea, Singapore got sudden growth. japan use to make only cheap quality products in 60s. then they improved their production lines and started producing quality products. US and western countries were cooperating her. but if we have a look on china, they got too much investment in manufacturing sector for last 15 years and too much technology transfer during that time but still chinese products are known for their cheap quality. the reason, first china has to level western technology then there is a question of new technology. also there is no help from either US or EU, Japan , S Korea for china. whatever china want to do, they gotto do by themselves. I may say japan was bit lucky that time who faced no ban from US or Europe for technology improvement and leveled them and then they could introduce new and better technology than what EU or US had. it will take no less than 20-30 years for even china to level western technology.

countries like Pakistan cant invest that much on technology improvement as china is doing but still not that enough. big economies like china, India can afford to waste some money on technology improvement, not only in manufacturing sector but also in space and other technologies but this is almost impossible for small pakistani economy to do so. even if pakistan just copy chinese technology, they may do some good. but to introduce new and better technology than what US, EU and Japan have......... even to level the technology west have right now............. i may say, growth like what japan had in 70s till 90s is almost impossible for pakistan.

 

[ST1976]

Oh yeah also, theres no way to "depress" value of ones currency without lowering domestic interest rates and hence fueling inflation.

"depreciation" of currency is the word which is directly linked with "inflation". this is said, if a country is having 8%-7% inflation rate, it's currency would be given atleast 7%-8% depreciation w.r.t. US$, if US$ is also not having same level of inflation.

here you are right that any sudden depreciation can cause high inflation as low import will reduce availability of products in market place and hence increasing inflation more. but even by slow speed, pakistan "has to" depreciate her currency if she want to survive in world market. otherwise pakistan will face same kind of economic crisis as ASIAN faced in late nineties.

 

[ST1976]

1. Its simply not possible for the currency to be overvalued by that amount because the central bank would run out of foreign reserves and once it was depleted the value of rupee would fall to its market determined rate. So your wrong. Also the figures i was using for GDP for Pak. and India were approx. PPP which is not affected by exchange rates.

2. What is the inflation rate right now?

3. I doubt that.

4. Lies, Lies and statistics. I dont know what to say, hasnt the economy been growing at around 5% avg. for last five years? Even accounting for pop. growth of 1-2% the per capita growth rate should be 3%.

5. Saying that those countries export a lot because of depressed currencies is a gross oversimplification of the effort they have put in developing infrastructure and so forth to develop the export sector.

6. Its possible that if all restrictions are removed, the Chinese currency could move lower because Chinese investors would move hundreds of billions of dollars of investment offshore for diversification benefits.

Depreciating currency will lower domestic consumption and raise inflation because import prices would rise dramatically.

a currency get over valued when that particular country suffer higher inflation rate as compared to other countries of the world. and rest, ………… please don’t mind and wait for “Neo”, he may better understand what I meant to say in my last response. you look like a knowledgeable man but I think you would learn bit more about economy. if I said anything wrong, I’m sorry for that.

the link is of world bank. their contact details is given in their website, please feel free to contact them if you doubt on their datas. and here, again the talk is of “Real” growth rate of pakistan which was about 4.4% on average for last 5 years with about 1.7% population growth (not “Nominal” growth rate of pakistan which was about 20%-25% for last 5 years), so I would repeat, please wait for Neo.

GDPs of india and pakistan is about $790bn and $138bn respectively in "Real term" and about $3800bn and $380bn respectively in PPP term. thanks
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf

 

[ST1976]

40 years is a long, long time. Look at Soviet Union, Argentina and Indonesia. All these nations were on a upward movement and because of certain circumstances they are much farther back than would have been led to believe from simple linear projections.

SU, .india is no Union. india is a country which can not be broken no matter what india will have to do with rest of world.:whatever:

Indonesia, there is no East Timor in india. :smile:

Argentina, Foreign Reserve of india is about $165bn which is enough for 12 months of import. India is not goin to face any economic crisis like South America or ASIAN.

 

[sigatoka]

1. a currency get over valued when that particular country suffer higher inflation rate as compared to other countries of the world. and rest,

2. but I think you would learn bit more about economy. if I said anything wrong, I’m sorry for that.

3. the link is of world bank. their contact details is given in their website, please feel free to contact them if you doubt on their datas. and here, again the talk is of “Real” growth rate of pakistan which was about 4.4% on average for last 5 years with about 1.7% population growth

1. An over valued currency is one where the central bank depletes its stock of reserves which reduces the price of its currency. There is no other defintion of over valued currency (as far as i know)

2. Im majoring in economics

3. I dont want to get into a battle of stats. because there are lots of institutions that give wildly different figures, but i do know this, Pak. economy over the last five years has been growing reasonably and over the last it has been very good. This means that the trend of growth is trending up not down. If this continues in five years time the avg. growth for five years will be 6%.

 

[ST1976]

1. An over valued currency is one where the central bank depletes its stock of reserves which reduces the price of its currency. There is no other defintion of over valued currency (as far as i know)

2. Im majoring in economics

3. I dont want to get into a battle of stats. because there are lots of institutions that give wildly different figures, but i do know this, Pak. economy over the last five years has been growing reasonably and over the last it has been very good. This means that the trend of growth is trending up not down. If this continues in five years time the avg. growth for five years will be 6%.

i guess, the time you will complete your education of economics, you will understand that if a country (for example Pakistan) suffer 8%-9% inflation for 5-6 years and keep her currency equal to US$ while US is not having that level of inflation rate (or any depreciation of US$), the Pakistani currency will get over valued w.r.t US$ during that 5-6 years.

Pakistan is doing excellent and im sure Pakistan will be able to create a type of environment in south Asia which will cause a type of competition among SA economies and will finally result in economic growth of whole SA. countries of SA will get high growth rate and pakistan will be able to beat India in terms of growth rate.
I give my best wishes to pakistan for a better future.

 

[sigatoka]

1. i guess, the time you will complete your education of economics,

2. suffer 8%-9% inflation for 5-6 years and keep her currency equal to US$ while US is not having that level of inflation rate (or any depreciation of US$), the Pakistani currency will get over valued w.r.t US$ during that 5-6 years.

1. Sure Professor

2. I dont know what you are saying. How will a high inflation rate in Pak. result in an over valued Rupee?

 

[ST1976]

I dont know what you are saying. How will a high inflation rate in Pak. result in an over valued Rupee?

i tell you something. if apples in pakistan is sold at 20 rupees/kg (with 1US$=60 Rs) and becoz of inflation, its new value is 40 rupees/kg after 3 years (with same 1US$=60 Rs). in world market, new value of apple of pakistan is now 66 cents/kg as compare to 33 cents/kg, three year before ( with 1US$=100 cents). now the apples of other countries are now cheaper than that of pakistani apples after three years. and if pakistani rupees is not given some depreciation, atleast of 50-60%, she will not be able to protect her market and importers will introduce foreign made apples in pakistani market to get profit on it. and in short, pakistani currency will be said to be "overvalued" as compare to US$, in economics.

inflation rate refers to increase in prices of products in market place. so if the cost of products are increasing, the currency would be given some depreciation to protect her internal market. hope i could explain it. thanks.