"AN INDIAN CONSPIRACY" - India spends more of the GDP on development than Pakistan
An Indian conspiracy
India’s population last year was 6.8 times Pakistan’s, which was estimated to be 17.89 crore. Its gross domestic product per head at current market prices was 3.4 times Pakistan’s. It follows that India’s income per head was half of Pakistan’s, or that an average Pakistani was twice as well off as an Indian.
That, however, assumes that the purchasing power of the two rupees was the same. This is obviously unwarranted. One way of correcting this error is to bring the exchange rates into the picture. In the nine months to last March, the Indian rupee was 1.88 times the Pakistani rupee. If we correct for this difference in value, India’s per capita income rises to 95 per cent of Pakistan’s.
But we can do better; there are some institutions which value countries’ GDPs at the same prices. The International Monetary Fund estimated India’s income per head in 2010 at $3,339 — 20 per cent more than Pakistan’s. The World Bank placed it at $3,586, 34 per cent more than Pakistan’s. The Central Intelligence Agency of the United States of America placed it at $3,500, 40 per cent higher than Pakistan’s. If these figures are to be consistent with the ones given in the previous paragraph, prices in Pakistan must be 26-47 per cent higher than in India. Pakistan imposes stringent restrictions on imports only from India, in contravention to the most favoured nation treatment it is required to give India as member of the World Trade Organization. The excuse it gives is that Indian industries are too competitive and would wipe out Pakistani industries. The price comparison supports Pakistan’s contention, except that overvaluation of its rupee is not a gift from heaven; it is the result of its government’s policy.
If the Pakistani rupee is overvalued, it should show in the growth of imports and exports. In fact, Pakistan imports far more than it exports. Its exports in 2009-10 were only 63 per cent of its imports. But that is hardly peculiar to Pakistan; India’s exports were only 61 per cent of its imports. If Pakistan’s rupee is overvalued, India’s would seem to be even more so. But it is wrong to look at the balance of trade alone; a country may export services and use the money to import goods. And that is what both India and Pakistan do. In 2009-10, Pakistan ran a trade deficit of $11.8 billion, but it received transfers of $12.6 billion from abroad, of which $8.9 billion came from Pakistani workers abroad. India, on the other hand, ran a trade deficit 10 times as large — $118.4 billion — it received private transfers from abroad of $52 billion, as well as $33.7 billion of something that the Reserve Bank of India mysteriously calls miscellaneous receipts, but which includes the earnings of the information technology industry.
The figures I gave at the beginning imply that India’s GDP at current prices and exchange rates is roughly six-and-a-half times Pakistan’s. But its 2009-10 imports of $300 billion were almost 10 times Pakistan’s $31 billion, and its exports of $182 billion were nine times Pakistan’s. This is odd, for smaller countries are normally more open; Pakistan should have higher trade ratios. Why is its trade so constricted?
The structure of exports of the two countries is not very different. Of India’s exports in 2009-10, two-thirds were manufactures, a sixth mineral oil products, a tenth agricultural goods, and the rest minerals. Of Pakistan’s exports, seven-tenths were manufactures, a sixth food (that is, agricultural) products, and a twentieth oil products.
But the range of manufactures was very different. Three-quarters of Pakistan’s exports were textiles; of India’s manufactured exports, a quarter was machinery, vehicles and metal goods, a fifth was gems and jewellery, an eighth was textiles, and a tenth was chemicals. India’s exports were more diversified; so they found more diverse markets.
India’s governments — Central, state and local — took away 22 per cent of 2009-10 GDP: 16 per cent in the form of taxes and 6 per cent in other forms. Pakistan’s governments managed to take away only 14 per cent: 10 per cent in taxes and 4 per cent in other ways. Income tax and corporation tax yielded 6 per cent of GDP in India — almost twice as much as in Pakistan. India’s fiscal deficit of 12 per cent of GDP was twice as high as Pakistan’s 6 per cent; in other words, India’s governments financed twice as high a proportion of GDP by borrowing and by manufacturing money as Pakistan’s.
Thus Indian governments’ expenditure came to a third of GDP; Pakistani governments’ expenditure came to only a fifth. The ratio of current expenditure to GDP was not very different for the two countries: 14 per cent for India, 17 per cent for Pakistan. India spent 2.3 per cent of GDP on defence as against Pakistan’s 2.5 per cent; on interest India spent 5.3 per cent as against Pakistan’s 4.5 per cent. Thus their expenditure on old-style government as a proportion of GDP was similar. What was different was the volume of development expenditure as a proportion of GDP — three-and-a-half per cent for Pakistan, 19 per cent for India.
One can take either of two views on all this expense that India incurs on “development”. One can either take the government’s claims at face value, and say that a third of this development expenditure went to social services, principally education and health, a quarter to energy, which is almost entirely in government ownership, and a sixth to transport, which includes railways, ports, and airports. The governments in India spend on a vastly larger scale than those in Pakistan on infrastructure and social services. Or one can take the cynical view and say that the Indian governments give politicians opportunities to enrich themselves on an enormously greater scale. Indian democracy works so much better than Pakistani because it is better lubricated with money.
The two interpretations are not mutually exclusive. Whether they are benign or malign, governments in India have been able to appropriate a much larger share of GDP; and they have spent the excess on benefiting a fairly large group of people. By doing so, they have kept the common people out of the way of those who invest, innovate and expand the economy, and let the latter get on with growth. The latter, in return, have given governments more resources to enjoy and play around with. The political contract between the queen bee and the worker bees has worked better in India. As a result, the beehive has grown faster. In Pakistan, on the other hand, the queen bee keeps screaming “Kashmir! Kashmir!” and makes her bees go and steal honey from the Indian hive. This gives them a tremendous feeling of self-righteousness; but it does not make them happy or mutually comfortable. Their obsession has worked well — so well that it is difficult not to suspect that it is an Indian conspiracy. Whenever it looks as if Pakistanis are beginning to forget Kashmir and starting to go about their lives like normal people, India sends a few mischief makers; they get the Pakistanis back on the right, righteous, miserable road. Long live Kashmir — for Indians at any rate.
An Indian conspiracy
