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India and Pakistan at 60: A Tale of Two Economies

Prepared by: Lee Hudson Teslik
August 15, 2007

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Revelers gathered in Islamabad, Pakistan, on August 14, to fete the sixtieth anniversary of the country’s independence from British colonial governance, but gloomy conditions marred the event. Terror threats kept many inside, and those who did show up to party were soaked by storms (Daily Times). The mood in the Pakistani capital contrasted sharply with that of India, which celebrated its own independence a day later, on August 15. International media seized on the birthday as an opportunity to celebrate India’s newly robust role in the global community, particularly economically. The Times of India commented that Pakistan was “forced into shadow as India at 60 gets all the bouquets.”

Pakistan has never had easy relations with its neighbor since the 1947 partition of the British Indian Empire, separating India and Pakistan. (Modern-day Sri Lanka and Myanmar wouldn’t split from India until a year later, Bangladesh wouldn’t secede from Pakistan until 1971, and India and Pakistan still dispute the borders of the Kashmir region.) The BBC outlines the rocky history of Indo-Pakistani relations in a timeline.

Economic trends bring a new twist to the rivalry, with India’s sizzling economy surpassing Pakistan’s over the past decade. According to CIA data, India’s 2006 per-capita gross domestic product was $3,800, compared to $2,600 in Pakistan. As recently as 1999, Pakistan’s per-capita GDP exceeded India’s ($2,000 for Pakistan compared to $1,800 for India).

Any number of factors account for the diverging economic trajectories. The Indian journalist Gurcharan Das extols India’s economic development model, arguing in Foreign Affairs that a coupling of domestic consumption and high-tech services allowed the country to break the shackles of a once “heavy-handed” central government. The economist Jeffrey Sachs, in his book The End of Poverty, points out the steps taken by Indian Prime Minister Manmohan Singh in his former role as finance minister “to end the most crippling bureaucratic restrictions on international trade and investment.” CFR’s Jagdish Bhagwati notes in the Wall Street Journal that British colonial institutions played a role in this process, encouraging an evolution toward political stability that underpinned India’s economic takeoff.

Pakistan has found the path to political and economic reform more slippery. The Economist acknowledges the steps Pakistan has taken toward economic liberalization since 2001, but points to the constraining effect radical Islam has on development, adding that the military rule of President Pervez Musharraf is “weakening institutions that were already feeble” and “do[ing] grave damage to the long-term political health of Pakistan.” Speaking at CFR on August 15, Pakistan’s former Prime Minister Benazir Bhutto reiterated the point: “Democracy has never really been given a chance to grow or nurture in my homeland.” The BBC says U.S. aid to successive Pakistani dictators has served to clog up the country’s process of political reform. In a separate article, the Economist says political instability in Pakistan potentially threatens not only Islamabad but the prospects for economic development regionally, including in India.

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