India and Pakistan inherited the same economic legacy of underinvestment and neglect from Britain when they became independent states after partition on August 15, 1947. Their colonial economies were among the most poor of the world.
For both nations, independence led to strong growth almost immediately and fueled significant gains in education, health care, and other areas of development. But it was Pakistan that experienced faster growth rates in the first four decades or so, while India lagged behind.
Something started to change around the 1990s when their roles reversed and India overtook Pakistan, eventually becoming the world’s third largest economy in terms of purchasing power and the “I” of BRICS – an acronym making reference to a bloc of five key emerging countries.
What explains India’s growth spurt?
As a scholar of international political economy, I believe that India’s stronger embrace of democracy – at the same time that Pakistan has seen frequent military dictatorships and changes of government – has something to do with it. a lot.
A colonial heritage
From 1857 to 1947, Britain ruled directly over most of the territory that became the independent states of India and Pakistan.
Economic growth under British rule was minimal, averaging just 0.9% per year from 1900 to 1947. This happened largely because India’s colonial economy was primarily agricultural, and yet the British little invested in improving agricultural productivity.
Additionally, Britain has made limited investments in the welfare of the Indian people, including underfunding their education and health care. As a result, colonial India had one of the lowest literacy rates in the world, at around 17%, and life expectancy was in the mid-1930s. Britain’s neglect of the respect to the plight of Indians is perhaps best exemplified by the 1943 Bengal famine in eastern India, in which more than 1.5 million people died as a result of political failure .
Post-independence growth, driven by Pakistan
Britain has decided to abandon its “jewel in the crown” and divide the region into Hindu-dominated India and Muslim Pakistan after facing growing pressure from locals and a growing nationalist movement.
This led to one of the largest forced migrations of the 20th century: nearly 9 million Hindus and Sikhs settled in India and around 5 million Muslims in geographically separated East and West Pakistan over the two decades. following. An estimated one million people died in mass violence.
Economic growth, however, took off, with both new countries growing by 3-4% in the first decade or so of independence as the respective governments invested more in their economies. But very quickly, differences appeared.
While both economies were largely state-controlled, the Indian government curtailed exports and adopted a protectionist trade policy in the 1960s that limited growth.
Pakistan, on the other hand, has benefited from significant trade flows from its region of East Pakistan. The newly created Pakistan was geographically separated by India – on one side was West Pakistan and on the other East Pakistan. Each was carved out by the British because of its Muslim majority. Pakistan lost its engine of growth in 1971, when East Pakistan became Bangladesh following a war of independence.
Pakistan has also received billions of dollars in military aid from the United States. Other oil-rich Muslim countries in the Middle East have also provided aid to Pakistan. As a result, Pakistan’s growth accelerated to about 6% per year from 1961 to 1980, compared to 4% for India.
India takes the lead
The growth scenario reversed in the 1990s, with India growing at a rate of 6% over the next 30 years, overtaking Pakistan’s 4%.
What explains the reversal of roles? Economics and politics both played a role.
Pakistan has long relied on external funding sources more than India, receiving $73 billion in foreign aid from 1960 to 2002. And even today it frequently relies on institutions such as the Monetary Fund international for crisis loans and on foreign governments like China for aid and infrastructure development.
Aid has allowed Pakistan to postpone much-needed but painful reforms, such as broadening the tax base and addressing energy and infrastructure problems, while loans have burdened the country with debt important. In my view, such reforms would have put Pakistan on a more sustainable growth path and encouraged more foreign investment.
Although India also received considerable support from international aid groups and a few countries like the United States earlier in its existence, it has never depended on it – and relied on it less over the years. of the last decades. Additionally, in 1991, India liberalized trade, lowered tariffs, made it easier for domestic businesses to operate and grow, and opened the door to more foreign investment.
AP Photo/Rafiq Maqbool
These reforms have borne fruit: by integrating the Indian economy with the rest of the world, the reforms have created market opportunities for Indian businesses, made them more competitive, which in turn has led to higher growth rates higher for the economy as a whole.
Another way to measure the different trajectories is gross domestic product per person. In 1990, India and Pakistan had almost identical GDP per capita, just under $370 per person. But by 2021, India’s had jumped to $2,277, about 50% more than Pakistan’s.
The reasons for their different choices have a lot to do with politics.
Pakistan has suffered from almost constant political instability. From 1988 to 1998 alone, it experienced seven different governments, alternating between civilian and military governments following coups. This discouraged foreign investment and made it much more difficult to carry out reforms and monitor them. Despite all these changes, Pakistan’s military expenditure as a percentage of its GDP remained higher than India’s throughout the post-independence period.
India, on the other hand, has managed to maintain a stable democracy. Although far from perfect, it has made leaders more accountable to the people and has led to more inclusive growth and less reliance on foreign institutions or governments. In a single decade, India lifted more than 270 million people out of poverty.
At a time when democracy is under threat in so many parts of the world, this story, in my view, reminds us of the value of democratic institutions.
