India Overtakes Pakistan

Pakistan has long been richer than India. On the 50th anniversary of independence, The Economist proclaimed India the greater political success, but Pakistan the better economic performer.

That may finally have changed. The World Development Report, 1998, of the World Bank proclaims that India has finally overtaken Pakistan in living standards. Atal Behari Vajpayee will perhaps trumpet the news to voters; Mera Bharat Mahan.

The measure used by the World Bank to compare living standards is GNP per head measured in terms of purchasing power parity (PPP). That needs to be explained to the lay reader. Prices are far lower in India than in the US (even of onions). So the purchasing power of dollar in India is much greater than suggested by the exchange rate. Hence international comparisons of GNP per head in dollars can be misleading. These show Pakistan ($ 490) ahead of India ($ 390) in 1997. A more accurate comparison would be of purchasing power, and for this economists have constructed a PPP index.

The PPP measure is preferred by the World Bank for international comparisons. And this shows that in 1997, India\’s GNP per head in PPP terms ($ 1,650) finally overtook Pakistan\’s ($ l,590).This represented a major catch-up effort: In 1985, Pakistan was almost 30 per cent better off (see graph).

What explains the reversal of fortunes? Pakistan started off faster. India under Nehru followed a socialist path which yielded a modest GDP growth rate of 3.5 per cent, derided as the Hindu rate of growth. The Islamic rate in Pakistan was much faster, around 6 per cent in the heyday of president Ayub Khan, who ran a market-friendly economic regime.

Then came Zulfiqar Ali Bhutto, who expanded socialist controls and government ownership, less out of ideological conviction than to concentrate all power in his hands. Pakistan\’s investment in education and health remained miserably low. Its administration became even weaker and more corrupt than India\’s. Tax evasion was rampant, and Pakistan\’s savings rate was almost half of India\’s (14 per cent against 25 per cent in 1996). Yet Pakistan did better on the economic front for a long time. One reason was that it never fell too deep into grand illusions of import substitution. The second, more important reason is that it was plain lucky.

Its first stroke of luck was the splitting away of its eastern wing to form Bangladesh, This got rid of the poorest and least productive part of the country. It may have been a political disaster, but was an economic blessing.

Its second stroke of luck was the OPEC oil boom. High oil prices laid low many countries. Pakistan, too, was hit as an oil importer. But it more than made up by exporting labour to the Gulf, to which it was close in terms of geography and religion. A much higher proportion of Pakistanis went to the Gulf than Indians. The Pakistani proportion was closer to Kerala\’s-And like Kerala, Pakistan virtually solved its problem of poverty by exporting its poor to oil-rich countries.

Then came Zia and his Islamic brigade. The US cut off aid, and remittances from the Gulf began to stagnate. The outlook for Pakistan dimmed. But then came its third stroke of luck: The Soviet Union invaded Afghanistan. Immediately US and other international aid flooded back. Added to which was new, but illegal income from the arms and drug trade, both facilitated by the Afghan war.

But all good wars come to an end. In the 1990s, Pakistan has finally run out of luck. It has constantly been on the brink of bankruptcy, signing new deals with IMF and then defaulting on loan conditions. No foreign godfather is available to underwrite its excesses. The US does not want to see Pakistan sink into anarchy, and has temporarily waived sanctions against the country. But no longer will any foreign godfather keep Pakistan prosperous. It needs major reforms, social and administrative no less than economic, to become healthy again.

Just as Pakistan has decelerated, India has accelerated. The acceleration began in the 1980s, and gained further momentum after the reforms of 1991. For some time now, the neo-Hindu rate of growth has been faster than the neo-Islamic rate of Pakistan. That has enabled India to catch up and go ahead.

Having said that, I need to express some misgivings about the data. Look at the chart comparing social indicators of India and Pakistan. They cast some doubt on the notion that Indian living standards are superior. India is much better off in terms of the fertility rate, infant mortality rate, and adult literacy rate. A superior social performance plus superior GNP per head should have taken India far ahead on indicators like poverty and nutrition. This, however, is not the case,

Pakistan\’s poverty ratio of 11.6 per cent is barely one-fifth India\’s 52.5 per cent (this refers to the proportion of people below the World Bank\’s poverty line of $ 1 per day: This is different from the national poverty lines of the two countries). The data relates to 1991 and 1992 for the two countries, and India\’s relative position has improved since. Even so, it seems utterly implausible that India has caught up.

We have a major puzzle here. India\’s living standards, according to Bank data, are as high as Pakistan\’s. Also, India is more egalitarian (its inequality index is lower). If so, poverty should be lower in India than Pakistan. Yet the opposite seems to be the case.

This seems corroborated by other indicators. No less than 66 per cent of Indian children suffer from malnutrition, against only 40 per cent in Pakistan. If children are better fed in Pakistan, it is surely less poor.

Again, despite having better health facilities, India\’s maternal mortality rate (women dying during childbirth) is higher than Pakistan\’s, suggesting that Pakistani women are stronger and better fed. Finally, 64 per cent of Indians remain in agriculture, a low-income sector, against only 52 per cent in Pakistan.

So, we have many indications that Pakistani poverty is lower than India\’s. Pakistanis will, therefore, contest the Bank\’s estimate that India\’s living standards ace now higher.

Enough of statistical complexities, The bottomline is that India has clearly been growing faster than Pakistan for some time, and has better future prospects. Whether or not India has caught up already, it should go well ahead in the next decade. India is no East Asian tiger. But the elephant is lumbering ahead of its western neighbour.

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