The events unfolding before us clearly reflect India’s diplomatic prowess: its growing clout in the world order and a renewed confidence in conducting affairs on its terms and to its advantage. The way India’s move of abrogating Article 370 and change in status quo of the most militarized region of the world has been taken up by the international community reflects India’s leverage in the world arena vis-a-vis Pakistan.
Among many factors, one of the most important factors at play here is the economic leverage that India has over its western neighbour. Addressing his people, Shah Mehmood Qureshi, the Foreign Minister of Pakistan told his fellow citizens to not live in “fool’s paradise” and that “Muslim Ummah” (Islamic Community) might not back Pakistan as India is a big market and “many people” have invested. There is indeed a stark difference with India being the fastest growing major economy, while on the other hand, Pakistan is seeking its 22nd IMF bailout. The complete divergence in the two country’s economic path began in the 1990s when India went to the IMF seeking its first bailout package and Pakistan its 11th.
When India got independence and Pakistan was created, both were equally poor, miserable and somewhat clueless with the same level of socio-economic development. Independent and divided, both had their own share of economic advantages. While India received a larger share of urban centres and industrial infrastructure; Pakistan was agriculturally at a better position with a fertile West Pakistan blessed with the mighty Indus river system and East Pakistan with its plantation economy, being one of the leading producers of tea and jute in the world.
Both independent countries adopted a somewhat similar model of Soviet-inspired centralised, state-controlled economy with limited participation of the private sector. During the period from independence to the end of the 1960s, Pakistan’s economic growth outperformed India by a considerable margin. Both embarked on a nationalisation spree; nationalising various sectors of the economy. This was India under PM Indra Gandhi and Pakistan under PM Zulfikar Ali Bhutto.
Fundamental changes occurred after the ascendancy of military dictator General Zia-ul-Haq, following the military coup and subsequent execution of PM Zulfikar Ali Bhutto. With religion becoming a significant element of almost all the aspects of Pakistani society, from governance to education; it fueled the sectarian divide in the multi-ethnic, multi-linguistic Islamic country.
Pakistan at this time participated in the campaign to overthrow the Soviet Union that had invaded Afghanistan in 1979. Pakistan, with the U.S. aided and armed the Afghan mujahideen which subsequently resulted in the ouster of the Soviets from Afghanistan. Due to this war, Pakistan suffered a huge influx of Afghan refugees.
One would think that war and sustaining millions of refugees would have taken a toll on Pakistan’s economy, but it received huge aid from its then ally, the United States of America. Pakistan did suffer differently. The war exacerbated sectarianism and led to the spread of violence, terror and drug abuse with its own implications on the country’s economy. India during this period—with its messy yet functioning democracy—grew at the same pace as it had since independence.
Towards the end of the 1980s, both countries faced extreme economic hardships. Due to the ballooning Balance of Payment (BoP) crisis, India went to the International Monetary Fund (IMF) for a bailout in 1991. Pakistan during the same period went to the IMF twice, in 1988 and 1993, for its 10th & 11th bailouts respectively. This was the time when the two identical countries completely diverged in their economic paths.
India under PM P.V. Narsimha Rao, with Dr Manmohan Singh as the Finance Minister, opened India’s economy; removed trade restrictions on the private sector, reduced the role of government in various sectors and removed trade restrictions between India and other countries. With time and further reforms, India became the 2nd fastest-growing major economy till 2015, and since then is the fastest-growing major economy in the world. Though Pakistan had embarked on the liberalisation journey earlier, it couldn’t catch up with its eastern neighbour owing to the huge political turmoil it faced from 1988 to 1999, that saw nine governments (both elected and unelected). The process has continued with not a single elected PM having completed his tenure.
Hence, economic growth and subsequent socio-economic development were hit by political disturbance, violence, terrorism and sectarianism in the case of Pakistan. While in India, the democracy-development nexus—supported by a well-functioning civil society—bolstered its economic development.
India’s democracy and economy have given huge dividends and played an immense role in determining the policies of other countries vis-a-vis India. Hence, it should be clearly understood that any mishandling of the two elements can be highly detrimental, both nationally and internationally.