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Monday, March 1, 2010

India and Pakistan - future scenario

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Sixty three years ago, the two countries started their journey, torn by bitter memories of partition. The relations between the two nations have been troubled right from the start. Two similar examples from around the world the come to mind - West Germany and East Germany, and the two Koreas.

There are some basic similarities. These countries too had to go through a bitter partition. They followed different political systems and were bitter rivals of each other. One essential difference is that they essentially were one country - i.e. both East and West Germany claimed that they represented the entire Germany. Same is true in case of North and South Korea. In case of India and Pakistan, their rivalry is essentially over Kashmir. Though India was earlier a united country, it is extremely unlikely that partition can be reversed.

The German Story
After the Second World War, both East and West Germany were essentially poor and devastated. But West Germany under the allied influence, introduced free market reforms. It also benefited by large scale aid by the US. By the 1960's and 70's, there was large and visible difference in conditions on the two sides of the border. People in East Germany wanted to move to the West in search of a better life. The Berlin Wall was constructed to stop this. The difference in living standards continued to increase. Perhaps it was the aid from Soviet Union that was keeping things just about together in East Germany. In late 80's, Soviet Union was badly battered in Afghanistan. As a result, it could not continue its aid to the East. The Berlin Wall collapsed.

The Korean conundrum
The story between North and South Korea is somewhat similar. Both countries have remained bitter rivals since the end of the Korean War in 1953. Both countries have contrasting political and economic systems. While North Korea is a totalitarian dictatorship with centralized economy, South Korea is a democratic country with free markets. North Korea implemented land reforms, introduced free health care and education. At one point of time, its HDI indicators were better. However, gradually South Korea's export led economy has moved way ahead. Today its HDI indicators are much better. Its per capita income is $20,000 as compared to a minuscule $1100 in North Korea.

Sung Yoon Lee in his article in ForegnPolicy says,
In contrast, beyond North Korea's southern border lies a free and affluent Korea, one that claims sovereignty over the entire peninsula and to which millions of Northerners would move if given the choice. By its mere existence, Seoul poses an omnipresent existential threat to Pyongyang.
In his article, Lee predicts that North Korea like East Germany cannot survive forever. It will collapse at some point of time. It must be noted that it currently receives aid from China (just like East Germany did from Soviet Union) and South Korea without which vast proportion of its population would die of hunger.

Comparing India and Pakistan
Can such an eventuality occur in the Indian Subcontinent ever. On one side we have India, a democracy (with its own flaws), an rapidly growing economy and rising living standards.But it is also the home the largest number of poor, there is growing rich-poor divide and a growing Naxal violence. On the other side of the spectrum is Pakistan, at best is a military controlled democracy, a country that is battling with an identity crisis, is a nuclear weapon state, is said to be source of terrorism worldwide.

Small signs of such a thing are present. Pakistanis today are worldwide seen with suspicion. They are lined up and frisked separately at airport. Many Pakistanis abroad claim themselves to be of Indian origin in order to escape this. Some Pakistanis artists like Musicians also want to get hold to an Indian Passport. Of course, these people are a small minority.

But is such a thing really possible. My answer to that will be for the moment, NO. The difference in prosperity in the two countries isn't that huge. India's rank according to HDI index is 134 while that of Pakistan is 141. As per Wiki, India's per capita income $1022 while that of Pakistan is $1017. Our Gini ratio is actually  higher at 36.8 as compared to just 30 for Pakistan. Historian William Dalrymple too writes that there is little difference.
On the ground, of course, the reality is different and first-time visitors to Pakistan are almost always surprised by the country's visible prosperity. There is far less poverty on show in Pakistan than in India, fewer beggars, and much less desperation. In many ways the infrastructure of Pakistan is much more advanced: there are better roads and airports, and more reliable electricity. Middle-class Pakistani houses are often bigger and better appointed than their equivalents in India.
However, he goes on to point out some major differences - landholdings. democracy and education. Soon after independence, land reforms were introduced in India. This was promised the Congress. In fact, this is often referred as one of the reasons of creating Pakistan, (protecting the interests of Zamindars). In Pakistan, this feudal system still exists and as a result there is inequality and social tension. Pakistan has seldom enjoyed Democracy. However, often freedom is difficult to directly quantify when it comes to measuring prosperity. Regarding education in Pakistan, he writes
No problem in Pakistan casts such a long shadow over its future as the abject failure of the government to educate more than a fraction of its own people: at the moment, a mere 1.8% of Pakistan's GDP is spent on government schools. The statistics are dire: 15% of these government schools are without a proper building; 52% without a boundary wall; 71% without electricity.

This education gap is the most striking way in which Pakistan is lagging behind India: in India, 65% of the population is literate and the number rises every year: only last year, the Indian education system received a substantial boost of state funds.

But in Pakistan, the literacy figure is under half (it is currently 49%) and falling: instead of investing in education, Musharraf's military government is spending money on a cripplingly expensive fleet of American F-16s for its air force. As a result, out of 162 million Pakistanis, 83 million adults of 15 years and above are illiterate. Among women the problem is worse still: 65% of all female adults are illiterate. As the population rockets, the problem gets worse.
Currently, India's literacy rate is 65% and should increase to 80-85% by 2030. One obvious concern here is what is the quality of this education and are these people employable. And I am sure even in India, there are schools that don't have proper building or electricity(particularly in the Naxal belt).

Nevertheless, India is way ahead of Pakistan in terms of education. But another concern is that a large proportion of the population receives education through the outdated Madrassa system.The so-called secular forces are merely promising reservations for them, even though in 60 years, reservations haven't made enough impact on SC's and ST's. Reservations were supposed to be an instrument that removes the caste identity. Instead it has only strengthened it. A divide based on religion is even more dangerous. Ironically, it has been the so-called communal party that has talked about reforming the madrassas, something that has been looked with suspicion by the community.

Future Scenario:2030
Where will be in 2030 economically, this is an important question. Will there be any difference in level of prosperity with respect to Pakistan change?

Over the last 20 years our economy has grown consistently. In the last five years, we have grown by nearly 8%. There are rumors that we are capable of achieving 9-10% growth rates. Let us assume that we will grow at an average of 7% over the next 10 years and at 5.5% in the subsequent 10 years. The growth rates will come down because of base-effect. Despite these highly conservative estimates, India's GDP would be at least 4.2 trillion dollars. Our rate of population growth has been coming down consistently and present it is roughly 1.55% (Source). Assuming an average growth rate of 1.45% over the next 10 years and an average of 1.35 over the subsequent 10 years, our per capita GDP should be roughly 2700$ in 2030.

What would the number be for Pakistan? Under Musharraf, from 2002 to 2007 Pakistan did post impressive growth of 6-7%. But such stability in the country is rare. In 2009, the growth rate was just 2%. Assuming an average growth rate of 4% over the next 10 years and 6% over the subsequent 10 years(highly optimistic considering the frequent bomb blasts and terror attacks), in 2030 Pakistan's GDP would just be $436 billion. Assuming its population grows at 2% and 1.8% as against present figure of 2.2%, its per capita income would in 2030 would only be around $1800.

These are highly conservative estimates and the real picture might actually to be much much better than this.For example, considering current education levels in Pakistan it is highly unlikely that they can sustain such growth rates of 6% over such long periods. Despite this conservatism, India's GDP would be 10 times that of Pakistan while per capita GDP would  be 1.5 times. More likely figures are that our GDP will be 14-15 times that of Pakistan and per capita GDP will be around 2.5 times that of Pakistan.

Impact of this growth

India's GDP would be at least 10 times that of Pakistan. In another five years time, India's economy would overtake China as the fastest growing economy. This should translate into enormous leverage for us. Around 10-15 years ago, China's human rights record was severely criticized everywhere. But one hardly hears that today. China's influence was very much visible at Copenhagen.

India is bound to enjoy similar influence by 2030 or even before that. By 2030, India would have almost certainly hosted the Olympics. We are not even sure whether Pakistan could host even the Asian Games by then

I do not foresee a Germany like situation which led to the reunification of Germany. But I do expect that if there is appreciable difference in prosperity and if this grow is inclusive, domestic support for terror is should come down appreciably.

Another important thing is that if there is an appreciable and visible difference in prosperity, it shall become increasingly difficult for the Pakistani Military to continue with its astronomically high defense expenditure. Presently India spends around 2.5% of the GDP on defense while Pakistan spends around 3.5-4%. Hence, in 2030 our defense budget should be close to 100 billion dollars ( 2.5% of 4.2 trillions). This would be 25% of the Pakistan GDP in 2030. Naturally Pakistan would try and match India's defense expenditure by increasing its defense to atleast 8-10% of the GDP.

There would be increasing public pressure against this and unrest among the people would rise. This would result to much more Army control over the civilian Govt and military highhandedness. Thus most probably by 2030 Pakistan would under direct Military control.Furthermore, the increasing military asymmetry would force Pakistan to lower its nuclear doctrine. Thus the sub-continent would actually become a much dangerous place in 2030.

Limitations of this analysis
The methodology of this analysis just too simple to cover everything. First, the GDP figures are based on nominal values rather that PPP. Using purchasing parity method, the comparative figures would actually improve significantly for India.

Secondly, India has been lucky to have stable Govts. at the centre since 1999 and increasingly governance is becoming the sole criteria that is used by the people while voting. What if there is a hung Parliament. India has previously witnessed this during the 1989-91 and 1996-98. During this period, the growth was minimal and reforms were stagnant.

Thirdly, merely achieving these growth rates are not sufficient. Whether this will translate in improve in prosperity. Whether this growth will be inclusive. Whether all communities including the Muslims who are currently lagging behind in all social indicator be a part of this growth. Will the Maoists be suppressed. Will the development reach the Naxal belt.

Finally, will there be any war either with Pakistan or with China. War could change the above numbers. Of course any resolution with either of the two will also improve the numbers vastly.

These are extremely difficult questions and only time tell. However, if India plays its cards well, great glory is awaiting us. For Pakistan, it is important to understand that India's rise is inevitable. It will be their choice whether they would like to be a part of this growth or not. It is therefore important for Pakistan to understand that going forward, they will not be able to compete whether militarily or economically.


  1. Nice Analysis .. I like :) hope situation to be much better than what projected here.

  2. Sandy,

    Your assumptions of India's economic growth in your post are based on perfect weather conditions for the next several decades, and Pakistan's growth on pessimistic assumptions. You see clear skies for India, and continuing dark clouds hanging over Pakistan.

    Pakistan's current dismal growth is at least partly because of the Taliban insurgency.

    But India, too, faces growing Maoists insurgency and how it plays itself could make a big difference in India's growth.

    Maoists can hurt India's best laid economic growth plans, according to Reuters. While the economic impact may be small compared with India's trillion dollar economy in the short term, the insurgency and the sense that it is worsening creates a sense that India does not fully control its own territory and adds to risks for companies mulling investments. The Indian government has now offered to suspend all contracts with mining companies in central and eastern parts of the country in a bid to persuade the rebels to lay down their weapons. Violence in Lalgarh has worried the country's third-largest steel producer, JSW Steel, which is setting up a $7-billion, 10-million ton steel plant in the area.

    I have been around long enough to know that it's hard to extrapolate these things over any length of time.

    I have seen many a demand forecasts presented by marketing guys gone awry due to normal economic cycles....much less Black Swan type events that hit the US and the world last year.

    The law of big numbers also kicks in as you grow bigger, because it's much harder to grow at 10% for the larger economies like those of US and Japan.

  3. My assumptions are moderate and observations are balanced. As far as perfect weather conditions is concerned, that is true. No one can predict that with absolute certainty. But given the performance of Indian economy despite global meltdown, I would like to be optimistic. Furthermore, the growth assumptions are fairly conservative. India and China's growth are unlikely to be similar to that of Japan where growth flattened quickly. Both countries are extremely poor and hence there is enough scope to grow rapidly.

    Comparing Taliban n Maoists is inaccurate. Maoists mostly blowup train tracks or some mobile towers. They are rapidly losing support, both from the Tribals and intellectuals. The present Govt has launched massive devpmt programs like NREGA which is the world largest social initiative. Taliban by contrast are radicals and much more capable militarily. They target innocent civilians unlike Maoists. Their attacks are in cities as well.

    But there is no doubt if they are not crushed, they will impact our growth. But this problem has been there for sometime and that hasn't affected the growth numbers.

    "I have been around long enough to know that it's hard to extrapolate these things over any length of time."
    Trust me, i have read your articles and I know how much wisdom you really bring to the table. Even if I look at your arguments in your comment, you have actually countered me on India's problems and haven't said a word on Paki issues. So should I assume that you accept those predictions.

    Comparing India and Pakistan without comparing the two societies and political system is ridiculous and that's what you continue to do through blogs. Democracy is India's biggest strength but that is something that you can never understand.

  4. Sandy: "Even if I look at your arguments in your comment, you have actually countered me on India's problems and haven't said a word on Paki issues. So should I assume that you accept those predictions."

    No, I don't accept your predictions for India or Pakistan.

    Taliban threat is small compared to what Pakistan has faced before. And I already see Pak military starting to get an upper hand in this battle in the north west.

    Pakistanis have gone through very tough times, including the breakup of the country in 1971, and the forecast of state failure during the last year, and have bounced back each time.

    Although Indians are used to much higher levels of poverty, hunger and malnutrition, Indians have not faced any political or security crises like the ones Pakistanis have faced. Indira's emergency doesn't even come close.

    So the Indians have really not been tested by the potential difficulties that the growing Maoists insurgency could create in this decade.

    Or the scenario that George Friedman offers in his book "The Next 100 Years" for possible disintegration of India in this century.

  5. Thats again a typical Paki response. To claim that we will rise, to look at false pride of 1000yrs. You can carry on with this false pride. No one help someone does not helps himself.

    "Pakistanis have gone through very tough times, including the breakup of the country in 1971, and the forecast of state failure during the last year, and have bounced back each time."
    They have hardly bounced back, and it is mostly becoz of foreign aid. And btw, why did ur Finance Min resign?

    You say that Taliban threat is nothing but then u say that Maoist threat to India is much greater. Maoist dont have sophisticated weapons, they dont carry out suicide missions inside cities, inside army headquarters. So going by your logic if Taliban threat is nothing, Maoist threat is minuscule, right?

    If you actually look back 20 years ago, Pakis were far better off. But that is not at all true today. With rapidly growing population, illiteracy and stagnant growth, the gap with India is more likely to widen in the coming years. There isn't much FDI. Whatever comes is mostly Chinese or Saudi.

    Other than throwing up rhetoric, u have barely proved ur wisdom. You have hardly countered anything what I have written. You are merely stressing on Maoists, something that I have already mentioned in my article itself.

  6. Sandy: "They have hardly bounced back, and it is mostly becoz of foreign aid."

    This shows your own mental confusion.

    Sandy: "There isn't much FDI. Whatever comes is mostly Chinese or Saudi."

    The FDI has slowed, but it's not a permanent condition. It's just a couple of years ago that both FDI and portfolio investments were booming in Pakistan. And FDI is starting to come back in selected sectors.

    As Mark Bendeich of Reuters wrote on Jan 10, 2008: "A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
    They should have. Their clients could have made a fortune.
    Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
    As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."

    Pakistan's KSE-100 is booming again, in spite of all the doom and gloom. Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms, in a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse. Even more surprising is the whopping 825% increase in KSE-100 from 1999 to 2009, which makes it a significantly better performer than the BRIC nations. BRIC darling China has actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well-regulated India (274 percent), which some investors see as a safer and more diverse bet compared with the Chinese equity market, which is dominated by bank stocks. This is the kind of performance that has got the attention of some of the top investors and investment firms around the world.

    1. What is the market Cap of KSE. Reliance Industries Limited (That is just half reliance and not even talking about other brother) has double the market cap of KSE. SO throwing some numbers does not change the hard facts thrown above.

  7. Thats ur problem. You can barely come up with you sound arguments. I have seen ur blogposts on BSE vs KSE. And I saw enuff responses from various people criticizing ur arguments. You can refer them. And you seem to have forgotten about the tremendous crashing of KSE index, around 25% inflation, and what not.

    And again I suppose you were short of arguments on Taliban vs Maoists, so u cleverly chose not to reply to them. Am I correct?

  8. Dear Sandy!!!
    This article has increased my respect for as a blogger! I, myself, wanted to write on this particular topic!
    You have completely justified the entire scenario with your deep insight and analysis!
    As a public speaker, i have many a times given example of German unity and their rapid progress in just a small time frame of 20 odd years.

    But at the same time, i would like to point out that, history can not be measured by a small time of 60 years. India was once occupied by Mughals and it looked as it will be always. Similarly, Brits ruled us for 200 years and a majority of people did not dare to think otherwise. So, I am very optimistic about the eternal question!

  9. @Azad
    Welcome to the blog.

    You are correct, if anything history has taught us is that it is impossible to predict the future. Soviet Union was one of the most feared nation and it crumbled almost instantly. So while I am optimistic about the future, future cannot be taken for granted. 2020 may be the right time to revisit these future projections and assess the progress of these two warring nations.

  10. As for as the Taliban vs Maoists threat is concerned, I would like to place just one argument.

    Pakistan military is fighting the Taliban with the active support of US Drones & Financial Aid, whereas the Indian State Police Force/para-military forces are fighting the Maoists. The Indian Military has not been involved at all.

    This disparity itself explains the threat posed by Taliban & Maoists to Pakistan & India respectively.

  11. You seem to be forgetting that the security that checks Pakistani's also checks Indian. As an Indian who has traveled to Japan and Germany multiple times I am frequently stopped (whether they think I'm a terrorist, illigeal immigrant, smuggler w/e). Regardless you're projections seems really off....

  12. i don't think this argument is that a bit necessary..the world knows about india,it'development,masive growing economy,it's future generation i.e the intellegent students frm india.the emf has estimated that the INDIAN economy will overtake the US by 2045...this clearly shows the stand of india in the worl.PAKISTAN is no where near us.

    1. Of course, Pakistan is no where near us, there is no question about it. The point is that India is not shinning enough at this moment and the difference between the two countries is not significant at this moment. What the article tries to answer is what would happen when this difference increases.

    2. Yes india is a superpower new astonishing facts of Turdworld India:

      60% of indians without sanitation even AFGHANISTAN has better sanitation record according to your environment minister

      30% of the worlds poorest live in India did you understand this Sandy? you hold 1 in 3 of the worlds poor according to UN statistics

      50% of your children are malnourished maybe that has got your head going with this bullshit blog of yours?

  13. who is this guy riaz haq? I read his blog, really funny. And Sandy why are you replying him? Ask this guy to visit forums on bharat-rakshak. They will teach him everything with evidence and links and statistics.And why he always rant about George Friedman?

  14. for Nike and Sandy! if you want to predict on the basis of past than why not on the basis of full vast. let start from Mohammed Bin Qasim? we 7000 comes from araab and now we have country on your land? at that time your Army was 3 Lakh and our just 7000.
    you were 100 times stronger than us. but we won the war. We were so high in character that your Indian people accept our religion in high numbers. Than your strongest india was directly ruled by us for 1000 years.

    now lets come towards today! now the difference of two countries are just 1:2. not a big difference which was at the time of Mohammed Bin Qasim. so never think that you will cross Pakistan ever.

  15. Mohammed Bin Qasim was from Saudi Arab not a Pakistani.Infact Pakistan has never existed in history before 1947. Dont think it will exist beyond 2020.

    And where exactly did you get those figures of 7000 and 3 lakhs. Pure bullshit.
    And in any case, this is not pre-historic times, you need modern weapons to fight and that needs money which means higher GDP. Pakistan is going down.

    1. I just had to laugh at this typical slumdog gutter mentality of sandy.

      India can barely feed its starving population lives of UNICEF and Oxfam and yet the Baniyas have the nerve to talk about pakistan.

      Typical Indian bullshit from a indian slumdog keep barking doggy we will see in 202 whats what and then you will see that 60% of your population is still without toilets and women still raped on buses.

  16. hey, sandy thanx it was a really fine article....can u give a try to provide something about development and other indo-sino relation of north-east india?it will be really appreciable.

  17. sandy most people in Pakistan and previous (INDIA) came from araab. and we consider our self Muslims more than any national. Dont forget all attacks on india occur from western borders.Dont talk about araab as 60% population of curent pakistan migrate from there

    you are talking about modern weapon than why you Indian fail to save 35% Kashmir from us?

    You indian have more hungry people almost 80 crore sleep without food. You are the country which killed female babies at birth time.
    Finally i want to say that you indian always in complex as you were slave for thousand years . thats y u people need time to learn that how to live life of free country.

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    2. Thanks sandy, nice post.

      Thanks Umar for your expert comments.

      Please do visit; and learn something about world before posting your comments to any kind of blog. It's an awesome source of knowledge. Yeah really. :)

      Nearly 20 crore Indians are sleeping daily without food;
      Sources : UN World Food Programme

      Might be you have forgotten, thousand year ago PAK and India were one; then what about your origin/ancestor? I have a doubt, Alexander's a troop or troops?

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