Pakistan-India Trade:

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Pakistan’s Trade with India: Thinking Strategically figure 4: Current and Projected GdP Per Capita in Pakistan and india (in the absence of a Pick-up in Pakistan’s Growth) Constant 2000 US$ 1800 1600 1400 1200 1000 800 600 400 200 0 GDP/capita (current and projected) 1980 1982 1984 1986 1988 1990 Source: World Bank, World Development Indicators, 2011. Note: The projections have been done using growth rates averaging over the last five years. Table 1: sobering Trends 1992 1994 India Pakistan 1996 1998 2000 2002 2006 2020 Pakistan’s GDP as share of India’s GDP 14 percent 9 percent GDP per capita in Pakistan as percentage of India’s. $ value of one percent GDP spent on public services in India $ value of one percent GDP spent on public services in Pakistan 2004 2006 2008 2010 2012 2014 2016 2018 99 percent 54 percent $7 billion $22 billion $1 billion $2 billion Source: World Bank, World Development Indicators (various years) and author’s own calculations. | 37 | 2020
Ijaz Nabi The key question for Pakistan is how it can turn India’s growing economic capability to its own advantage and thus bridge the income gap, and then overtake India’s growth rate—as it did in the 1960s and 1970s. This is not as ambitious as it might seem when looking only at the current performance of the two economies. As Figure 3 shows, in most years in the 1980s, Pakistan’s GDP growth was higher than India’s. Furthermore, even now, Pakistan ranks higher than India on many indicators of the cost of doing business (Table 2). Thus a solid foundation already exists to build a mutually beneficial economic relationship with India. A historical perspective is useful to appreciate that a liberal economic relationship with India would be a source of economic growth for Pakistan. The regions that comprise Pakistan have enjoyed five major growth vents in the last 100 years that have contributed to improving living standards. The first growth vent, lasting nearly half a century, was the construction of canals in the Indus basin that brought about long-lasting changes in the design of institutions, locations of populations, and modes of exchange that now constitute the core structures of the economy. Four subsequent growth vents were experienced following Independence in 1947. The first was the Korean War boom that has had a deep impact on how Pakistan has managed the economy. (The exchange rate policy and preference for consumption over savings and investment can be traced back to this commodity boom.) The second was import-substituting industrialization that produced rapid growth in the 1960s (but growth that could not be sustained). The third was the green revolution technology that resulted in robust agricultural growth in the 1970s and 1980s. Finally, overseas migration and the resulting remittances that have spurred growth for the last 30 years have been the most recent growth vent. Each of these growth vents has contributed significantly to increasing living standards, but these sources of growth have now been exhausted. The economy is thus poised for a new growth vent. The consensus view of the business community in Pakistan (as expressed by the Pakistan Business Council) is that regional trade would constitute such a growth vent. However, the full benefits of this source of growth will not be realized without the resumption of trade and broader economic relations (skills, technology, and investment flows) between India and Pakistan. Significantly, such a growth vent would also bring about more regionally balanced growth within Pakistan (see Box 1 below). | 38 |
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