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According to estimates, the Indo-Pakistan rivalry strangles $8 billion of trading potential, feeds into the $60 billion investment gap, and saps our economies by diverting resources to defense spending every year.
An interesting report by Shuja Nawaz and Mohan Guruswamy of the Atlantic Council’s South Asia Center delves into the question: ‘What are the people of India and Pakistan foregoing in terms of economic development and social progress by continuing their military hostility and engaging in periodic conflict?’
Calling on recent historical and economic analyses, the report argues that persistent conflict between India and Pakistan since 1947 – including three wars, two protracted conflicts as well as other unconventional attempts at destabilizing one another, has had costs neither country can afford in the future.
Although the idea of ‘opportunity costs’ is not entirely new, the authors believe that it warrants reiteration – considering that the next 30 years present both countries with a great opportunity to reap a demographic dividend and make headway in reducing poverty. Despite economic growth over the past twenty years, South Asia remains one of the world’s poorest regions.
The report was recently launched at the Observer Research Foundation. The discussion was chaired by Mr. Manoj Joshi (Distinguished Fellow, ORF) in the presence and Mr. Sharat Sabharwal (Former High Commissioner to Pakistan).
Military expenditures
While India’s military spending is naturally the highest in the region, it has come down to 14% of the national budget (1.79% of GDP) in 2013 from the high twenties of the last decade.
Nevertheless it remains the biggest military spender in Asia, and the world’s greater importer of weapons.
In Pakistan, military expenditures have always been given a high priority, and during the Zia-ul Haq regime touched 6.7% of GDP. The imbalance between development and defense spending continues today, as Pakistan spends 16% of its budget on defense. According to one study cited in the report, had Pakistan tempered military expenditure during the period 1970-2010 to about 3.5%, its economy would have been double its present size, which would mean higher education levels, lower poverty incidence and less social tensions, including less extremism.
While accommodating for a basic minimum of defense spending in accordance with the external and internal security architecture in India and Pakistan, the report argues that both countries should focus on dealing with the myriad socio-economic challenges they face. By recommending confidence-building measures to ease tensions between the militaries, it envisions an eventual diversion of resources to development, especially in Pakistan.
Bilateral trade
South Asia is the world’s least integrated region in economic terms. As a cited report from the Economist notes, India’s neighbors provide 0.4% of imports and consume 5% of our exports. India-Pakistan trade is a measly $3 billion, and is dwindling.
However, the immense potential for trade can be assessed by looking at indirect trade between India and Pakistan through Dubai, which is India’s second largest trading partner and a major source of Pakistani imports.
The report cites a study by Indian Council for Research on International Economic Relations, which noted the potential for a fivefold increase in the two countries if the trade regime were normal. Moreover, increased bilateral trade would also bring in much needed investment and revitalize Pakistan’s economy.
The authors take pains to stress that removing barriers to trade does not require amicable relationships between countries, pointing to Indo-Chinese and Sino-American trade as prominent examples of inimical countries that maintain pragmatic, normal trade relations.
Cooperation on energy
The authors suggest joint development of hydroelectric power on the Indus River basin, which has the potential to generate 8,000 MW, and joint investment in building an oil and gas grid connecting supplier countries in the Middle East to South Asia.
It is impossible to disagree with the general thrust of this report – that focusing on socio-economic development instead of defense will greatly increase the quality of life on both sides of the border. But what came out from the ensuing discussion was that it is the internal political economy of Pakistan that is the greatest hindrance to this progress.
The Pakistan Army continues to have great influence on national politics, and continues to posit India as an existential threat to the nation. Although the Army has begun taking greater interest in the economy’s progress, Pakistan will readily squander mutually beneficial bilateral trade opportunities for political reasons. Mr. Sabharwal for instance noted that despite timely progress on a schedule for trade normalization negotiated during his tenure, Pakistan is yet to switch from the current ‘negative list’ to Non Discriminatory Market Access.
Confidence building between militaries is another undisputable suggestion. Withdrawing troops from the Western front could indeed enable the Indian Army to focus on the more precarious Chinese border. But as long as elements in Pakistan continue to support terrorist outfits that foment instability in India, it is difficult to buy the argument that Pakistan no longer sees India as a major threat.
What the report seems to miss is that the India-Pakistan relationship cannot be compared to other ‘strategic rivalries’ like the Sino-American or Indo-Chinese rivalry. Ours is not a clash between two ‘great powers’ suspicious of the other’s influence. There is a deeper malaise in our relationship: our inability to reconcile the ‘ideas’ of our nations.
Through careful diplomacy and engagement, it is certainly possible to take small steps forward – enabling interpersonal contact, encouraging close ties between our business communities, and easing the unreasonable stranglehold of politics on bilateral trade. With new, strong governments in New Delhi and Islamabad, headed by influential leaders, this report is a timely reminder that if we are to ‘do something’ about poverty, we must do it now.
But whether these steps lead to another era in our relationship, or relapse the way they have in the past, remains to be seen.
Report written by Amartya Sharan, Research Intern