The economic fortunes of India and Pakistan – the two uncomfortable neighbours – couldn’t be any farther apart than the situation today. While India is set to again be the fastest growing economy in the world, Pakistan is on a brink of economic collapse. India’s strength in its control over inflation, minimal external debt, robust and growing forex reserves, and incrementally improving geopolitical goodwill. In contrast, Pakistan is battling spiralling inflation, GDP growth coming to a grinding halt, crushing debt, and evaporating forex reserves, topped by internal unrest and international tightening.
Where India, Pakistan stand now
GDP growth and inflation
The Indian economy has performed much better than its peers even though the covid-19 pandemic and the Russia-Ukraine war shook the global economy. The International Monetary Fund (IMF) expects inflation in India to fall from 6.8% in the current fiscal year ending March 31 to 5% the next fiscal, and then drop further to 4% in 2024, while the economic growth for the current fiscal is projected at 6.1%. On the other hand, Inflation in Pakistan has been in double digits for the past few months, reaching a 48-year high with the possibility of it reaching as high as 30% in the near future. Pakistan’s economy is expected to grow at just 2% rate in this fiscal year, according to the IMF.
Debt and forex reserves
The debt situation in Pakistan is really worrisome with its debt-to-GDP ratio revolving around 70%. Pakistan’s total external debt stocks increased from $115.695 at the end of 2020 to $130.433 billion at the end of 2021, according to the World Bank. More than 30% of its total foreign debt is owed to China, according to the IMF. The country’s forex reserves are at a critically low level, falling to $3.1 billion late last month, enough to cover just three weeks of imports. Meanwhile, India’s external debt stood at $610.5 billion in the quarter ended in September 2022 while the external debt to GDP ratio stood at 19.2%, according to the Finance Ministry data. The Reserve Bank of India data shows that India’s forex reserves rose by $3.03 billion to $576.76 billion during the week ending January 27, 2023.
Internal and external troubles for Pakistan
Iran may slap $18 billion penalty on Pakistan
Iran has recently warned that Pakistan must construct its portion of the Iran-Pakistan gas pipeline by March 2024 or pay a penalty of $18 billion, according to reports. Tehran has completed its side of the work, and is now waiting for Pakistan to construct a 780 Km long pipeline on the other side, calling sanctions on Iran illegal. If Pakistan gets the work done, it will risk offending the United States, whereas if it fails to complete the pipeline in 15 months, then the situation is going to be extremely difficult for the debt-laden country.
The rise of Pakistan Taliban
More than 100 people lost their lives recently, after Pakistan’s own Tehrik-e-Taliban Pakistan (TTP) waged war against its democratic government, alleging it to be less Islamic. It is the same group which killed more than 100 children in 2014 in Peshawar. To resolve the issue, Prime Minister Shehbaz Sharif has decided to take Afghan Taliban’s help to rein in the outlawed Pakistani Taliban outfit. It reminds the words said by US Secretary of State, Hillary Clinton in 2011, “It’s like that old story – you can’t keep snakes in your backyard and expect them only to bite your neighbours. Eventually, those snakes are going to turn on whoever has them in the backyard.” Former Prime Minister Imran Khan claimed that Pakistan created Mujahideens to fight external forces in Afghanistan, but the country is now struggling to keep its cities safe. The situation is expected to get even worse as the country fights for basic amenities.
India-Pakistan: A tale of two opposites
India sends 90-day notice to Pakistan regarding Indus Water Treaty
Recently the Indian government sent a 90-day notice demanding that Pakistan complies with the terms of the Indus Water Treaty signed by India and Pakistan in 1960, with the World Bank as the third signatory. Most of the water which Pakistan gets comes through Jammu & Kashmir, and Pakistan for many years has cunningly violated the treaty, by not letting India do any major developments near the river. As India holds a stronger negotiating position because of the flow of streams, the hydro-diplomacy could lead to a major crisis in Pakistan.
Pakistan learnt its lesson; lost 3 wars with India
The worrisome situation of Pakistan and the global dominance of India, has forced Pakistan to reconsider its decisions. Pak Prime Minister Shehbaz Sharif in an interview with Dubai-based Al Arabiya TV said, “We have had three wars with India, and they have only brought more misery, poverty, and unemployment to the people. We have learnt our lesson, and we want to live in peace with India, provided we are able to resolve our genuine problems.” Though the comments look optimistic, the current situation doesn’t seem to be improving.
Why a falling Pakistan is not good for growing India
If the economic situation doesn’t improve in Pakistan then it may lead to millions of refugees entering India, legally or illegally, which could put extra pressure on our security forces. The weakening of Pakistan’s economy also indicates an increased influence of China in the country which will not prove to be good news for India as its relationship with China has deteriorated in the past years.