India's Surprising Economic Partition

the two countries, including conflicts between the two. Yes, I know there are now three countries, Bangladesh having broken away from Pakistan in nineteen seventy one. We're going to take a different tack. What were the economic underpinnings of independence of partition and how have the countries fared economically since then? And to what extent does their separation at birth explain their economic performance. Welcome to Benchmark, a show about the

global economy. I'm Daniel moss I write about global economics for Bloomberg View in New York, and I'm Scott Landman and economics editor with Bloomberg in Washington. Well. To help us work through the economics of partition, we have two guests in very different parts of the world with different perspectives. Here in New York. We have our colleague Faris Khan, a senior editor on the Corporate Finance team at Bloomberg News, whose family left India for Pakistan as part of an

economic and commercial strategy. Our second guest is Nissa Jari, Asia, editor for Bloomberg View and author of Midnight's Furies, The Deadly Legacy of India's Partition. He joins us from Bangkok. Nisset and Faris, welcome to the show. Great to be here, Thanks, terrific. India is perceived be booming and Pakistan is perceived to be, shall we say, economically challenged. Anything wrong with this picture? I'd say that picture is broadly correct, but of course

it can be exaggerated. You know, in Pakistan isn't doing as badly as many would sink. In India isn't doing as well as some of its champions would like to would like to argue. I mean, if you look at where Pakistan is today, they've they've emerged from i MF bailout package. The stock mark has been doing relatively well. Growth is hovering around four or five percent, which isn't, you know, as high as India, but it's but it's enough to put the economy on a fairly positive path.

On the flip side, you look at India, Uh, they've sort of lost their ranking as the as the fastest growing big economy in the world um after the shock of demonetization last fall and after the introduction of this new GST tax this summer. They're still struggling to get private and smith going. They're still struggling with a bad loans problem, and above all the struggling to create jobs

even though they will have vast and growing population. Faris any thoughts, I would agree with what nest It is saying, but I would add certainly when it comes to Pakistan, there has been recently a positive science from the economy, but the recent ousting of the Prime Minister of Pakistan, the former primis and Navasharif, after he got ensnared in a corruption scandal does not really bode wealth for stability

in that country. And that speaks to the biggest problem in Pakistan is that it goes it has been constantly trapped in a period of stru guilty where the military and the civil institutions are wine for power in the military usually ends up with the upper hand and whatever economic gains, social gains that countries sees keep on getting eroded by the struggle between these various factions. Were the

fates of the two kinds trees sealed in partition? I mean, where they have they been on this kind of predetermined course or were there things that happened in the intervening years that have sort of set these plans on course and the economies and the directions that they've been going. No, I think you know, it's important to remember that, Um, this hasn't been the course that both countries have followed since partition. I mean early on, um, you know, India

devalue the routbe in and Pakistan didn't. And that stronger currency, combined with the commodity boom that was sparked by the Korean War, allowed Pakistana accumulated surpluses which they needed to industrialize. So for the next three decades its economy average growth around six percent, you know, double what what India was managing at the time when it was under central planning. It was only after India liberalized in that it's economically

economic fortunes of the two countries really reversed. UH and India started to fulfill its potential and and and take advantage of all the advantages that did have, including it the size of its population, the size of its market, and so on. So it wasn't inevitable that India would be the economic superpower, but certainly it had inbuilt advantages

that Pakistan did not. I agree. I mean, there was a saying when I was growing up in Pakistan in nineteen eighties that in Pakistan you have more rich people and a poor government, while in India you have a rich government and poor people. And I think that has sort of reversed when India went through the path of liberalization.

Pakistan did certainly see some strong periods of growth in the nineteen sixties because of the economic macroeconomic policies was pursuing, but those games were never made into permanent games because whatever growth you might see would also be accompanied by a lot of political instability, which again aid into those games. And finally, after a strong period growth in the nineteen sixties, the country entered the nineteen inties in a state where

basically the country were dismembered. So let's get back a little bit in time here. First, tell us some more about your family's business and why Pakistan looked better white acting, so my my family was not in business per se. Most of my father's side who came to Pakistan did not came right in the aftermath of partition. It was not that they were forced to leave where they were in North India what is non North India. Immediately after partition, a lot of Muslims from North India and others as

other parts of India came to Pakistan. Not so much that they were fleeing oppression in India, but there were a lot of opportunities for them in the new state of Pakistan Pakistan. When Pakistan was created, the kind of institutions that the British left or existed India, there were fewer of them in Pakistan terms of civilian infrastructure, government infrastructure.

So there was a great a man in the new state for people to come in and man these new positions, and North Indian Muslim especially who were also some of the biggest advocates of Pakistan. For them, it was natural for them now to come and take over those jobs that they could be jobs as bureaucrats in the new in the in the new State Bank of Pakistan, in

the new airport structure, in the new educational institutions. So they were the big boom, uh, and you needed people, so many of my relatives came to take over those jobs. My father, he came to Pakistan in the early nineteen sixties, much later. Again for him, it was that his sisters were already there and there were still a lot of jobs available in Pakistan but not enough people. So naturally it was to his advantage to leave Indian and come to Pakistan. My mother came later when she married my

dad in the nineteen seventies. So fairest did they actually get to enjoy the fruits of those economic upper communities? Are they still doing that today? I mean what kind of work exactly? Um? Were they and have they been? So my father took on a differences. First he was working for an airline, then he joined Pakistan Radio, and then he became a producer in Pakistan television and this is all in one decade, uh, and then he moved

into public relations after that. Yes, so they certainly did enjoy um the boom that wasn't taking place in Pakistan well into the sixties and the seventies, and to some extent the nineteen eighties. My parents were what you can describe as the very small part of the very small urban upper middle class educated professionals who were in Karachi or Lahore Islamban uh and they definitely benefited, but the state and the country at large, I don't think was

enjoying the same levels of growth. Uh my my. There she moved to Pakistan and right after, right before the seventy one war, so her first experience after six months arriving, and she's an academic, it was that six months after coming to Pakistan, there's a war between the two countries and she could not longer be in touch with her own parents for I guess it was a couple of years. So it was a little bit of trauma involved for her at that time, and and she focused on her

academic career in Pakistan at that time. But so so they were part of the upper middle class group in Karachi. So Pakistan began to fall behind after this very promising start. And nestaid, how much of that can be attributed to these on off periods of military rule and why doesn't the military play any significant role in India's political life by comparison, Well, for a couple of reasons. UM's take

your second question. First, Uh, you know this, this is a notable difference between the two countries that there's never been a coup in India and Um, part of it goes back to the fact that India at partition had stronger, more well established and better staffed institutions. Um, they were inheriting the machinery of the raj Um, they had people in place, people have been working these jobs for for quite a long time. And Uh, you know, the military

had always adhere to civilian rule there in Pakistan. On any other hand, you had faced a situation where you really felt after the riots of partition, and which remember something like fourteen million people across the border from one side to the other, nearly a million people may have died. Uh, you had a real sense in Pakistan that India posed an existential threat, that it had never accepted partition and didn't want Pakistan to exist and hope to reabsorb it

one day. And then the other important thing is that the founder of Pakistan, Muhammad Ali Jinna, die barely a year after independence. So you had a situation where you had sort of weak and confused civilian leadership. The army was the strongest and most professional institution in the country, and it was natural for people to look to them for stability UM and that was a role they claimed for themselves UM and so they you know, that led to one of the first coups uh and and subsequent

ones as well. They've they've also portrayed themselves as the defenders of Pakistan's sovereignty against this threat from next door in India. UM And, as Farah said earlier, that's right. The constant back and forth between civilian and military rule

UM works against stability UM and discourages investment. I mean, you see what's happened to Pakistan and just since nine eleven with the degree of violence that they've had to deal with UM that that scares people off UH and it makes it hard to UM for for investors to see a long term future. UH. There has Pakistan suffered and is its current predicament in part explained by its

long land border with Afghanistan. Now, you mentioned post nine eleven, but Afghanistan has been going through periods of tumult long before that. Does that have anything to do with what's going on here? It's certainly it's certainly adds to the

challenge of Pakistan. I mean having a border that was always contested by Avuhanistan because if you remember, the border that defines the boundaries of Indian Pakistan was first of all created under the Raj and the Aflan government then and subsequent Aguan governments have always questioned the legitimacy of the border. So that has added to this constant paranoia and in Pakistan that we are surrounded by people who

don't really recognize our right to exist. If you have India on one side that perhaps wants to re absorb us and correct the tragedy of partition, and then we have Afghanistan on the other side, which questions the legitimacy of the border, and uh therefore has has strong interest on the borderland straddling the border between the two countries.

So it does add to the instability. What at its worst has done has it has constantly fueled the paranoia that has strengthened the Hannah the military in terms of positioning itself that we are the only ones who can defend you as we are sounded by people who don't want us to exist. Let's talk about India's economy for a moment here. That country is reporting numbers that would would make it the fastest growing major economy in the world, even faster than China. And yet at the same time

it has legendary bureaucratic issues. Uh. They just had a major issue this past year where they scrapped a huge amount of currency. We did a whole separate podcast on that. You have a Prime Minister Narendra Modi, who is uh, you know, taking the country in new direction and even fanning sectarian flames in a way. How does this altbode for the future of India's economy. Can it really keep up the growth that's made it so special? It really depends.

I mean, I think some of the growth numbers are a little suspect because if you look deeper down at other numbers like private investment for instance, Um, they are they're extremely worrying. Uh. And as I mentioned later, in jobs in particular, you've got, you know, a need to create something like a million jobs a month just to absorb the people entering the workforce. And you don't have an established and major manufacturing sector, which is really the

only way to absorb that number of people. Uh. That the Modi government has tried to establish this Make an India program, but it hasn't really amounted to much. They haven't been able to change, in particular the laws that make it harder for companies to hire and fire, which is why so many of them remain so small UH. And that's that's preventing growth in the manufacturing sector. And

then you've got UM. You know, part of the problem with the stall and investment is that you have a major overhang of bad loans uh in in the state bank sector that still hasn't been dealt with UM and that is preventing banks from lending, is preventing borrowers from from wanting to take on more debt uh. And unless you solve all these problems, I don't think it'll be you'll be able to sustain the kind of gaudy top line GDP numbers that the government likes to boast about Cyrus.

Does Pakistan have an economic future or even a futures? Yes, and yes, I absolutely do think that Pakistan both than economic future and a future UM. But it's not going to be an easy struggle for those who want to write Pakistan's coores. But I certainly have a lot of faith in many people in Pakistan who do see the struggles for what they are. But it's it's going to be a long slog, and I think it's going to test the patients of both Pakistani's and Pakistan's neighbors and

Pakistan's friends and attractor of the world. I mean, this is the country that's close to populations already well over two hundred million, it may almost double in three decades, the country that is a major, significant military power with nuclear weapon. This is a country that's really not going away anywhere. This is a country that can both offer a lot of opportunities and offer tremendous challenges to its neighbors.

This is a country that India, for instance, rather would have succeed on its own rather than splinter into more and more chaos. But God, that is going to really also affect in their daground to the detriment of India. So so it's it's going to be long slog. It's going to require a lot of reform in the country is going to reform. It's going to require a lot

of patients from Pakistan's neighbors. Failed Pakistan is unacceptable. Gentlemen, Thank you both, and again happy seventieth Benchmark will be back next week and until then you can find us on the Bloomberg terminal, Bloomberg dot com or Bloomberg app, as well as Apple Podcasts, pocket Casts, and Stitcher. While you're there, take a minute rate and review the show so more listeners can find us and do let us

know what you thought of the show. You can follow me on Twitter at Moss Underscore, Eco Scott at Scott's Landman Faris how do they find you? They can find me at f Khan thirty three at Bloomberg dot There and listen and on it are at out Nettajari. Benchmark is produced by Sarah Patterson. The head of Bloomberg Podcast is Alec McCabe. See you next time,