A Tale of Two Countries: Comparing India and Pakistan’s Economies

This is by far one of the BEST, most concise and relevant articles making a case for free trade in the Asian subcontinent, that I have ever read.

note to the authors - May I have permission to utilize this material for classroom discussion purposes (am a student)? Credit will be given to you, naturally.

Poor Godot,

He doesn`t know and doesn`t know that he doesn`t know.

QuantumQuark

People - the first thing that strikes me after reading the article is not India this Pakistan that blahblahblahb, but that we both have a long, long way to go - and that it would be a faster journey if we travelled together rather than so resolutely separately. Oye, all my fellow Indians - so long as we still have STARVATION DEATHS in India, where do we get off taunting Pakistan for this that or the other? (And yes, I think the people from uss paar have a similar idiocy to us if the first thing they do in response to this article is to try and find where India is worse rather than think about how Pakistan can improve.) Zara sochiye yaaron, life is not a cyberdebate.

This article lacks academic merit and contains some serious technical flaws. Godot has correctly pointed out that this article is just a compendium of the propaganda excerpts that the governments in our part of the world spew out. And no one not even propagandists believe in them – a common person will believe this non-sense when he will have food to feed his children.

I will address two points in this post:

1. Purchasing Power Parity basis to measure economy, and
2. the concept of third world economy.



1. PPP concept is simple to understand. For example, lets consider that the exchange rate between US and Pakistan is 1USD = Rs. 60. Now, suppose that a certain item like shaving cream costs $1 in US, and in Pakistan a consumer is charged Rs. 60 for the same shaving cream, then we can say that there is PPP between two countries for that particular item, i.e. Shaving cream.

Extending this point further, assume that in USA the total population is 1 million and all 1million of them can buy that shaving cream; at the same time in Pakistan, suppose that the total population is 10 million and out of that 10 million 1.2 million can afford that shaving cream……then on PPP bases we can say that Pakistani economy is greater than USA for that particular item. This point is further explained in point 2.

2. There are two schools of thought who present diametrically opposite outlook on the economies of the third world.

One school of thought assumes that third world markets are un-tapped consumer markets where business can be done on the bases of volume of sale, since the populations are huge. This school presents the example of Lever Brothers who introduced sachet system of consumer products. Lets take the example of shampoo – in USA if a bottle of shampoo costs $3, if we apply PPP, this bottle should cost Rs. 180 in Pakistan; how many people can spend Rs. 180 on a bottle of shampoo? Not too many. But when same shampoo is packaged in small quantities in plastic sachets and priced at Rs. 5 a piece too many people can buy it. And underlying assumption is that the volume because of population will equalize the profits. So when 50 people buy those sachets each, that equals a bottle bout by 1 person in USA.

The second school of thought also assumes third world as untapped consumer markets but is skeptical of the ideas of first school of thought. This group presents the example of marketing of Coca Cola in China, which turned out to be a failure despite astronomical sales volume. The problem in this case is the investor who is sitting in a first world country and expects profits at par with sales volume. But due to the currency exchange, local taxation, and international laws the profits are pathetic. Now even if we look at Lever Brothers with this perspective, the results are pathetic. So this group asks for a change in strategy – but fails to present any.

My personal perspective on point 1 & 2 is different. Whatever, is presented in point 1 & 2 is the perspective that of a Multinational Corporations. This perspective is created by the business schools whether they are in India, Paksitan, or West, they teach the operating manuals of the MNCs to their students. These schools in third world thus train human resources (business managers) who can further the establishment of MNCs. They are rendered incapable of thinking from the perspective of their societies. Just read 1 & 2, aren`t these the strategies to market Western products in our lands. What is our own manufacturer to do? Become sales agents and distributors for MNCs? Unfortunately, that is what our manufacturers do. We MUST protect and promote our manufacturing base first. Globalization is a curse, which is eating up our purchasing power – our governments who are agents of these MNCs and West are artificially maintaining this purchasing power through internal and external debt. At least bania should understand this.

ZafarA:

I`m assuming you`re Zafar from down under. Kee haal chaal hai?? No news...arrey you have a sarkari job so you should have plenty of free time :) Kidding!!!

``Oye, all my fellow Indians - so long as we still have STARVATION DEATHS in India,``

The irony is that starvation deaths occur not because of lack of food production but because of inefficient distribution. All countries subsidize agriculture, and India is no exception. But our subsidy is supply side only. The warehouses overflow, and tonnes of wheat is wasted. The government keeps getting pressure from the farmer`s lobby to raise procurement prices. Making the fat jatts of Punjab even fatter.

However, when NT Rama Rao came up with the idea of Rs 2 a kilo for rice, he was villified by the media for populism. No doubt the idea was populist, but it at least was directed to the poorest of the poor and was one of his enduring legacies.


``where do we get off taunting Pakistan for this that or the other? ``

arrey, gareebi key bhoj sey dabbey hindustaniyon ko yeh chottey chotey aur muft mazzey laney sey to na rokiyey... :) Kalko Government hamarey Pakistan pey mazzak utarney par bhi entertainment tax lagga dey gi.

On a serious note, you say that India and Pakistan have to travel together. Why? It would either be all of South Asia, the entire region, or it would be each country on it`s own. Having lived in Nepal, I can tell you first hand that any gesture India makes is more likely to be misconstrued rather than taken for what it;s worth. This has a lot to do with India`s sheer size and cultural pre-dominance rather than anything else. A similar situation exists with our wanting to buy natural gas from Bangladesh. A win win scenario, but painted as exploitation by Bangladeshi nationalists.

I think India should at least in the short to medium term future, adopt an isolationist posture with regards to it`s immediate neighborhood, including withdrawal from SAARC. The lack of Indian interaction will give less ammo to play India as the bogey man.

ZafarA

Any assessment of our economic situations also needs to consider the following.

1) The so-called black market economy which if accounted for would probably add to the per capita indicators as well as the standard of living incidcators.

2) The malignant influence of corruption . This extends from the polliticians to the lowly bureaucrat in the village parishad office.

3) Efforts or the lack of them to bring the Bharat part of the country on par with the Indian part of the country.

4) Lopsided development in some respects - metros Vs. smaller centres-> The Govt needs to open the way for development in smaller centres condiering the fact that we are still not an open economy.

5) Change cultural bias to wards professional education such as Engg. and Medicine , we need qualified people in just about every profession , not widgets produced by assembly line engg colleges.




And from the chaos emerges the news about the ``Diamond network`` that should connect the four corners of the country by the year 2007. Positive indeed.

re: ZafarA

{People - the first thing that strikes me after reading the article is not India this Pakistan that blahblahblahb, but that we both have a long, long way to go - and that it would be a faster journey if we travelled together rather than so resolutely separately.}

...but we are going to two separate and very distinct destinations, even if we started in the same place...

Ref 12-Head #14

[....Arundhati Roy comments about the Dichotomy of Indias propsperity on one hand confined to upper echeleon while 80% of rural population go without electricity water medicinee school ri=oads ...]

That is probably true in Bihar. On the other hand, Arundhati Roy`s native Kerala (or Bengal) has the problem with water of having too much of it. It rains hard for 6 months of the year and the rivers and ponds overflow. I haven`t seen a village without roads, electricity or an elementary school in Tamil Nadu. India is well-developed in certain states and not so in certain other states. And no, we don`t have any sympathy for the Biharis, whether stranded in Bangladesh or in Bihar itself. Time for them to get off their butts and do something, like electing somebody other than that clown Lalloo Prasad Yadav.

[``It`s the old Brahminical instinct. Colonise knowledge, build four walls around it, and use it to your advantage. The Manusmriti, the Vedic Hindu code of conduct, says that if a Dalit overhears a shloka or any part of a sacred text, he must have molten lead poured into his ear.]

You know, you guys are secretly wishing that molten lead was poured into the ears of folks listening to the mullah rant and rave about the Koran and the hadiths.

[It isn`t a coincidence that while India is poised to take her place at the forefront of the Information Revolution, millions of her citizens are illiterate. (It would be interesting, as an exercise, to find out how many `experts`?scholars, professionals, consultants?in India are actually Brahmins or from the upper castes.) ``sayz ARUNDHATI ROY]

Wel, SOMEBODY has to do an honest day`s work and it certainly ain`t going to be the OBCs. What does Arundhati Roy want: quotas for OBCs at Texas Instruments, Cisco, and Lucent in Bangalore? I know what YOU want: quotas for Muslims.

ZafarA,

Very good insight. My 2 cents. Its one thing to throw crap at the other side during a mudsling fest:) However, when both sides come together at a Chowk, once in a while, we ought to pay attention to the crap on our side; rather than ``gloat`` about the problems of the other side.

Lets face it, if a Chinese guy came to Chowk today; he could ``shame`` us Indians with his ``gloating`` about China`s economic performance, compared to India`s...which, btw is a ``fairer`` comparison than India vs Pakistan.

The problem with the dominant mentalities of people in both countries is that we are both trying to ``prove`` to ourselves & the other guy, that Partition was ``wrong`` or ``right``--depending on which side we were born! And that shows up in every Indo-Pak debate--whether it is about economy, politics, social problems etc etc...

What I got out of this article is that both countries have failed to live up to their potential...& the biggest problem is that our mutual antagonism has hampered our potential & dragged us down...

But; hey, thats PRIMARILY Pakistan`s fault...I mean,.. that goes without saying....:))

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Dost-Mittar jee ,

Begging seems to have more to do with religio-cultural values more than just poverty. Traditionally begging is most prevalent in states that have a strong presence of feudal values , part of the problem lies in the fatalism of the masses and their belief in exploiting the guilty conscience of the better -off middle classes. Look not furher than the vicinity of temples to see beggars in the hope of inveigling some money out of the faithful middles classes. In this regard I can point out the differences across the Western Ghats that I have noticed, in Kerala the beggars are itinerants from Tamil Nadu and other states and they generally try to walk house-to-house , I have no reason to suspect that percaipta incomes in Kerala are the reason, the percapita for TN is probably marginally higher than for Kerala .

It is my hypothesis that by doing away with the fatalism of the people especially the rural masses tha are forced into cities the disgraceful effects of begging can be minimised.

Urstruly message 24.

Man now you have gone and put your foot in the *hit. PPP is based on the power that $1 can buy in various countries. Ths a $1 goes a damn sight long way in pakistan than in the US.

You need to get that head from where ever it is stuck and read your economics again.

Arjunm

It`s ok, relax. What Indian populace is experiencing now in the form of fragrent soaps with lanolin in them and cars etc., we have had since the beginning. MNCs cannot raise per capita income - they actually reduce it. But you will understand it later, for now just smell the new soap.

I think in this regard, Chinese are the smartest people on this planet - raising the standard of living of one billion people consistently, without Capitalsim, is nothing short of a miracle. They rely on their own manufacturing base; they didnt act dumb as Russians for democarcy and other non-sense, and they beat capitalists in their own game. What a nation.

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re: bharaatvasi #34

...ouch, careful with urstruly...he`ll go jump into lake michigan if you keep that up... :))

arjunm

``I can understand your frustration at seeing the Indian economy doing great ...``

No you dont understand, because anti-Muslim hate and prejudice has clouded your thinking. I say this because none of my post so far is ``India-bad-Pak-good``. The topic under discussion, as started by this article, and the article itself, is a technical subject. I have raised technical questions, based on subject of (Macro) economics. If you can refute them, I will thank you for increasing my knowledge base, but I see that you can`t. So either you don`t know the subject or as I said, are too preoccupied in your prejudices, so you make noise. Probably, you think that by doing that you are serving your country or parivar or something.