Introduction and Developmental Paths: A Snapshot

Introduction

In a globalised world, understanding the developmental strategies of neighbouring countries is crucial. This is especially true for developing countries, as they compete in a limited global economic space and share a common environment where economic activities have regional impacts. This chapter compares the developmental experiences of India with two of its most significant neighbours: Pakistan and China.

It is important to note the fundamental differences in their political systems. India is the world's largest secular democracy. In contrast, Pakistan has a history of a militarist political power structure, and China operates under a single-party command economy, which has only recently begun to adopt more liberal economic restructuring.

Developmental Path—A Snapshot View

India, Pakistan, and China share many similarities in their developmental strategies. All three nations embarked on their developmental paths at roughly the same time. India and Pakistan gained independence in 1947, while the People's Republic of China was established in 1949.

Similarities in Early Strategies

• Planned Development: All three countries started planning their development in similar ways. India announced its first Five Year Plan for 1951-56, China for 1953, and Pakistan for 1956.
• Public Sector Dominance: Both India and Pakistan adopted similar strategies, such as creating a large public sector and increasing public expenditure on social development.
• Similar Growth Trajectories: Until the 1980s, all three countries had similar growth rates and per capita incomes.

Historical Path of Developmental Policies in China and Pakistan

China

• Post-Revolution (1949): After the establishment of the People's Republic of China, all critical sectors, enterprises, and lands were brought under government control.
• Great Leap Forward (GLF) (1958): This campaign aimed at rapid industrialisation on a massive scale. People were encouraged to set up industries in their backyards. In rural areas, communes were started, where people collectively cultivated lands. The GLF campaign faced severe problems, including a devastating drought that killed about 30 million people.
• Great Proletarian Cultural Revolution (1966–76): Under Mao Zedong, students and professionals were sent to work and learn from the countryside.
• Economic Reforms (1978): The present-day fast industrial growth in China can be traced back to the reforms introduced in 1978.
  • Initial Phase: Reforms were initiated in agriculture, foreign trade, and investment. Commune lands were divided into small plots and allocated to individual households for use (not ownership).
  • Later Phase: Reforms were initiated in the industrial sector. Private sector firms and Township and Village Enterprises (TVEs) were allowed to produce goods. State-Owned Enterprises (SOEs) were made to face competition.
  • Dual Pricing: A system where fixed quantities of inputs and outputs were traded at government-fixed prices, while the rest were sold at market prices.
  • Special Economic Zones (SEZs): These were set up to attract foreign investors.

Pakistan

• Mixed Economy Model: Like India, Pakistan also follows a mixed economy model with co-existence of public and private sectors.
• 1950s and 1960s: Adopted a regulated policy framework for import-substitution industrialisation. The Green Revolution led to increased food grain production.
• 1970s: Nationalisation of capital goods industries took place.
• Late 1970s and 1980s: A policy shift occurred towards denationalisation and encouragement of the private sector. Financial support from Western nations and remittances from emigrants in the Middle East helped stimulate economic growth.
• 1988: Reforms were initiated in the country.

Comparative Demographic and GDP Indicators

Demographic Indicators

Out of every six people in the world, one is an Indian and another a Chinese. The population of Pakistan is significantly smaller, about one-tenth of either India or China.

Key Observations on Demographics

• Population Growth: Pakistan has the highest population growth rate, while China's is the lowest, largely due to its one-child norm introduced in the late 1970s. This policy also led to a decline in the sex ratio.
• Sex Ratio: The sex ratio is low and biased against females in all three countries, reflecting a strong 'son preference'.
• Fertility Rate: The fertility rate is low in China and very high in Pakistan.
• Urbanisation: Urbanisation is highest in China (59%), while India's urban population is at 34%.

Gross Domestic Product (GDP) and Sectoral Contribution

GDP Growth and Size

China's economic growth has been a major global story. It has the second-largest GDP (PPP) in the world.

• China's GDP (PPP): $22.5 trillion
• India's GDP (PPP): $9.03 trillion (about 41% of China's GDP)
• Pakistan's GDP (PPP): $0.94 trillion (about 11% of India's GDP)

In the 1980s, China maintained near double-digit growth. In recent years (2015-17), Pakistan and China's growth rates have declined, while India's has shown a moderate increase.

Sectoral Contribution to GDP (GVA) and Employment (2018-19)

Structural Transformation

In the normal course of development, countries shift from agriculture to industry, and then to services.

• China is following this classical path. Its workforce and output have shifted significantly to the manufacturing and service sectors.
• In India and Pakistan, the shift has been directly from agriculture to the service sector, with the industrial sector's employment share remaining low.

The service sector is emerging as a major driver of development and employment in all three countries.

Indicators of Human Development

A comparison of human development indicators reveals the progress made by each country in improving the quality of life for its citizens.

Key Observations on Human Development

• China's Lead: China is significantly ahead of both India and Pakistan on most human development indicators, including GDP per capita, poverty reduction, health indicators (mortality rates, sanitation), and malnourishment.
• India vs. Pakistan: Pakistan is ahead of India in reducing the proportion of people below the poverty line. However, India performs better on indicators like life expectancy and mean years of schooling.
• Maternal Mortality: Both India and Pakistan have very high maternal mortality rates compared to China.
• Undernourishment: The proportion of undernourished children is alarmingly high in both India and Pakistan.
• Liberty Indicators: While these indicators are important, they are not sufficient. They do not capture what are called 'liberty indicators', such as the extent of democratic participation, constitutional protection of citizens' rights, and the independence of the judiciary. Without these, the Human Development Index is incomplete.

Development Strategies — An Appraisal

An understanding of the roots of success and failure in our neighbouring countries can provide valuable lessons for our own development. The initiation of reforms (China in 1978, Pakistan in 1988, India in 1991) serves as a key point of reference.

China's Success Story

China's reforms were not forced by external agencies like the World Bank or IMF. The new leadership was dissatisfied with the slow pace of growth under the Maoist rule. They felt that the vision of decentralisation, self-sufficiency, and shunning foreign technology had failed.

The success of China's post-reform growth can be attributed to several factors rooted in the pre-reform period:

• Foundation Building: The establishment of infrastructure in education and health, land reforms, and decentralised planning before 1978 helped positively in the post-reform period.
• Equitable Distribution: The commune system ensured a more equitable distribution of food grains and basic health services were extended to rural areas.
• Phased Implementation: Each reform measure was first implemented at a smaller level and then extended on a massive scale. This experimentation under a decentralised government enabled an assessment of the costs and benefits before large-scale application.
• Agricultural Reforms: Handing over plots of land to individuals for cultivation brought prosperity to a vast number of poor people and created a strong support base for more reforms.

Pakistan's Slowdown and Re-emergence of Poverty

In Pakistan, the reform process led to a worsening of many economic indicators. The GDP growth rate and its sectoral constituents fell in the 1990s compared to the 1980s.

Reasons for the slowdown and re-emergence of poverty include:

• Dependence on Good Harvests: Agricultural growth was not based on institutionalized technical change but on good harvests. The economy performed well when harvests were good and stagnated when they were not.
• Volatile Foreign Exchange Earnings: Most foreign exchange earnings came from remittances from Pakistani workers in the Middle East and the export of volatile agricultural products, rather than from a sustainable export of manufactured goods.
• Dependence on Foreign Loans: There was a growing dependence on foreign loans and increasing difficulty in repaying them.
• Political Instability: Long periods of political instability hampered consistent economic policy.

However, in recent years, Pakistan's economy has shown signs of recovery, with many macroeconomic indicators showing stable and positive trends.

Conclusion: Lessons from a Comparative Study

India, China, and Pakistan have travelled seven decades of development with varied results. While they were at similar levels of low development until the late 1970s, the last three decades have seen them diverge significantly.

India

With its democratic institutions, India has performed moderately. However, a majority of its people still depend on agriculture, infrastructure is lacking in many parts of the country, and more than one-fourth of its population still lives below the poverty line.

Pakistan

Political instability, over-dependence on remittances and foreign aid, and the volatile performance of the agriculture sector are key reasons for the slowdown of the Pakistan economy. However, recent years have shown signs of economic recovery.

China

Despite concerns about the lack of political freedom and human rights, China has used the 'market system without losing political commitment' to achieve remarkable growth and poverty alleviation.

Key Differentiators in China's Strategy

• Strategic Use of the Market: Unlike India and Pakistan, which are privatising their public sector, China has used the market mechanism to 'create additional social and economic opportunities'.
• Social Security in Rural Areas: By retaining collective ownership of land while allowing individuals to cultivate it, China has ensured a degree of social security in rural areas.
- Investment in Social Infrastructure: Public intervention in providing social infrastructure even before the reforms brought about positive results in human development indicators.

The comparative study underscores the importance of a strong foundation in social infrastructure, stable political will, and a strategic, phased approach to reforms in achieving sustainable and equitable development.

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