WEBVTT - India's Surprising Economic Partition

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<v Speaker 1>August fifteenth marked the seventieth anniversary of independence for India

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<v Speaker 1>and Pakistan Happy birthday or not. Accompanying independence was the

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<v Speaker 1>partition of colonial India into the two countries, with Pakistan

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<v Speaker 1>intended as a homeland for the subcontinent's Muslim population. The

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<v Speaker 1>sectarian basis of the carve up has been well documented

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<v Speaker 1>a much discussed, along with the divergent political history of

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<v Speaker 1>the two countries, including conflicts between the two. Yes, I

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<v Speaker 1>know there are now three countries, Bangladesh having broken away

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<v Speaker 1>from Pakistan in nineteen seventy one. We're going to take

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<v Speaker 1>a different tack. What were the economic underpinnings of independence

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<v Speaker 1>of partition and how have the countries fared economically since then?

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<v Speaker 1>And to what extent does their separation at birth explain

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<v Speaker 1>their economic performance. Welcome to Benchmark, a show about the

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<v Speaker 1>global economy. I'm Daniel moss I write about global economics

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<v Speaker 1>for Bloomberg View in New York, and I'm Scott Landman

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<v Speaker 1>and economics editor with Bloomberg in Washington. Well. To help

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<v Speaker 1>us work through the economics of partition, we have two

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<v Speaker 1>guests in very different parts of the world with different perspectives.

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<v Speaker 1>Here in New York. We have our colleague Faris Khan,

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<v Speaker 1>a senior editor on the Corporate Finance team at Bloomberg News,

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<v Speaker 1>whose family left India for Pakistan as part of an

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<v Speaker 1>economic and commercial strategy. Our second guest is Nissa Jari, Asia,

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<v Speaker 1>editor for Bloomberg View and author of Midnight's Furies, The

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<v Speaker 1>Deadly Legacy of India's Partition. He joins us from Bangkok.

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<v Speaker 1>Nisset and Faris, welcome to the show. Great to be here, Thanks, terrific.

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<v Speaker 1>India is perceived be booming and Pakistan is perceived to be,

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<v Speaker 1>shall we say, economically challenged. Anything wrong with this picture?

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<v Speaker 1>I'd say that picture is broadly correct, but of course

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<v Speaker 1>it can be exaggerated. You know, in Pakistan isn't doing

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<v Speaker 1>as badly as many would sink. In India isn't doing

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<v Speaker 1>as well as some of its champions would like to

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<v Speaker 1>would like to argue. I mean, if you look at

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<v Speaker 1>where Pakistan is today, they've they've emerged from i MF

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<v Speaker 1>bailout package. The stock mark has been doing relatively well.

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<v Speaker 1>Growth is hovering around four or five percent, which isn't,

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<v Speaker 1>you know, as high as India, but it's but it's

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<v Speaker 1>enough to put the economy on a fairly positive path.

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<v Speaker 1>On the flip side, you look at India, Uh, they've

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<v Speaker 1>sort of lost their ranking as the as the fastest

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<v Speaker 1>growing big economy in the world um after the shock

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<v Speaker 1>of demonetization last fall and after the introduction of this

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<v Speaker 1>new GST tax this summer. They're still struggling to get

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<v Speaker 1>private and smith going. They're still struggling with a bad

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<v Speaker 1>loans problem, and above all the struggling to create jobs

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<v Speaker 1>even though they will have vast and growing population. Faris

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<v Speaker 1>any thoughts, I would agree with what nest It is saying,

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<v Speaker 1>but I would add certainly when it comes to Pakistan,

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<v Speaker 1>there has been recently a positive science from the economy,

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<v Speaker 1>but the recent ousting of the Prime Minister of Pakistan,

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<v Speaker 1>the former primis and Navasharif, after he got ensnared in

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<v Speaker 1>a corruption scandal does not really bode wealth for stability

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<v Speaker 1>in that country. And that speaks to the biggest problem

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<v Speaker 1>in Pakistan is that it goes it has been constantly

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<v Speaker 1>trapped in a period of stru guilty where the military

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<v Speaker 1>and the civil institutions are wine for power in the

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<v Speaker 1>military usually ends up with the upper hand and whatever

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<v Speaker 1>economic gains, social gains that countries sees keep on getting

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<v Speaker 1>eroded by the struggle between these various factions. Were the

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<v Speaker 1>fates of the two kinds trees sealed in partition? I mean,

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<v Speaker 1>where they have they been on this kind of predetermined

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<v Speaker 1>course or were there things that happened in the intervening

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<v Speaker 1>years that have sort of set these plans on course

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<v Speaker 1>and the economies and the directions that they've been going. No,

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<v Speaker 1>I think you know, it's important to remember that, Um,

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<v Speaker 1>this hasn't been the course that both countries have followed

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<v Speaker 1>since partition. I mean early on, um, you know, India

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<v Speaker 1>devalue the routbe in and Pakistan didn't. And that stronger currency,

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<v Speaker 1>combined with the commodity boom that was sparked by the

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<v Speaker 1>Korean War, allowed Pakistana accumulated surpluses which they needed to industrialize.

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<v Speaker 1>So for the next three decades its economy average growth

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<v Speaker 1>around six percent, you know, double what what India was

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<v Speaker 1>managing at the time when it was under central planning.

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<v Speaker 1>It was only after India liberalized in that it's economically

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<v Speaker 1>economic fortunes of the two countries really reversed. UH and

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<v Speaker 1>India started to fulfill its potential and and and take

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<v Speaker 1>advantage of all the advantages that did have, including it

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<v Speaker 1>the size of its population, the size of its market,

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<v Speaker 1>and so on. So it wasn't inevitable that India would

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<v Speaker 1>be the economic superpower, but certainly it had inbuilt advantages

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<v Speaker 1>that Pakistan did not. I agree. I mean, there was

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<v Speaker 1>a saying when I was growing up in Pakistan in

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<v Speaker 1>nineteen eighties that in Pakistan you have more rich people

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<v Speaker 1>and a poor government, while in India you have a

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<v Speaker 1>rich government and poor people. And I think that has

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<v Speaker 1>sort of reversed when India went through the path of liberalization.

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<v Speaker 1>Pakistan did certainly see some strong periods of growth in

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<v Speaker 1>the nineteen sixties because of the economic macroeconomic policies was pursuing,

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<v Speaker 1>but those games were never made into permanent games because

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<v Speaker 1>whatever growth you might see would also be accompanied by

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<v Speaker 1>a lot of political instability, which again aid into those games.

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<v Speaker 1>And finally, after a strong period growth in the nineteen sixties,

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<v Speaker 1>the country entered the nineteen inties in a state where

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<v Speaker 1>basically the country were dismembered. So let's get back a

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<v Speaker 1>little bit in time here. First, tell us some more

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<v Speaker 1>about your family's business and why Pakistan looked better white acting,

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<v Speaker 1>so my my family was not in business per se.

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<v Speaker 1>Most of my father's side who came to Pakistan did

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<v Speaker 1>not came right in the aftermath of partition. It was

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<v Speaker 1>not that they were forced to leave where they were

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<v Speaker 1>in North India what is non North India. Immediately after partition,

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<v Speaker 1>a lot of Muslims from North India and others as

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<v Speaker 1>other parts of India came to Pakistan. Not so much

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<v Speaker 1>that they were fleeing oppression in India, but there were

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<v Speaker 1>a lot of opportunities for them in the new state

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<v Speaker 1>of Pakistan Pakistan. When Pakistan was created, the kind of

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<v Speaker 1>institutions that the British left or existed India, there were

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<v Speaker 1>fewer of them in Pakistan terms of civilian infrastructure, government infrastructure.

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<v Speaker 1>So there was a great a man in the new

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<v Speaker 1>state for people to come in and man these new positions,

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<v Speaker 1>and North Indian Muslim especially who were also some of

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<v Speaker 1>the biggest advocates of Pakistan. For them, it was natural

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<v Speaker 1>for them now to come and take over those jobs

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<v Speaker 1>that they could be jobs as bureaucrats in the new

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<v Speaker 1>in the in the new State Bank of Pakistan, in

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<v Speaker 1>the new airport structure, in the new educational institutions. So

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<v Speaker 1>they were the big boom, uh, and you needed people,

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<v Speaker 1>so many of my relatives came to take over those jobs.

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<v Speaker 1>My father, he came to Pakistan in the early nineteen sixties,

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<v Speaker 1>much later. Again for him, it was that his sisters

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<v Speaker 1>were already there and there were still a lot of

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<v Speaker 1>jobs available in Pakistan but not enough people. So naturally

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<v Speaker 1>it was to his advantage to leave Indian and come

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<v Speaker 1>to Pakistan. My mother came later when she married my

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<v Speaker 1>dad in the nineteen seventies. So fairest did they actually

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<v Speaker 1>get to enjoy the fruits of those economic upper communities?

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<v Speaker 1>Are they still doing that today? I mean what kind

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<v Speaker 1>of work exactly? Um? Were they and have they been?

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<v Speaker 1>So my father took on a differences. First he was

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<v Speaker 1>working for an airline, then he joined Pakistan Radio, and

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<v Speaker 1>then he became a producer in Pakistan television and this

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<v Speaker 1>is all in one decade, uh, and then he moved

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<v Speaker 1>into public relations after that. Yes, so they certainly did

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<v Speaker 1>enjoy um the boom that wasn't taking place in Pakistan

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<v Speaker 1>well into the sixties and the seventies, and to some

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<v Speaker 1>extent the nineteen eighties. My parents were what you can

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<v Speaker 1>describe as the very small part of the very small

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<v Speaker 1>urban upper middle class educated professionals who were in Karachi

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<v Speaker 1>or Lahore Islamban uh and they definitely benefited, but the

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<v Speaker 1>state and the country at large, I don't think was

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<v Speaker 1>enjoying the same levels of growth. Uh my my. There

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<v Speaker 1>she moved to Pakistan and right after, right before the

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<v Speaker 1>seventy one war, so her first experience after six months arriving,

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<v Speaker 1>and she's an academic, it was that six months after

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<v Speaker 1>coming to Pakistan, there's a war between the two countries

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<v Speaker 1>and she could not longer be in touch with her

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<v Speaker 1>own parents for I guess it was a couple of years.

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<v Speaker 1>So it was a little bit of trauma involved for

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<v Speaker 1>her at that time, and and she focused on her

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<v Speaker 1>academic career in Pakistan at that time. But so so

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<v Speaker 1>they were part of the upper middle class group in Karachi.

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<v Speaker 1>So Pakistan began to fall behind after this very promising start.

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<v Speaker 1>And nestaid, how much of that can be attributed to

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<v Speaker 1>these on off periods of military rule and why doesn't

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<v Speaker 1>the military play any significant role in India's political life

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<v Speaker 1>by comparison, Well, for a couple of reasons. UM's take

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<v Speaker 1>your second question. First, Uh, you know this, this is

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<v Speaker 1>a notable difference between the two countries that there's never

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<v Speaker 1>been a coup in India and Um, part of it

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<v Speaker 1>goes back to the fact that India at partition had stronger,

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<v Speaker 1>more well established and better staffed institutions. Um, they were

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<v Speaker 1>inheriting the machinery of the raj Um, they had people

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<v Speaker 1>in place, people have been working these jobs for for

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<v Speaker 1>quite a long time. And Uh, you know, the military

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<v Speaker 1>had always adhere to civilian rule there in Pakistan. On

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<v Speaker 1>any other hand, you had faced a situation where you

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<v Speaker 1>really felt after the riots of partition, and which remember

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<v Speaker 1>something like fourteen million people across the border from one

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<v Speaker 1>side to the other, nearly a million people may have died. Uh,

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<v Speaker 1>you had a real sense in Pakistan that India posed

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<v Speaker 1>an existential threat, that it had never accepted partition and

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<v Speaker 1>didn't want Pakistan to exist and hope to reabsorb it

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<v Speaker 1>one day. And then the other important thing is that

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<v Speaker 1>the founder of Pakistan, Muhammad Ali Jinna, die barely a

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<v Speaker 1>year after independence. So you had a situation where you

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<v Speaker 1>had sort of weak and confused civilian leadership. The army

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<v Speaker 1>was the strongest and most professional institution in the country,

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<v Speaker 1>and it was natural for people to look to them

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<v Speaker 1>for stability UM and that was a role they claimed

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<v Speaker 1>for themselves UM and so they you know, that led

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<v Speaker 1>to one of the first coups uh and and subsequent

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<v Speaker 1>ones as well. They've they've also portrayed themselves as the

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<v Speaker 1>defenders of Pakistan's sovereignty against this threat from next door

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<v Speaker 1>in India. UM And, as Farah said earlier, that's right.

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<v Speaker 1>The constant back and forth between civilian and military rule

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<v Speaker 1>UM works against stability UM and discourages investment. I mean,

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<v Speaker 1>you see what's happened to Pakistan and just since nine

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<v Speaker 1>eleven with the degree of violence that they've had to

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<v Speaker 1>deal with UM that that scares people off UH and

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<v Speaker 1>it makes it hard to UM for for investors to

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<v Speaker 1>see a long term future. UH. There has Pakistan suffered

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<v Speaker 1>and is its current predicament in part explained by its

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<v Speaker 1>long land border with Afghanistan. Now, you mentioned post nine eleven,

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<v Speaker 1>but Afghanistan has been going through periods of tumult long

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<v Speaker 1>before that. Does that have anything to do with what's

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<v Speaker 1>going on here? It's certainly it's certainly adds to the

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<v Speaker 1>challenge of Pakistan. I mean having a border that was

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<v Speaker 1>always contested by Avuhanistan because if you remember, the border

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<v Speaker 1>that defines the boundaries of Indian Pakistan was first of

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<v Speaker 1>all created under the Raj and the Aflan government then

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<v Speaker 1>and subsequent Aguan governments have always questioned the legitimacy of

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<v Speaker 1>the border. So that has added to this constant paranoia

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<v Speaker 1>and in Pakistan that we are surrounded by people who

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<v Speaker 1>don't really recognize our right to exist. If you have

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<v Speaker 1>India on one side that perhaps wants to re absorb

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<v Speaker 1>us and correct the tragedy of partition, and then we

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<v Speaker 1>have Afghanistan on the other side, which questions the legitimacy

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<v Speaker 1>of the border, and uh therefore has has strong interest

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<v Speaker 1>on the borderland straddling the border between the two countries.

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<v Speaker 1>So it does add to the instability. What at its

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<v Speaker 1>worst has done has it has constantly fueled the paranoia

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<v Speaker 1>that has strengthened the Hannah the military in terms of

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<v Speaker 1>positioning itself that we are the only ones who can

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<v Speaker 1>defend you as we are sounded by people who don't

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<v Speaker 1>want us to exist. Let's talk about India's economy for

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<v Speaker 1>a moment here. That country is reporting numbers that would

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<v Speaker 1>would make it the fastest growing major economy in the world,

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<v Speaker 1>even faster than China. And yet at the same time

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<v Speaker 1>it has legendary bureaucratic issues. Uh. They just had a

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<v Speaker 1>major issue this past year where they scrapped a huge

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<v Speaker 1>amount of currency. We did a whole separate podcast on that.

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<v Speaker 1>You have a Prime Minister Narendra Modi, who is uh,

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<v Speaker 1>you know, taking the country in new direction and even

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<v Speaker 1>fanning sectarian flames in a way. How does this altbode

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<v Speaker 1>for the future of India's economy. Can it really keep

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<v Speaker 1>up the growth that's made it so special? It really depends.

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<v Speaker 1>I mean, I think some of the growth numbers are

0:14:29.920 --> 0:14:34.480
<v Speaker 1>a little suspect because if you look deeper down at

0:14:34.520 --> 0:14:38.080
<v Speaker 1>other numbers like private investment for instance, Um, they are

0:14:38.120 --> 0:14:41.840
<v Speaker 1>they're extremely worrying. Uh. And as I mentioned later, in

0:14:41.960 --> 0:14:45.520
<v Speaker 1>jobs in particular, you've got, you know, a need to

0:14:45.600 --> 0:14:48.920
<v Speaker 1>create something like a million jobs a month just to

0:14:49.040 --> 0:14:53.640
<v Speaker 1>absorb the people entering the workforce. And you don't have

0:14:53.680 --> 0:14:58.040
<v Speaker 1>an established and major manufacturing sector, which is really the

0:14:58.040 --> 0:15:00.840
<v Speaker 1>only way to absorb that number of people. Uh. That

0:15:01.240 --> 0:15:05.080
<v Speaker 1>the Modi government has tried to establish this Make an

0:15:05.080 --> 0:15:07.920
<v Speaker 1>India program, but it hasn't really amounted to much. They

0:15:07.920 --> 0:15:11.800
<v Speaker 1>haven't been able to change, in particular the laws that

0:15:11.880 --> 0:15:14.680
<v Speaker 1>make it harder for companies to hire and fire, which

0:15:14.720 --> 0:15:17.600
<v Speaker 1>is why so many of them remain so small UH.

0:15:17.640 --> 0:15:22.120
<v Speaker 1>And that's that's preventing growth in the manufacturing sector. And

0:15:22.200 --> 0:15:24.560
<v Speaker 1>then you've got UM. You know, part of the problem

0:15:24.600 --> 0:15:27.160
<v Speaker 1>with the stall and investment is that you have a

0:15:27.240 --> 0:15:30.320
<v Speaker 1>major overhang of bad loans uh in in the state

0:15:30.320 --> 0:15:34.040
<v Speaker 1>bank sector that still hasn't been dealt with UM and

0:15:34.080 --> 0:15:37.160
<v Speaker 1>that is preventing banks from lending, is preventing borrowers from

0:15:37.200 --> 0:15:40.160
<v Speaker 1>from wanting to take on more debt uh. And unless

0:15:40.160 --> 0:15:42.320
<v Speaker 1>you solve all these problems, I don't think it'll be

0:15:42.440 --> 0:15:45.840
<v Speaker 1>you'll be able to sustain the kind of gaudy top

0:15:45.880 --> 0:15:49.520
<v Speaker 1>line GDP numbers that the government likes to boast about Cyrus.

0:15:49.920 --> 0:15:55.400
<v Speaker 1>Does Pakistan have an economic future or even a futures? Yes,

0:15:55.440 --> 0:15:58.800
<v Speaker 1>and yes, I absolutely do think that Pakistan both than

0:15:58.880 --> 0:16:03.040
<v Speaker 1>economic future and a future UM. But it's not going

0:16:03.080 --> 0:16:06.280
<v Speaker 1>to be an easy struggle for those who want to

0:16:06.280 --> 0:16:09.520
<v Speaker 1>write Pakistan's coores. But I certainly have a lot of

0:16:09.560 --> 0:16:12.560
<v Speaker 1>faith in many people in Pakistan who do see the

0:16:12.600 --> 0:16:16.240
<v Speaker 1>struggles for what they are. But it's it's going to

0:16:16.320 --> 0:16:18.640
<v Speaker 1>be a long slog, and I think it's going to

0:16:19.600 --> 0:16:23.520
<v Speaker 1>test the patients of both Pakistani's and Pakistan's neighbors and

0:16:23.560 --> 0:16:26.720
<v Speaker 1>Pakistan's friends and attractor of the world. I mean, this

0:16:26.840 --> 0:16:31.040
<v Speaker 1>is the country that's close to populations already well over

0:16:31.080 --> 0:16:34.400
<v Speaker 1>two hundred million, it may almost double in three decades,

0:16:34.480 --> 0:16:39.720
<v Speaker 1>the country that is a major, significant military power with

0:16:39.840 --> 0:16:42.480
<v Speaker 1>nuclear weapon. This is a country that's really not going

0:16:42.520 --> 0:16:47.080
<v Speaker 1>away anywhere. This is a country that can both offer

0:16:47.120 --> 0:16:51.080
<v Speaker 1>a lot of opportunities and offer tremendous challenges to its neighbors.

0:16:51.120 --> 0:16:54.080
<v Speaker 1>This is a country that India, for instance, rather would

0:16:54.120 --> 0:16:59.120
<v Speaker 1>have succeed on its own rather than splinter into more

0:16:59.120 --> 0:17:01.360
<v Speaker 1>and more chaos. But God, that is going to really

0:17:01.440 --> 0:17:04.359
<v Speaker 1>also affect in their daground to the detriment of India.

0:17:04.840 --> 0:17:07.120
<v Speaker 1>So so it's it's going to be long slog. It's

0:17:07.119 --> 0:17:10.320
<v Speaker 1>going to require a lot of reform in the country

0:17:10.440 --> 0:17:12.320
<v Speaker 1>is going to reform. It's going to require a lot

0:17:12.320 --> 0:17:19.080
<v Speaker 1>of patients from Pakistan's neighbors. Failed Pakistan is unacceptable. Gentlemen,

0:17:19.320 --> 0:17:26.240
<v Speaker 1>Thank you both, and again happy seventieth Benchmark will be

0:17:26.280 --> 0:17:28.919
<v Speaker 1>back next week and until then you can find us

0:17:28.920 --> 0:17:32.639
<v Speaker 1>on the Bloomberg terminal, Bloomberg dot com or Bloomberg app,

0:17:33.040 --> 0:17:37.120
<v Speaker 1>as well as Apple Podcasts, pocket Casts, and Stitcher. While

0:17:37.160 --> 0:17:39.760
<v Speaker 1>you're there, take a minute rate and review the show

0:17:39.840 --> 0:17:42.960
<v Speaker 1>so more listeners can find us and do let us

0:17:42.960 --> 0:17:45.359
<v Speaker 1>know what you thought of the show. You can follow

0:17:45.440 --> 0:17:51.000
<v Speaker 1>me on Twitter at Moss Underscore, Eco Scott at Scott's

0:17:51.200 --> 0:17:54.440
<v Speaker 1>Landman Faris how do they find you? They can find

0:17:54.480 --> 0:17:57.760
<v Speaker 1>me at f Khan thirty three at Bloomberg dot There

0:17:58.200 --> 0:18:02.480
<v Speaker 1>and listen and on it are at out Nettajari. Benchmark

0:18:02.600 --> 0:18:05.919
<v Speaker 1>is produced by Sarah Patterson. The head of Bloomberg Podcast

0:18:06.080 --> 0:18:08.360
<v Speaker 1>is Alec McCabe. See you next time,