A comparative study of Pakistan and India economies in the post partition period

Submitted by:

Fazal Azeem

Hassaan Qureshi

Mahin Jehangir Ali

Umar Ala ud din

Lahore School of Economics

Pakistan Studies

Submitted to: Dr Aslam

Dated: 6-12-2017
Pakistan’s Economy from 1947 to 2017

Post partition Pakistan and 1st Five year plan (1955-1960)

Right after Independence Pakistan faced serious economic problems as compared to

neighboring country India that managed to deal with the problems. Since India was a larger

country it managed to get the lions share and majority of the resources as compared to

Pakistan that got minimal resources. Pakistan fell short of basic assets such as chairs, tables

etc as well as lacked capable and skilled personnel who could manage the industries.

Undivided India was meant to receive 4000mn but once partition was declared it was

mutually agreed that Pakistan would get 750mn however only 550mn was paid. It wasn’t

until 1948 because of Gandhi that the remaining money was received. The refugee problem

was another issue as 7mn people fled into Pakistan. The newly formed country didn’t have

resources to cater to the needs of these people. In 1948 India cut off the water supply to

Pakistan that came under its control. Besides this India inherited more than 900 industrial

units and Pakistan only 31. Contribution to GDP from industry was only 7% and workforce

only 26000. Domestic investment was 3% while saving only 2%. There were other hurdles

as well such as death of Quaid-e-Azam Muhammad Ali Jinnah in 1948 who was the only

person capable of managing the newly built country. The people lacked entrepreneurial

mindset and there was no business expertise. The entire economic system was weak.

Although in 1948 development board had been set with an aim of developing planning

scheme, it failed to start due to internal conflicts between the ministries. The second reason

was the Korean War due to which the Colombo Plan failed to be carried forward. The

assassination of Liaquat Ali Khan in 1951 was another issue as those who succeeded him

couldn’t deliver the political mandate. Due to the above mentioned handicaps Pakistan’s first

five year plan which was to be completed by April 1954 was stretched to 1955 with the

establishment of the draft in 1958. The outlay of the first five year plan was agreed at

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11,500mn but later revised at 10,800 m. Out of this a budget of 7500mn was to be invested in

public sector and remaining 3,300mn in private sector.

In early years the only way Pakistan was surviving was due to its agricultural sector that was

contributing to 53% of the GDP however 66% of labor force was employed in this sector and

only 10% in manufacturing. As far as electricity generation capacity is concerned West Pak

only had 50MW. Literacy rates were very low around 15% and out of a population of 3mn,

18% only resided in Urban areas. Per capita income was only 50$, number of schools was

8,413 and as far as medical facilities are concerned total number of doctors was 1000.

2nd Five year plan (1960-1965)

The first five year plan failed to deliver results but even then under the military government

of Ayub Khan the plan was revised with emphasis on industry. The second five year plan

(1960-1965) paid utmost importance to private sector with major areas of concern being

industry and agriculture. Ayub tried to bring about a new era of development for Pakistan by

focusing on the economic situation and introducing social reforms. The target to be achieved

in second year plan of GDP was 20% (it was 15% for the first five year plan). Investments

during this five year period grew rapidly reaching up to 21.5% of GDP. Especially in West

Pakistan private investment increased by three folds. This was all due to stable political

situation and less rigid investment policies combined with sufficient availability of foreign

exchange. The industrial policy aimed at increasing production of consumer and producer

goods and it was during the first three year of the plan that the production of large as well as

medium industries increased by almost 34%. Attention was paid to heavy engineering,

chemical fertilizers, cement factories, sugar industries as well as jute. Another important

thing to note is that during this time Pakistan was receiving large net foreign inflows, by the

end of 1965 net foreign flows formed 7% of GDP. However this proved disastrous in the long

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run as the country started to depend on foreign inflows. It is reported that Pakistan took US

foreign aid of $800million. Investment was made in water and power especially in West

Pakistan with work started on Indus basin. The investment has said to have taken US$ 2.5bn

and formed almost 50% of the total public sector spending. Ghulam Ishaq Khan (Chairman of

WAPDA) justified this huge sum of investment by stating that water was crucial for the

development of the agricultural sector. Decision to start work on the Tarbela dam was also

made which was completed somewhere in 1971. However the decision to heavily invest in

water resources came as a great cost as other important sectors were neglected such as

education. Priority was given to exports but main exports were cotton textiles. The export

bonus scheme was introduced to provide exporters with incentives. This scheme enabled

exporters to earn revenue through the additional premium. Ayub’s land reforms on the other

hand were a complete failure as it put restrictions on the size of land landlords could keep.

Land was redistributed with a ceiling of 500 acres for land that was irrigated and 1000acres

for un-irrigated. This decision benefitted around 200,000 tenants, each receiving 3.85 acres.

Out of 2.5m subsistence only 8% got advantage from these reforms. As far as education is

concerned, the target of increasing primary school enrolment of 56% was not achieved;

instead it only improved to 36% as population grew at a very rapid rate. Women education

wasn’t paid much attention and urban bias existed. Because of negligence of such an

important sector Pakistan saw an increase in illiteracy rates. In short the GNP in the second

year plan was expected to grow at 24% but showed increase of 29%, Per capita income by

10% but increased to 13% , Foreign exchange by 15% but grew to 40% and agricultural

output to 51%.

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3rd five year plan (1965-1970)

The third five year plan of Pakistan was made under difficult circumstances as in 1965

Pakistan went to war with India. Due to this foreign aid stopped and economic restrictions

were imposed on the country. The plan had been drafted in 1965 but had been revised in

1966 as a result of the war. The size of the plan was calculated to be 52,000mn of which

32mn was set aside for public sector and the remaining for private sector. 68% financing of

this plan was done by internal sources while the rest by external sources. The expected

growth rate was set for 6.5%, per capita income 3.5%. New industries were requested to be

set up, 26,414 primary schools and development of health sector. The result of the plan was

growth rate of 5.7%, per capita income of 2.9%, and increase in income disparity in east and

West Pakistan from 36.5% to 47.4%. Increase in food production was seen, 6062 primary

schools were built with only 3.19mn enrollment. As for gross fixed investment it increased

by 3 folds from 8.5% in 1958-1959 to 14% in 168-1969. Because of the green revolution

agriculture sector performed well with growth rate being 6.3%. Wheat and rice production

showed an increase by almost 75% and tube wells doubled. The war with India in 1965 had

made defense a high priority that is why expenditure on defense doubled. The spending on

Public sector in East Pakistan also increased thereby putting constraints on West Pakistan.

Taxation helped meet the extra defense spending thereby increasing tax rates from 6.1 % TO

7.6% OF GDP in 1969-70. Manufactured goods also showed an increase of 2.2% in West

Pakistan. Towards the end of the 60’s tensions started to rise in West Pakistan as the issue of

concentration of power emerged. It was said that power was in the hands of 22 families who

were controlling almost 80% of the banking, 66% of assets and 70% of insurance. The result

of all this was East Pakistan demanding transfer of resources in their region as they believed

that in the West only few were being benefitted. Secondly concentration of wealth was giving

rise to poor class and later became the reason of nationalization in the 1970s.

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Economy from 1971-1977

After a serious decade of development, Pakistan’s economy saw a downturn during the reign

of Zulfiqar Ali Bhutto who was a socialist. His policy of overnight “NATIONALIZING” the

private profitable businesses especially industries led to the downturn. During Bhutto’s time

the GDP growth rate was only about 5%. The GDP per capita started to decrease in 1969.

When Bhutto came to power the first aim he had was to clip the wings of the industrial

families that became dominant during Ayub Khan’s regime. This process of nationalization

was divided into 2 phases. The first phase was well thought out and executed but the second

phase lacked conviction. Apart from nationalization of profitable industries, war with India in

1971, made the conditions worse. East Pakistan declared independence and became

Bangladesh which greatly affected the west Pakistan as eat Pakistan was a major producer of

jute. In 1972 GDP fell to just a mere number of 1.2%. Both the factors combined made the

private investors to loose interest in Pakistan. To further make the conditions worse the

economic crisis of 1973 occurred due the shortage of oil in the world and increased prices.

This made the import bill to rise by such a big proportion that it took our balance of payments

to negative. After that the country was hit by its first natural disaster of massive flooding that

made a lot of people homeless and skyrocketed the prices of consumer goods by almost 3

times which led to the further reduction in GDP and increased inflation. All policies of

Bhutto were backed by socialist reforms but proved to be mismanagement. He kept the

planning commission idol for so long that it almost finished and the progressive works

stopped. The total investment from 1972-73 showed a negative growth rate of 15.4%. From

1973-74 public investment increased by 252.3% and private investment on the other hand

increased by only 0.5%. from 1974-75 the public investment again increased by 172.4%,

private investment increased by 40.5% and the total investment increased by 76.9%. Even the

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public sector investment started to decline in the coming years and only increased by 35.6%

in the last year of his tenure. From a rising economy the economy went into dumps and was

then taken over by Zia ul Haq who imposed the martial law for almost the next decade.

Economy from 1977-1988

In 1977, General Zia ul haq imposed martial law in Pakistan. This martial law lasted for 10

years and his rule is the longest rule ever by ant individual of Pakistan. During his time,

economic growth averaged 6.6%/annum. Workers remittances from abroad pushed the Gross

National Product of Pakistan to record high of 7.6%/annum. The agriculture growth rate

doubled as compared to the last decade and touched 4% in 1977-88. This was mainly the

result of better agricultural policies that provided incentives on growing a specific crop like

wheat, that resulted an increase of wheat production from 8.5 million tons to 13 million tons.

When Zia came to power to power he started to strengthen the industrial sector again by

reversing the nationalization to some extent and providing incentives to the private investors.

It was this planning that led to an averaged increase of 9% of industrial in his tenure as

compared to 3.7% in Bhutto’s government. Large scale manufacturing had the biggest chunk

in this increase. The increase was mainly because of some large public investments done

during Bhutto’s time started to pay off, plus the export policy that was formed in order to

increase the exports of manufactured products by providing rebate on taxes on exports plus

rupee was also devalued in order to encourage exports and lastly, by providing big investors

with the guarantees that nationalization that took place earlier would not happen again and

they can freely do business again without any problems. This led to an increase of 9.5% ever

year in private sector investment. If we talk about the social indicators they also showed a

positive trend. GNP per capita increased to 4.3% during his time. The government

expenditures also increased drastically from 11% to 27% during this time. and the main

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increase came from the increased expenditure on defence. The annual earning of the

unskilled labour continued to increase and during his regime it increased by almost 150%.

Primary school enrollment remained at 4%. Morality rate only increased a modest but the

debt burden on the country saw a substantial increase from 1.9% of the GDP in 1976-77 to

4.9% in 1987-88. But as compared to the Bhutto regime Zia ul Haq’s government better

administrated the economy again started attract private investors and better growth.

Economy from 1987-2007

As repercussions of 1988 general decisions, Benazir Bhutto and the peoples party came back

to control, promising to denationalized and replace with the industrialization program by

implies other than the state intervention. But questionably Benazir Bhutto did not completed

the denationalization program or liberalization of the economy. No nationalized units were

privatized, couple of financial and economic directions were reviewed. The partial

privatization started to commence by Chief Minister of Punjab Province Nawaz Sharif who

managed the liquidation of numerous industrial units put under provisional government to

private segment. All businesses based on Punjab government proprietorship were come back

to its legitimate owners on a shared comprehension, the costs on units came back to

industrialists were as yet kept as "top secret" by the temporary government.

A large scale privatization program was propelled on 22 January 1991 as the primary

economic policy arrangement by Prime Minister Nawaz Sharif who came to national power

subsequent to securing a flight-winning triumph in the 1990 general races. The privatization

program was influenced in its tendency in the wake of seeing the achievement of the

privatization in Great-Britain by British Prime Minister Margaret Thatcher. The primary

period of the privatization program secured the half of the public segment businesses as far as

total employment, and the program was in an immediate reaction to Pakistan Peoples Party

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and Zulfikar Ali Bhutto, and for instance Sharif's privatization program was smooth as

nationalization program. Throughout first stage, Sharif managed the denationalization of

banks and industries to private segment, beginning first with MCB limited. Sharif named his

privatization program as "transforming Pakistan into a (South) Korea by empowering more

prominent private saving and investment to accelerate economic development."

The liberalisation of economy was planned to end the government subsidiaries and to lessen

the part of the government in national economy. Successful attempts were carried out by

Sharif to grow the part of the private sector, and to change the imbalance characteristics in

social administrations. From 1990 to 1993, the private and foreign investments were

significantly relaxed. This was followed by the liberalisation of the foregn trade which was

promptly free, and in the meantime, the interest rates were generously changed, credit

sponsorships were cut, and energy prices were drawn much nearer to costs. The economic

liberlisation programme was not carried out with much effectiveness as the benefits from

economic liberlisation were seriously limited as there was lack of effective macroeconomic

policies.

Following 1993 general decisions, the second period of the privatization program started in

1993 under the "disciplined macroeconomics policy" of Prime pastor Benazir Bhutto. Her

program planned to gain by the rising business oligarch class however the program endured

with great difficuilties and issues even inside the peoples party. The second phase involves

the privatization of financial institutions, several telecommunications corporations, thermal

power plants, oil and gas sectors. Benazir's administration did not privatize all state

organizations, particularly the ones who were gathering huge incomes abroad; just certain

industries were privatized which were at the very edge of financial collapse.

The development of the economy moderately backed slowed down the year 1993– 97, the

country failed to draw in the foreign investors to help the economy. Responding to the crisis,

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Benazir Bhutto fixed the control of mega corporations while on the other side proceeded with

the privatization of average ventures to private-sector. From the period 1994– 96, the level of

corruption increased and the charges against Benazir Bhutto picked up currency. In middle of

1993, Benazir Bhutto set out a medium term program, Eighth Five-Year Plans, that was

intended to modify the macroeconomics standards to lighten the national economy. But, it

had created the fleeting results and in 1994– 95, the nation had performed the economic

results beneath its potential. Significant concessions were made in taxation and monetary

policy. This policy participated in sharp rise in unemployment and rapid deterioration in the

external reserves position, bringing the country back to the brink of a foreign exchange crisis

in October 1995.In 1996–97, Pakistan was ranked and regarded as "highly in-debt developing

country" by the international financial organizations. The economic growth declined when

the US embargo began to bite the government of Benazir Bhutto. By the end of 1996, 20

industrial units, one financial institution, one electric power plant and 12% shares of Pakistan

Telecommunications Ltd. were privatized by Benazir Bhutto.

After Bhutto’s regime, Nawaz Sharif returned to the government charge and Nawaz Sharif

made several attempts to end the stagflation in the country. Overall, the conditions had been

worsened and a year after being elected, Sharif ordered the nuclear tests in a response to

India's nuclear aggression. Despite the Asian financial crises in 1997 and Russian financial

crises in 1998, and amid economic sanctions in the wake of nuclear tests, the foreign

exchange increased to $1.5 billion, the stock market improved and inflation was contained at

3.5% as opposed to 7% in 1993-96. Sharif's second government restored the GDP growth to

3.49% in 1997, tough inflation remains high at 11.80%. Little progress was made by Sharif in

1998, and his reforms only leveled up the GDP growth to 4.19%, while retaining the inflation

and unemployment at 7.8%

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Under Shaukat Aziz's administration, the country’s national economic development

enhanced at the rate run by 6.4% to 9.0% a year. All income gathering targets were met on

time for the first time in the history of Pakistan, and assignment for improvement was

expanded by around 40%. However, this economical achievement is credited generally to

debt reduction and securing of the billion dollars worth US aid to Pakistan as a byproduct of

the help in the US-lead war on terror. In addition, in spite of a progression of internal and

external upsets, financial circumstances of Pakistan enhanced fundamentally and reserves

expanded to US$10.7bn on 30 June 2004 when contrasted with US$1.2bn October 1999.

Exchange Rate became stable and predictable; the inflation rate dropped to 3.5% last 3 years

as against 11–12% in 1990. n 2004, Shaukat Aziz had initiated an intensified privatization

programme in order to grow the GDP rate annually. Aziz forcefully and aggressively pushed

100% privatization of state-owned corporations while virtually planned to privatized 85% of

banking sector. Starting from 2003 until 2007, Aziz successfully privatized 80% of the

banking industry into private-ownership enterprises, while privatizing the numbers of shares

of Pakistan International Airlines and other mega-corporations into the public circles.

However towards the finish of 2007, Aziz's privatization program suffered a major set back

which at first stopped the privatization program in the country. The Supreme Court stopped

the privatization of Pakistan Steel Mills subsequent to exchanging the request from FIA to

NAB, while issued standing requests to hold the Steel Mills under the nationalization

program

Economy from 2007 to 2017

GDP:

The outgoing fiscal year 2007-2008 for Pakistan’s economy has been a difficult due to some

exogeneous as well as indogeneous shocks. This year events like, soaring energy prices, an

unprecedented surge in food inflation and a global financial market crisis to match the Great

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Depression occurred. These developments have had adverse consequence. Yet Pakistan’s

economy has shown great resilience against internal and external shocks of extraordinary

nature during the outgoing fiscal year Pakistan’s real GDP grew by 5.8 percent in 2007-08 as

against to 6.8 percent last year whereas the growth target was of 7.2%. On average Pakistan’s

economy has grown at a rate of almost 6.6 percent per annum in the last five years.

Compared to now, according to the Economic Survey of Pakistan, the country has been able

to achieve 5.28 percent GDP growth during FY 2016-17 as against the target of 5.7 percent.

Eve from the graph below we can see an increasing trend in Pakistan’s GDP.

Gross Domestic Saving (% of GDP)

Gross domestic savings were stood at a 13.9 percent of GDP in 2007-08 down from last

year’s level of 17.8 percent. Compared to today, gross domestic savings (% of GDP) in

Pakistan according to the Pakistan Economic Survey 20017 were reported at 13.1 percent of

GDP in FY2017 against 14.3 percent last year. Domestic savings are recorded at 7.5 percent

of GDP in outgoing fiscal year as compared to 8.2 percent of GDP last year. Saving fund our

investments and overall total investment are showing growth of 11.05 percent in FY 2017.

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Investment to GDP ratio has reached 15.78 percent in FY 2017.

Food Grain Production:

Pakistan is a major rice grower and exporter, at the same time its wheat-producing sector

supplies the domestic markets along with this Pakistan is delivering flour to neighboring

Afghanistan. The market is closely managed y the Government of Pakistan to ensure the

supply of flour to population. The International Grains Council (IGC) puts Pakistan’s total

grains production at 31.3 million tonnes in 2016-17, compared with 31.1 million the year

before. The growth of agriculture has also seen a welcome rise as it

jumped from 0.3% in 2015- 2016 to 3.5% in 2016-2017.

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Government Debt:

Gross public debt was Rs 20,873 billion as at end March 2017 while net public debt was Rs

18,893 billion. Gross public debt recorded an increase of Rs 1,194 billion during first nine

months of current fiscal year. Out of this total increase, increase in domestic debt was Rs

1,121 billion while government borrowing from domestic sources for financing of fiscal

deficit was Rs 1,018 billion. This differential is mainly attributed to increase in government

credit balances with the banking system. Similarly, increase in external debt contributed Rs

73 billion in public debt. Revaluation gains on account of appreciation of US Dollar against

other foreign currencies reduced the impact of net external inflows on external public debt

portfolio (Pakistan Economic Survey, 2016-17).

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Education

Pakistan’s overall education condition is based on key performance indicators that includes;

student enrolments, number of institutes and teachers which has witnessed improvements and

dropout ratio. According to the report of PSLM Survey data (2006-07), the overall literacy

rate was 55% in 2006-07 compared to 45% with government expenditure on education as a %

of GDP was around 1.76%. Talking about recent year, literacy rate remains much higher

specifically in urban areas with 74% than in rural areas 49% for the FY 2017. Also the

public expenditure on education as percentage to GDP increased by 2.3% in FY 2017.

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Life expectancy:

Life expectancy at birth, total (years) in Pakistan was reported at 68.06 years in 2017

compared to 64.34 years according to the World Bank. This s due to many reason as

governments are making people aware of health issues and also providing them with medical

facilities. Many awareness programs were launched which includes; polio, HIV Aids, Family

Planning and many more. These had helped Pakistan to build a strong healthy population and

improve the existing living standards of people. Overall life expectancy is on increasing

trend.

Import/Export

Pakistan’s export performance was impressive in the years 2002-03 to 2005-06 with

registering an average growth of 16% per annum. Whereas, export performance turned to be

dismal in 2006-07 as it witnessed abrupt and sharp deceleration to less than 4 percent. When

viewed in the back of last year’s performance, exports did manage to recover somewhat this

year but its performance remained far short of the average growth of 16 achieved during

2002-03 to 2005-06. In recent years, Pakistan’s exports have been facing headwinds for the

past 2 years mostly due to weak global demand and lower commodity prices. The current

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account deficit during July-Apr, FY17 reached $7.247 billion, 2.38 of GDP as compared to

$2.378 billion 0.85 of GDP, thus widening by 204.8 percent.

Import growth slowed to a normal level for the fiscal year 2006-07 but then again registered a

sharp hike once again by the FY 2007-08. This pick up was on account of an unprecedented

rise in oil import bills and some one-off elements in the shape of imports of wheat and

fertilizer. As a result of this increase in imports, Pakistan’s trade and current account deficits

widened substantially, contributing to serious macroeconomic imbalances. No doubt Pakistan

imports have always been on rising trends. For 2016-17 the rise in overall import payments

was mainly due to the higher purchases of fuel and capital equipment. This is justified, given

that Pakistan is now transitioning from a low growth to higher growth economy, and is

therefore faced with supply-side bottlenecks in energy and infrastructure. The Power

generating machinery imports increased by 76.5 percent, textile 20.8 percent, construction

66.8 percent, agriculture 35.8 percent, other machinery 53.1 percent, signaling increasing

productivity in the industrial sector.

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Infrastructure

Public investment grew by 23.55 percent and as percentage of GDP it has increased from

3.79 percent to 4.28 percent, which is the clear reflection government expenditure strategy is

development oriented. It has spillover effects on private sector investment as private sector

development is facilitated through public sector development spending particularly on

infrastructure. Public Sector Investment increased by Rs 1363 billion in FY 2017 compared

to Rs 1103 billion in FY 2016.

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India’s Economy from 1947 to 2017

Post Partition India

In 1947 India achieved independence from British rule but initially went through a very

difficult phase. The majority of the population was poor and literacy rate was only 12%. The

country had a total of 25 universities and 600 colleges. Due to absence of medical facilities

average life expectancy was 35 years . The railway structure inherited was very basic and

there was reliance on foreign aid with India having a foreign exchange reserve of half a

billion. The economy depended on agriculture for survival. As compared to Pakistan , India

received a far greater share in terms of assets as it was decided that a formula of 4:1 was to be

used when it came to division of assets resulting in India getting almost 80% of the assets.

1st Five year plan (1951-1956):

Under Nehru the planning commission was set up with the objective of raising living

standards and increasing production as well as increase employment. This plan was based on

the Harrod-Damor model with focus on the agriculture. A budget of 2069 crores was

allocated to seven important areas such as industry, energy, social services, land

rehabilitation, agriculture, transport and other sectors. As a result of the first five year plan

net product went up by 15%. An outlay of 74 crores was witnessed from industry withy

industrial production rising up to 39 percent and annual growth rate of 7 percent. Similarly

progress from cotton and steel industry was 28 and 22%. Other than this many new industries

were also established such as the Integral coach factory, Cable factory, Pencillin factory,

Sindri Fertiliser etc. Basic industries such as medicine, drugs, steels were also established.

Per capita income went up to 18%, food production also saw an increase to about 65.8 trillion

tonnes. School enrollment increased by 33% and a large number of hospitals and dispensaries

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were opened with around 101 crores spent in the health sector. Focus was also given to

transportation system with railway lines strengthened. Dam projects such as Bhakra Nngal,

Hirakud and Mettur dam were also started. By 1956 India had developed five Indian

institutes of technology.

2nd Five year plan (1956-61):

The second five year plan focused on strengthening industrial base and was constructed under

P.C.Mahalanobis. The previously set industrial policy of 1948 was revised under this plan

with more focus expanding the public sector and adopting a socialist approach. The total cost

associated with this project was 4800 crores out of which 560 crores was allocated for

agriculture, 913 crores for irrigation and power, 890 crores for industry , 1385 crores for

transport, 954 crores for social services and the remaining 99 crores for miscellaneous.

The second five year plan resulted in national income of India to increase with per capita

income increasing by 8%. However higher growth rate of population contributed to lower

rising income growth rates. At this point population was growing at 2% per annum. National

income saw an increase from 11, 670 crores to 14,140 crores with income rising from 299 to

326 rupees. A rise in food production was also seen by 15%, cotton by 31.5%, tea by 9% and

sugarcane by 22.5%. Jute however saw a decline. By this time India was able to produce

machinery in large quantities for agriculture as well as industry and transport.

Three steel mills were established in the public sector which included Durgapur in West

Bengal, Rourkela in Orissa and Bhilai in Madhya Pradesh. Due to this plan India was able to

create 9.5mn jobs and started production of motorcycles, tractors , medicines etc. Investment

in the economy also saw an increase from 850 crores to 1600 crores. Net investment

increased from 7.3% to 11% while savings increased from 7.5% to around 8.5%. The power

and energy sector increased its power generating capacity from 3.42mn kw to 5.70mn kw.

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Colleges and schools also increased with more and more graduates in engineering. Around

278 new schools were built with % of school going children increasing by 39%.

3rd Five year plan (1961-66):

The Indian economy during the 1960’s faced serious disruptions and problems as a number

of events took place that contributed to serious action being taken. This included the Indo

Sino war of 1962 followed by the war with India in 1965 and severe droughts in 1966 and

1962. The decision to devalue the currency further contributed to tensions. In 1962 due to

Sino Indian war, Indian budget was severely affected as an extra 95 crores had to be added to

the actual budget because of the situation created. In 1965 war with Pakistan took place And

India had to develop its defence industry. 2 droughts took place in 1966, 1967 which resulted

in heavy reliance on imports in order to fulfill basic food requirements. The devaluation of

currency led to high prices of commodities as during these years heavy reliance was on

imports. Value of money in the international market decreased and there was a trade deficit.

Before devaluation 1$ was equal to 4.76 and after it was 7.50 rupees. During first 3 years of

the 3rd five year plan , an increase was seen and agriculture sector performed well due to

HYV seeds and the fertilizers. Also in early 1960’s per capita income was low as compared

to the years 1969 and 1970 where it rose to almost double. Population increase during this

decade was minimal. Increase in savings was seen not only in gross domestic savings but also

private corporate savings. Around 14 banks were nationalized during these years. High price

was witnessed during the decade as WPI saw a drastic increase, Two severe droughts

followed by heavy reliance on food grains pulled up prices for example in 1960-1961 WPI

was 124.80 but later it rose to 208.20 during 1968-1969.As a result of the third five year plan

national income rose to almost 20% in the first fours but later declined by almost 5.6% in the

last year. This was because of the 2.5% growth rate of population. In the early years of the 3 rd

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five year plan the agriculture sector performed well and this was due to introduction of HYV

seeds and fertilizers. As compared to the previous 5 year plans, this one didn’t perform up to

the mark as a decline of 7.4% in agricultural commodities was seen followed by the severe

drought that further worsened the situation. This decline also impacted the national income as

it decreased by 49.4% in 1960-61 to 46.2 % in 1965-66. Due to the drought situation there

was heavy reliance on imports for agricultural commodities and the country said to have

imported around 25mn ton of food grain as well as 3.9 mn bales of cotton and 1.5mn bales of

jute. The first 4 years of this plan in relation to industry performed well with around 8-10%

increase in production. However due to the 1965 war with Pakistan , shortage of raw material

was caused which slowed down growth by 5.3%. However as compared to the second five

year plan Industrial production sectors such as steel, cement etc showed increased

production. Overall the entire industrial sector showed growth except consumer good related

industries that declined from 68% to 34%. Power sector showed a growth of 12.5% with

power increasing from 5.6mn to 10.7mn KW. The per capita consumption of electricity also

showed an upward trend from 38kw to 61.4kw. However the target to be achieved that was

13.5mn KW couldn’t be fulfilled due to the IndoSino and Indo Pak wars in 1962 and 1965

and certain projects were never implemented. Transport had been a priority and a sum of

2113 crores was allocated to this sector. Road usage increased by 44% and passenger traffic

by rail 23%, Roads were paid more attention as passage traffic was increasing. Enrollment in

schools from grades 1 to 4 increased by 44% followed by 57% increase in classes 6-8 and 10-

12 by 46%. Around 61% of children of ages 6-14 were being enrolled in school. Primary

health centers also showed an increase of 65% with opening of 30 new colleges. However

despite these improvements only 2.3 % of total eligible young men were receiving education

at degree or post graduate level. Even in medical sector more improvements were required as

there were only 0.49 hospital beds per 1000 persons. There was growing trade deficit with

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increased debt. Average level of imports rose to around 1245 crores. The situation was

further aggravated due to poor harvest, low exports and more reliance on foreign aid.

Therefore borrowing from IMF increased tremendously.

The third five year plan didn’t achieve the objectives it was originally designed for. Serious

disruptions contributed to its failure such as drought, Indo Sino war followed by 1965 war.

Inflation increased rapidly with prices of commodities increased. Because the third five year

plan had failed to produce the required results, India didn’t impose the 4th five year plan in

1967 instead delayed it till 1969. Instead three annual plans during the period were adopted to

deal with the crisis prevailing. Indira Gandhi took over in 1966 and devalued the currency.

4th Five year plan (1969-1974):

The fourth five year plan (1969-1974) didn’t clearly talk about the objectives but instead

gave a broad perspective on what it hoped to achieve for example it hoped to see rapid

economic development while at the same time equality and justice, Priority was given to

agriculture mainly with 24% of the total outlay allocated to it. Irrigation facilities showed an

increase along with increase in supply of fertilizers. New varieties of HYV seeds were also

used. In the previous 5 year plan certain objectives had been laid out but not all were

achieved. Through this 4th five year plan gaps that were left out were filled. Water and power

development was also given importance with 21.7 % of the budget allocated to it. Transport

was another sector given consideration with 29% of total budget allocation. Power generation

saw an increase standing at 161,000,000kw. As far as social community is concerned it was

allocated 18%. Towards the end of the 4th five year plan there were 11 primary schools with

90.7% of 6-11 year age group being enrolled. There were 683 health institutions catering to

medical needs of people.

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5th Five year plan (1974-1979):

The fifth five-year plan was announced mainly with the motive to alleviate poverty, as it was

the major concern of the third world. Moreover the global economy was also in turmoil

because of the increased prices of oil and consumer products. Due to the price hike of 1973,

self reliance was also considered to be an important point in order to keep the country

protected from the imported inflation. So, keeping in mind the following condition the

objectives of the plan were set. The major objectives of the plan were to achieve a overall

growth rate of 4.4%, expanding the productive employment and utilizing the resources at the

fullest, a national drive in order to promote minimal needs and extra attention towards social

welfare, more emphasis on the agricultural research and development, emphasis on the

industries producing consumer goods, more liberal policies for export and import and lastly

to resort to such policies that would reduce the social, regional and economic inequalities in

the country. The plan did not proved to be a success. Although it achieved a growth rate of

4.8% that was better than the predicted one but the plan was mainly focused on the increasing

the level of production of both the agricultural goods and consumer goods which saw a

drastic increase in prices because of the worldwide turmoil and led to cause a lot of inflation.

The plan was terminated in 1978 instead of 1979 when the first non-congress party came into

power. Janta party introduced a sixth five-year plan from 1978-1983 but it was terminated by

congress after just two years when it again rose to the power. So this plan by janta party is

most commonly known as the rolling plan.

6th five-year plan (1980-1985):

There are said to be two sixth five-year plans. First the Janta party introduced a plan in 1978

and second that the congress introduced in 1980 after coming into power again. But the most

widely excepted 6th five-year plan is the one introduced by congress from 1980-1985. This

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plan also included a set of objectives that needed to be achieved. The first one was again

increase in the national wealth, second was to reduce unemployment and underemployment,

modernization of technology at industrial and agricultural level, population control through

family planning, reducing the income disparities, providing all the basic needs of life in rural

area and lastly, self reliance. The plan was able to achieve most of its objectives. The average

annual growth rate was about 6%. The food production increased by almost 150 MT. Some

segments of the economy also achieved self-reliance and the attention that was paid to

eliminate poverty also proved to be successful as according to the planning commission only

37% of the total population was below poverty line as compared to the earlier percentage.

Economy from 1987-2007

The main economic change in this era was the start of economic liberlisation in India, started

in 1991, of the nation's monetary strategies, with the objective of making the economy more

market and service oriented and growing the part of private and outside venture . Specific

changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and

greater foreign investment. Liberalisation has been credited by its proponents for the high

economic growth recorded by the country in the 1990s and 2000s. Its rivals have pointed the

finger at it for expanded destitution, disparity and economic degradation. The general course

of Liberalisation has since continued as before, independent of the decision party, albeit no

gathering has yet settled an assortment of politically troublesome issues, for example,

changing work laws and lessening rural endowments.

By 1991, India still had a fixed exchange rate system, where the rupee was pegged to the

value of a basket of currencies of major trading partners. India started having balance of

payments problems since 1985, and by the end of 1990, the state of India was in a serious

economic crisis. The government was near default, its national bank had rejected new credit

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and remote trade holds had decreased to the point that India could scarcely fund three weeks

of imports. It needed to vow 20 tons of gold to Union Bank of Switzerland and 47 tons to

Bank of England as a major aspect of a bailout manage the International Monetary Fund

(IMF). The vast majority of the monetary changes were constrained upon India as a piece of

the IMF bailout.

“A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for

an IMF bailout, gold was transferred to London as collateral, the rupee devalued and

economic reforms were forced upon India. That low point was the catalyst required to

transform the economy through badly needed reforms to unshackle the economy. Controls

started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies

broken, the economy was opened to trade and investment, private sector enterprise and

competition were encouraged and globalization was slowly embraced. The reforms process

continues today and is accepted by all political parties, but the speed is often held hostage by

coalition politics and vested interests” — India Report, Astaire Research

The reforms did away with the Licence Raj , reduced tariffs and interest rates and ended

many public monopolies, allowing automatic approval of foreign investment in many

sectors.Since then, the overall thrust of liberalisation has remained the same, although no

government has tried to take on powerful lobbies such as trade unions and farmers, on

contentious issues such as reforming labour laws and reducing agricultural subsidies. By the

turn of the 21st century, India had progressed towards a free-market economy, with a

substantial reduction in state control of the economy and increased financial liberalisation.

This has been accompanied by increases in life expectancy, literacy rates and food security,

although urban residents have benefited more than rural residents.

The impact of these reforms may be gauged from the fact that total foreign investment

(including foreign direct investment, portfolio investment, and investment raised

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on international capital markets) in India grew from a minuscule US$132 million in 1991–92

to $5.3 billion in 1995–96.

The Bharatiya Janata Party (BJP)–Atal Bihari Vajpayee administration surprised many by

continuing reforms, when it was at the helm of affairs of India for six years, from 1998–99

and from 1999–2004.

“Annual growth in GDP per capita has accelerated from just 1¼ per cent in the three decades

after Independence to 7½ per cent currently, a rate of growth that will double average income

in a decade.... In service sectors where government regulation has been eased significantly or

is less burdensome—such as communications, insurance, asset management and information

technology—output has grown rapidly, with exports of information technology enabled

services particularly strong. In those infrastructure sectors which have been opened to

competition, such as telecoms and civil aviation, the private sector has proven to be

extremely effective and growth has been phenomenal” –OECD

Election of AB Vajpayee as Prime Minister of India in 1998 and his plan was a welcome

change.. His remedy to accelerate economic progress included arrangement of every

remarkable issue with the West (Cold War related) and afterward opening doors for FDI

venture. In three years, the West was building up somewhat of an interest to India's mental

ability, fueled by IT and BPO. By 2004, the West would think about interest in India, should

the conditions allow. Before the finish of Vajpayee's term as leader, a structure for the

outside speculation had been built up. The new approaching administration of Dr. Manmohan

Singh in 2004 further reinforced the expected framework to welcome the FDI.

The country was experiencing average annual growth post-liberalisation of 8.1 %. Until

2001, only 700 items out of 10200 items were free from import restrictions. In 2002,

quantitative restrictions on imports were finally removed. Disinvestment was pursued by the

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government of the day and converted into non-governmental enterprises. In 2005-06, the

software industry grew by 33 % and the BPO industry by 37 %.

Economy from 2007-17

India’s economy fluctuates a lot during the last 10 year span. The GPD of India was 1.2

trillion USD in 2007, one of the largest economy in the world. The fastest growth sector of

India is the service sector. Trade, hotels, transport and communication; financing, insurance,

real estate and business services and community, social and personal services account for

more than 60 percent of GDP.

GDP

The growth rate of India in 2007 was 9.8% but it fell down drastically to 3.8% next year

because of global crisis. Despite the Global crisis India successfully able to escape the direct

impact of it and upstand it’s GDP growth to 8.5% in 2009 and 10.3% in 2010, thus becoming

the second fastest growing economy in the world. After 2010, the GDP growth started to fell

down and reached to 5.5% in 2012. During the last five year, the GDP growth continue to

fluctuate 6 to 8%. According to IMF World Economic Outlook (October-2016), GDP growth

rate of India in 2016 is 7.6% and 4th fastest growing nation of the world. The GDP growth of

2017 so far is 6.7%.

Gross domestic savings as a percentage of GDP

The household saving attained the highest peak in the 12 months of 2009-10. The household

saving savings were 25.2 percent regarding Gross Domestic Product in 2008-09. From the

year 2010-11 till 2012-13, the household saving rate declined and reached at 21.9 percent in

2013. Investors’ perceptions of India improved in early 2014, due to a reduction of the

current account deficit and expectations of post-election economic reform, resulting in a

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surge of inbound capital flows and stabilization of the rupee. India's Gross Savings Rate was

measured at 32.3 % in Mar 2016, compared with 33.1 % in the previous year

Infrastructure

Infrastructure is one of the major sector in Indian Economy that plays important role in its

development. In recent years, Indian economy has put stress on its country infrastructure such

as roads, electricity, irrigation system and railways. Increase in infrastructure in one of major

reason of its economic growth. Today, India spend around 9 percent of budget of its GDP on

infrastructure compare to only 3 percent in 2011.

Import export

Trade of India was effected badly like any other country during 2008 crisis. During the core

period of the crisis, the average contraction in exports and imports has been around 20%.

India’s major Import products are crude oil, precious stones, machinery, chemicals, fertilizer,

plastics, iron and steel. Export products are petroleum products, precious stones, vehicles,

machinery, iron and steel, chemicals, pharmaceutical products, cereals and apparel. Import

partners - China 15.7%, Saudi Arabia 5.4%, Switzerland 5.4%, US 5.3%, UAE 5.2% and

Export partners- US 15.2%, UAE 11.4%, Hong Kong 4.6% in 2016. India's trade deficit

increased to USD 14.02 billion in October of 2017.

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Debt

High Debt is one of major problem of the Indian Economy. Despite a high growth rate

compared to the rest of the world, in 2015 and 2016, India’s government-owned banks faced

mounting bad debt, resulting in low credit growth and restrained economic growth. India

recorded a government debt equivalent to 74.5 percent of the country's Gross Domestic

Product in 2008. In last few years, India able to reduce its Debt ratio by few percentage. In

2016, India’s debt equivalent 69.5 percent to its GDP ad still it is one of the major problem of

the Indian Economy.

Education

Literacy in India is one the major progress in last couple of years. Literacy rate increase to

74% in 2011 from 66% in 2008. India’s improving education system is of the main reason of

the economic development in a country. There was much progress in number of intuitions

especially in higher education and research development. Indian government more pays

emphasize on primary education and 2012 report by Annual Status of Education states that

96.5% of all rural children between the ages of 6-14 were enrolled in school. India even

Increases its Education budget to 9.8% in 2017 but in actual it is little more than 8 percent.

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Living standards

Living Standard is related to GDP but it is also depend on many other factor such as standard

of education, rate poverty and income equality. During the last 10 year, the growth of specific

sector rise the living standard at constant rate but there large Percent of population living

below the poverty line in 2013, with 30 percent under the minimum wage. Despite being the

one of the fastest growing economy in the world, poverty is significant issue in India and

increase in population by high rate further puts the risk to this problem. As of 2014, 58% of

the total population were living on less than $3.10 per day

Comparison of both the economies:

1947 to 1960:

So if we compare the economies of both the nations during these 13 years there is a very

major difference. Upon Independence India almost got 80% of all the assets according to

accord as compared to just 20% that were given to Pakistan. India inherited more than 900

industries as compared to only 31 that Pakistan inherited. So it was clear that Pakistan lacked

behind in all most every aspect post partition. But what made things worse for Pakistan was

the lack of planning in the initial years of the country when it needed planning the most.

Pakistan’s first five year plan was completed and implemented in 1955 after a lot of struggle.

On the other hand India was able to devise its first five year plan 4 years before Pakistan in

1951. The second five year plan by India was initiated on 1956 while Pakistan was

undergoing the first year of its first ever plan. The inheritance and the efficient and quick

planning made India to achieve an increase in net product by 18% and also its per capita

income by the same percentage in its first phase. 5 new Indian institutes of technology were

also opened and on the other hand Pakistan was tackling with its ever changing political

situations. As a whole, during this tenure India grew at a rate of almost 7%, increased its net

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investment by 11% and power generation capacity by 2.28mn kw. And in the mean while

Pakistan was more or less at the same spot from where it started.

1961-1970:

If we compare Pakistan’s 2nd five year plan and India’s 3rd five year plan, Pakistan performed

better. It was mainly because of the increased emphasis of Pakistan’s pro policy towards

better agriculture and manufacturing industry. Pakistan’s agricultural output increased by

51%, production increased by 34% and investments increased by 21.5%. GNP increased by

29% and per capita income increased by 13% for the first time. In the meanwhile India was

facing serious disruptions after a good period of growth. It was mainly because of the wars

and the droughts that made the next plans less effective. As Pakistan was performing good

production wise India was still ahead in their overall capacity and their social indicators also

showed a positive sign. More hospitals and colleges were opened in India during this time

while this sector was completely ignored by Pakistan. Pakistan also started to face problems

in the later half of this decade because the wealth got concentrated into few hands and the

income disparity between east and west Pakistan increased so much that it changed the

course of development of Pakistan. On the other side India also delayed its next five year

plan until 1969 because of its on going problems.

1971-1985:

During this period India’s biggest focus became the agricultural sector and water and

sanitation facilities. Furthermore self-reliance was set as one of their aims after the harsh

experience of 1973 turmoil. This lead to an increase of 150MT in the total food production

and also averaged a growth rate of 5% during all these years. While India was on a path to

reconcile its interests, bring balance to their portfolio and shelter itself from any future

31
imported inflation. Pakistan was undergoing major changes. Nationalization took place and

all the profit making firms were nationalized which brought inefficiencies in the system and

the growth rate fell form 5% to just a mere 1.2%. Total investment also fell by 15.4% but

their was a wave of welfare as unskilled labour wages increased by more than three times.

economy was at the verge of collapse economically when Zia ul Haq imposed the martial law

and started to apply policies that were in favor of the investors so that they could return. He

made the private investors come back into business and during his time the economy grew at

an average rate of 6.6% per annum and also touched the highest GNP of 7.6%. overall

Pakistan’s economy saw a mixed trend of up and downs slowing the growth but India’s

economy stayed on track as all the polices were inline with each other and were not at all

fluctuating as in the case of Pakistan which proved to be a bottleneck for long term growth.

1987-2007:

If we compare both the economies and in this era we have india’s statistics in the first 6 years

of liberalization to be like that GDP of the country went from 363.96 USD TO 411.39 USD

whereas the GDP of Pakistan went from 371.57 USD (1990) to 62.43 billion USD. The

liberlisation reforms of India proved to be helpful as the gdp gradually increased whereas

during this period economy under Bhutto was taking a suffering. Major reason could be of

the political instability and the Nawaz and Bhutto’s policies.

In the last 10 years the GDP till the end of 2007 went to 1.201 trillion USD for india which

showed major improvement whereas Pakistan’s GDP also increased to 152.4 billion USD

(2007). Pakistan under Shuahkat Aziz performed better as he aggressively started

privatization during his tenure. India during this focused on the Software industry which

grew immensely and help the economy. They also focused on Business process outsourcing

and resulted in 37% increase. The telecom revolution in India can be called the biggest

32
legacy of the post-1991 economy. Telephone, especially wireless, subscription has witnessed

exponential growth since the dawn of this century. Pakistan on the other were slow in the

telecom industry as India starting and forecasted much of revenues from this emerging

industry at that time.

2007-2017:

The last ten years was quite beneficial for the Indian economy. After the 2008 crisis, the

Indian economy upraised strongly. They invested a lot on education, infrastructure and

research and development. As a result Indian economy enjoyed high GDP growth rate. If we

compare two economies, it will quit clear by now that India has been doing much better than

Pakistan. Their economic growth is higher throughout the year. The literacy rate is better than

Pakistan. They trade in much larger scale compared to Pakistan. The main disadvantage to

Pakistan is their political instability throughout the year which affected the economic growth

in country.

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References:

http://faculty.lahoreschool.edu.pk/Academics/Lectures/ayeshaa/PH%20HO%204.pdf

http://www.economywatch.com/five-year-plans/5th.html

http://www.yourarticlelibrary.com/planning/indias-fifth-five-year-plan-1974-79/23425

https://www.slideshare.net/ramusakha/five-year-plans-of-india-20245091

http://www.fsmitha.com/h2/ch24w.html

https://en.wikipedia.org/wiki/Privatisation_in_Pakistan

http://www.bu.edu/globalbeat/southasia/06181998sreedhar1.html

https://www.newsbytesapp.com/timeline/India/2949/17821/celebrating-70-years-of-
independence-india-s-economic-growth

http://www.firstpost.com/business/25-years-of-liberalisation-a-glimpse-of-indias-growth-in-
14-charts-2877654.html

https://en.wikipedia.org/wiki/Privatisation_in_Pakistan

http://www.bu.edu/globalbeat/southasia/06181998sreedhar1.html

https://www.newsbytesapp.com/timeline/India/2949/17821/celebrating-70-years-of-
independence-india-s-economic-growth

http://www.firstpost.com/business/25-years-of-liberalisation-a-glimpse-of-indias-growth-in-
14-charts-2877654.html

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