ECONOMIC STATE OF TWO BROTHERS WHO GOT SEPERATED IN AUGUST 1947

As you know two brothers who got divided in August 1947 after severe brutalities, casualties etc. Now let’s discuss about the economic structure of two brothers after 62 years of their independence and where they stay in this competitive economically developed world.

First we can see about the bigger brother INDIA.

The economy of India is the twelfth largest economy in the world by market exchange rates and the fourth largest by purchasing power parity (PPP) basis.

India was a socialist economy before 1991, and India was a closed economy and did not leave and FDI to enter India which made India a under developed nation before 1991.

Before independence a large share of tax revenue was generated by the land tax, which was in effect a lump sum tax on land. Since then land taxes have steadily declined as a share of revenues and completely replaced by sales taxes.

Moreover, the structural economic problems inherited at independence were exacerbated by the costs associated with the partition of British India which had resulted in about 2 to 4 million refugees fleeing past each other across the new borders between India and Pakistan. The settlement of refugees was a considerable financial strain. Partition also divided India into complementary economic zones.

India's leaders first Prime minister, Mr. Jawaharlal Nehru, who introduced the five year plans to build Indian economy agreed that strong economic growth and measures to increase incomes and consumption among the poorest groups were necessary goals for the new nation. Giving utmost importance to the economy, Nehru appointed Mr.R.K.S Chetty, as the finance minister.

Government was assigned an important role in the process of alleviating poverty, and since 1951 a series of plans had guided the country's economic development. Although there was considerable growth in the 1950s, the long-term rates of real growth were less positive than India's politicians desired and much less than those of many other Asian countries.

Nehru's industrial policies were intended to encourage the growth of diverse manufacturing and heavy industries, yet because of state planning, controls and regulations the result was impairment of productivity, quality and profitability. The Indian economy lumbered along with an anemic rate of growth, and chronic unemployment amidst entrenched poverty continued to plague the population.

Since 1950, India ran into trade deficits that increased in magnitude in the 1960s. The Government of India had a budget deficit problem and therefore could not borrow money from abroad or from the private sector, which itself had a negative savings rate. As a result, the government issued bonds to the RBI, which increased the money supply, leading to inflation. In 1966, foreign aid, which was hitherto a key factor in preventing devaluation of the rupee was finally cut off and India was told it had to liberalize its restrictions on trade before foreign aid would again materialise. The response was the politically unpopular step of devaluation accompanied by liberalisation. The Indo-Pak War in 1965 led the US and other countries friendly towards Pakistan to withdraw foreign aid to India, which further necessitated devaluation. Defence spending in 1965-66 was 24.06% of total expenditure, the highest in the period from 1965 to 1989. This, accompanied by the drought of 1965-66, led to a severe devaluation of the rupee.

Gross Domestic product (GDP) grew 33% in the Sixties reaching a peak growth of 142% in the Seventies, decelerating sharply back to 41% in the Eighties and 20% in the Nineties.

From FY 1951 to FY 1979, the economy grew at an average rate of about 3.1 percent a year in constant prices. During this period, industry grew at an average rate of 4.5 percent a year, compared with an annual average of 3.0 percent for agriculture. Many factors contributed to the slowdown of the economy after the mid-1960s, the main one was the socialist policies pursued by Nehru and his cabinet. They managed to tamp down on the natural business acumen and abilities of the population.

Post 1991, Then Prime minsiter Mr. P V Narasimha Rao decided that India was on the brink of bankruptcy and would benefit from liberalizing its economy. He appointed an economist, Dr. Manmohan Singh, a former governor of the Reserve Bank of India, as Finance Minister to accomplish his goals and they ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.Since then, the overall direction of liberalisation has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.ince 1990 India has emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security.

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 50 million and represents a growing consumer market.

India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.

A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit-information services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March), according to the government's Secretariat for Industrial Assistance. This was more than double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24bn and for 2008-09, it is expected to be above $35 billion. A critical factor in determining India's continued economic growth and realizing the potential to be an economic superpower is going to depend on how the government can create incentives for FDI flow across a large number of sectors in India.

While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China.

Current GDP rate is 6.7% and Mr. Pranab Mukerjee has predicted that India will be back to 9% growth rate by Mid 2010.

Apart from Economy, India ranks 4th largest in Global fire power after USA, China and Russia.(Source:http://www.globalfirepower.com/)

India is one of the members of G-14 countries in the world.

India's Labor force: agriculture: 60%, industry: 12%, services: 28% (est. 2003)

India's Main industries: Textiles, Chemicals, Software, Steel, Cement, Mining, Petroleum and Machinery.

Now Pakistan on other hand

The economy of Pakistan is the 26th largest economy in the world in terms of purchasing power, and the 47th largest in absolute dollar terms.

For the first decades from Independence to 1990's, Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947 from Britain. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade.

Industrial-sector growth, including manufacturing, was also above average. In the late 1960s Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Later, economic mismanagement in general and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth.^[11] In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers.

The Pakistani government has made substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are the best in nearly a decade.

Government revenues have greatly improved in recent years, as a result of economic growth, tax reforms - with a broadening of the tax base, and more efficient tax collection as a result of self-assessment schemes and corruption controls in the Central Board of Revenue - and the privatization of public utilities and telecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improving ports, roads, electricity supplies and irrigation projects. Islamabad has doubled development spending from about 2% of GDP in the 1990s to 4% in 2003, a necessary step towards reversing the broad underdevelopment of its social sector.

Liberalization in the international textile trade has already yielded benefits for Pakistan's exports, and the country also expects to profit from freer trade in agriculture. As a large country, Pakistan hopes to take advantage of significant economies of scale, and to replace China as the largest textile manufacturer as the latter China moves up the value-added chain. These industries play to Pakistan's relative strengths in low labor costs.

Growing stability in the nation's monetary policies has contributed to a reduction in money-market interest rates, and a great expansion in the quantity of credit, changing consumption and investment patterns in the nation. Pakistan's domestic natural gas production, and its significant use of CNG in automobiles, has cushioned the effect of the oil-price shock of 2004-2005. Pakistan is also moving away from the doctrine of import substitution which some developing countries (such as Iran) dogmatically pursued in the twentieth century. The Pakistani government is now pursuing an export-driven model of economic growth successfully implemented by South East Asia and now highly successful in China.

Current GDP rate of Pakistan is 5.8%.

Pakistan is ranked 15th in Global fire power, it ranks below Israel, Italy and even Indonesia.(Source:http://www.globalfirepower.com/)

Pakistan is not a part of G-14 or G-22, Pakistan is a part of G-22 Developing countries.

Pakistan main industries are Textiles, Chemicals, Food processing, automotive, machinery, beverages.

So by this comparison we can conclude that India is transforming into Economic global power than Pakistan. Pakistan has got its independence before India but it lags in many fronts. Pakistan can improve its economy and status of its population than concentrating on Kashmir and Indian affairs.