The EconomistJuly 22nd 2017 7
INDIA AND PAKISTAN1SPECIAL REPORT“WE USED TO make fun of Indians,” recalls Deepak Per-
wani with a wistful grin. “Theyhad no concept of a deodor-
ant; they wore polyester!” Fashionably stubbled and sporting a
crisp white shirt and jeans, the Pakistani designer gestures to-
wards the racks of sumptuous dresses in his Karachi showroom
to make his point. Then he frowns. “We had big cars and Coke
and Pepsi when theyjust had Limca and Thums Up; but India
was self-reliant, and in the end they were right.”
Mr Perwani is proud of his country, even if it has often
treated people of his Hindu faith badly. But like many Pakistanis
he is keenly aware that the dowdy, ambling giant next door now
moves at a far brisker pace. For the first half of their 70-year sib-
ling rivalry it was Pakistan thatmade the bigger strides. Perhaps
because it had less in the way of industry or infrastructure to start
with, it was more energetic in building them up. But in all but two
of the past 25 years India’sGDPhas grown faster; a decade ago it
surpassed Pakistan’s on a per-head basis, and the gap has relent-
lessly widened.
Indians are justlypleased with their progress, though they
tend not to compare themselves with Pakistan but instead, aspir-
ationally, with China. Yet most economists would contest Mr
Perwani’s judgment. India’s post-independence self-reliance
model may have brought pride but not prosperity. That began to
arrive only when the old model, the “Licence Raj” of state plan-
ning and a closed economy, tipped India into financial crisis in
the late 1980s. Since then successive governments have chipped
away layers of rules that had
“protected”, but also stifled, In-
dia’s economy.
There is no doubting In-
dia’s dynamism today. For ex-
ample, in the early 1990s it
made fewer than 2m motor-
bikes a year. Now it is the
world’s biggest producer, mak-
ing 20m new two-wheelers a
year, 18m for domestic con-
sumption and 2m for export.
Domestic air traffic has dou-
bled in the past decade. In 2016
the number of passengers grew
by 23%, prompting Indian air-
lines to order more than 1,000
new aircraft. India’s software
and services exports have near-
ly quadrupled over the past ten years, to $117bn a year. And in
FebruaryISRO, the national space agency, lifted a record 104 sat-
ellites into orbit in a single launch, using an Indian-made rocket.
In May 2014 the BJPwon a landslide election victory with
promises of a smaller, cleaner and more effective state. The new
government trumpeted programmes to supercharge foreign in-
vestment, supportindustryand deliver better services. Cor-
porate India lapped it up. In a country inured to the convention
that India’s economy “grows at night while the government
sleeps”, in the words ofthe writer Gurcharan Das, a strong, ac-
tive, right-wing government seemed just whatwas needed.But where’s the beef?
Three yearslater Mr Modi remains electorally invincible.
The political opposition has been scattered to India’s provinces
as the BJP’s electoral juggernaut has rumbled from victory to vic-
tory in the populous centre. The government remains relentless
in its self-promotion. In terms of economic performance, how-
ever, it looks as patchy as its predecessors. At the higher levels
there is less corruption, critics concede, and some long-awaited
laws have finally passed. But there have been fewbig, bold
moves for reform, such as privatising the state-owned institu-
tions that control 70% of banking (and have piled up colossal
portfolios of rotten loans). A much-touted goods and services tax
(GST) rolled out this month usefully replaces a welter of central
and state duties with a unified national tax, and should raise ex-
tra revenue. But the government’s mandarins went for an over-
complicated structure that will tax, for instance, different sweets
and snacks at different rates: 5% forrosogollaand gulab jamun,
12% for both plain and stuffed kachori, 18% for sweets containing
saffron or having a silver coating, and 28% for anything choco-
late-covered. Australia, with a far more orderly economy, im-
poses a flat 10% GST.
When Mr Modi’s government has been bold, it has often
charged in the wrong direction. Even government supporters
now admit that its snap decision, in November 2016, to attack
“black money” by scrapping the 86% of currency held in higher-
value notes was a costly flop. A promise to waive farmers’ debts
helped the BJPto an electoral victory in India’s most populous
state, Uttar Pradesh, in March. Butthis generosity has inevitably
encouraged farmers everywhere to demand the same, which by
some estimates could costsome $40bn.
In yet anothersudden decision, Mr Modi’s government in
May decreed what amounted to a ban on livestock markets. This
was explained as a humane intervention to prevent cruelty to
animals, but was widely seen as a sop to the BJP’s conservativeIndiaThe elephant in its
labyrinth
India is becoming more nationalist and more
authoritarianVroomingSources: Society of Indian Automobile
Manufacturers; Pakistan Automotive
Manufacturers AssociationDomestic
sales, m03691215182008 10 12 14 16 17IndiaCarsPakistanMotorbikesModi in victory mode