THE country’s economic managers are in an upbeat mood predicting a stronger GDP growth than the target because of a better growth in agricultural output owing to timely rains and the impressive rate of increase in industrial output. They have every reason to be pleased with themselves.

There is indeed good news all round on the economic front. GDP growth is on course to exceed six per cent, foreign exchange reserves have crossed $ 12.6 billion, inflation and interest rates are at their lowest in recent memory and the stock market has not only surged to unprecedented levels, it is also maintaining itself at such dizzying heights.

Even though a significant contribution to industrial progress has been made by sub-sectors in which Pakistan does not have a comparative advantage (for instance, automobiles, electronics, sugar, etc.), nevertheless development in these sectors is pushing up demand for goods and services, fuelling overall growth. Based on these facts, should we make forecasts about the future by extrapolating the growth rates of the recent past? Can the growth in industrial output sustain itself on this elevated path? And is there an economic rationale for being optimistic about the country’s future economic prospects?

To begin with, let us note that the much improved growth rate, especially of the manufacturing sector, is essentially because of the decline in interest rates. The fall in interest rates has boosted growth by stimulating both consumption and investment. This raises the question whether we should be underpinning our strategy for a more durable higher growth path on lower interest rates, considering this is one of the more vulnerable economic parameters, dependent on a variety of factors, both internal and external.

Sustainable growth requires that it be anchored in productivity gains. Although it may be too early to assess what is happening to productivity, it appears that so far the contribution of total factor productivity to per capita growth has not been high. Much of the increase in output has come from improved utilization of previously installed capacities.

A high level of human capital is an important prerequisite for a meaningful exploitation of modern technology. Not only is the lack of an adequately skilled manpower a key constraint to sustain high levels of industrial growth, our efforts to create such a force continue to be half-hearted. The continuing neglect of education and the migration abroad of the bulk of the limited stock of high quality human capital developed in the country have placed limits on the rates of growth.

It remains to be seen if the events of September 11 have reduced overseas demand for Pakistani skills and increasing opportunities within the country as a result of higher growth rates are creating an adequate demand for scarce skills that will keep them within the country, thereby benefiting the economy. If the pace of domestic activity picks up further, it could even attract the return of those who had emigrated and settled abroad.

Moreover, an extremely weak human capital base for the overwhelming majority or rural workers is the major impediment in a switch-over to non-agricultural jobs. To date the private returns to basic education have either remained low or are accruing over a longer timeframe compared with the time horizon of those living at near subsistence levels. This has kept the social demand for education (even for functional literacy) suppressed, as reflected in the weak participation and enrolment rates at all levels of education.

However, the growing opportunities from higher growth rates could eventually raise the returns from education, thereby pushing up the demand for education (especially that facilitating the acquisition of technology based skills) on a more enduring basis.

The growth of a sector creates a demand for the inputs required by the sector, thereby increasing incomes and demand for goods and services provided by the rest of the economy. Although the formal industrial sector contributes a relatively small share of total domestic product, it can play an important role in lifting the rest of the economy through its forward and backward linkages with the informal sector (both buy and sell goods and services to each other).

The externalities of development of the informal sector’s managerial and organizational skills, combined with the spill-over benefits of new skills in service sectors like finance and telecommunications, making an overall contribution that is more significant than would be expected based on the size of the sector and its direct contribution to the GDP.

However, despite the decline in the contribution of agriculture to GDP to below 25 per cent, its role, owing to the nature and strength of forward and backward linkages, continues to be critical for the expansion of industrial output and thereby for the overall performance of the economy. And today the size of agricultural output is as much a gamble on the weather and monsoons as it was at the beginning of the 20th century.

Moreover, the contribution of economic and political institutions (in the shape of a stable polity, reasonable rule of law and protection of property rights) that play an important role in influencing long-term growth rates, in view of their poor state, continues to be lower than their potential.

The institutions critical for matters of governance established by the state for developing markets (rule of law and protection of property rights), regulating markets (to address issues of market failure), ensuring stability of markets (the State Bank and SECP for regulating financial markets) and creating legitimacy (through democracy, a free media, social safety nets for the disadvantaged groups) have been weakened over time (with the honourable exceptions of the State Bank and the media), as reflected in the deteriorating law and order conditions, the growth in pending cases in courts, political instability owing to the continuing role of the military in running the country, heightened corruption and the politicization of the judiciary and the bureaucracy.

However, new developments are diluting the negative aspects of these features. These include the perceptible improvement in transparency in decision-making and government procedures and the greater vibrance and vigilance of the media (as a result of the increase in both the quantity and quality of it), which has subjected the government and representative institutions to greater public scrutiny.

Although the accountability of public functionaries may not have improved in tandem with the increase in transparency, the gap is narrowing, the presence and intrusiveness of NAB notwithstanding.

The policy on deregulation and liberalization has also weakened the degree of adverse impact of corruption and political patronage, although the pace of privatization agenda now looks to be much too ambitious for the supporting institutions or productive capability of the economy, taking into consideration the social and income distribution impacts.

This is demonstrated by the recent elections in India. The poor performance, if not irrelevance, of the regulatory authorities in balancing the interests of investors (in terms of fair returns and a stable environment) and consumers (in terms of prices and quality of service) raises doubts about the fate of consumers after the privatization of Wapda, KESC and PTCL. The utter failure of the PTA in performing its regulatory functions with respect to the pricing and quality of service provided by mobile phone companies and of Nepra in regulating electricity tariffs (with the government and the multilateral lending agencies in fact dictating tariff levels) amply illustrate the point.

Finally, the feel-good factor will be instrumental in stimulating investor sentiment to sustain the current growth rates, a subject that needs to be discussed separately.

The writer is a former finance minister of Punjab.

NOT since Britain withheld two dreadnoughts and other warships from Ottoman Turkey in 1914 has denial of military equipment to its legal buyer caused as many headaches for all concerned as the 28 F-16 aeroplanes withheld from Pakistan in the 1990s.

In the case of the warships Turkey felt so let down that it gravitated to the central powers, the side that lost World War I. The Middle East crisis of today owes its origins to that single event.

In the more recent case of denial Pakistan and the US became estranged. The swift loss of American interest in Afghanistan enabled Osama bin Laden and Al Qaeda to move in and use that country as a base for planning attacks against the United States. Blocking the delivery of F-16s also acted as a catalyst to Pakistan’s decision to develop a ballistic missile capability.

The Bush administration’s decision to lift the ban on the sale of this aircraft has boosted the United States’ stock in Pakistan far beyond the weapon system’s substantial military value. A sense of relief and satisfaction greeted the long awaited death knell of former Senator Pressler’s bankrupt legacy of sanctions and embargoes against Pakistan.

Ending the 15-year embargo on F-16s is a major gesture acknowledging Pakistan’s key role in the war on terror. American Secretary of State Dr Condoleezza Rice, while defending the decision in a recent press interview, cited the views of the 9/11 Commission underscoring the crucial importance of Pakistan in the struggle against “Islamist terrorism”.

No doubt the United States also wishes to strengthen President Musharraf’s hand internally. Of releasable weapon systems the F-16 alone is the true measure of Pak-US bilateral relations, exceeding by far the earlier honorific designation of Pakistan as a “major non-NATO ally”.

True to form, Mr Pressler pressed his erroneous views in a rearguard New York Times op-ed article on March 21, 2005, virtually on the eve of the F-16 announcement. What a pity the New York Times allotted space to this brazenly partisan anti-Pakistan, anti-China tirade.

The New York Times editorial of March 29, “Fuel for South Asia’s Arms Race”, also opposed the sale of F-16 aircraft to Pakistan. The editorial declared that the aircraft’s “only plausible use is to threaten India”, and that the supply of F-16s to both sides would “encourage them to engage in a new, American-fuelled arms race.”

This pessimistic conclusion does not tally with South Asia’s emerging ground realities. Pakistan is engaging India in a peaceful composite dialogue, not an arms race, to resolve the decades-old Kashmir dispute as well as other differences. We have neither the financial resources nor the desire to engage our big neighbour in an arms race. For every F-16 that Pakistan buys India can afford to buy four.

A trans-Kashmir bus service between the capitals of Azad Kashmir and Indian occupied Kashmir, across the LOC, has commenced for the first time in decades. For the first time in years many Pakistani and Indian nationals who do not necessarily come from divided families are also crossing the international border on private visits. Sentiments of goodwill abound. If India responds in kind to Pakistan’s peace initiative, genuine peace and harmony could prevail in South Asia.

Across the Wagah border, especially in New Delhi’s corridors of power, the initial reaction to the F-16 decision was one of exaggerated, if not feigned, disappointment. Subsequently the Indian establishment became ecstatic when they realized that the Bush administration was offering India much more.

Indians probably realized that vociferous complaints and clamour appear odd coming from a country aspiring to be a world power, in fact promised world power status on a silver platter. India’s objections to the F-16 sale also lack validity because the proposed sale of aircraft to Pakistan will not upset the military balance.

The PAF, to be sure, is looking forward to the morale-boosting induction of new F-16s. During the years of the Pressler sanctions, air forces in the Arab world whose pilots the PAF pilots had helped train in the 1970s and early 1980s had in the meantime acquired more advanced versions of the F-16 and comparable aircraft. India had inducted the Mirage 2000, the MIG 29 and the Su-31. The PAF had to scrounge for older aircraft, like the Mirage III from Australia and Lebanon and the Mirage V from France.

To the PAF’s credit, its pilots and technical staff have been able to squeeze the maximum performance from these ageing aerial platforms, in some cases exceeding the manufacturer’s estimates, with the help of improvisation and self-reliance. To counter the IAF’s numerical superiority and technological edge, our pilots have undergone the most rigorous training.

In spite of the PAF’s best efforts, however, the gaps in Pakistan’s security could not all be bridged. Consequently, Pakistan had to safeguard its security by developing its nuclear and ballistic missile capability.

The Bush administration’s decision to resume the sale of F-16s to Pakistan has no doubt taken all these aspects in to account. The US now intends to pursue friendly policies towards both India and Pakistan. American aircraft manufacturers have clearance to sell F-16 and the supposedly more advanced F-18 aircraft to the Indian Air Force.

Far more significant than the lifting of the F-16 ban against Pakistan are indications from high-level official sources in Washington that the United States has decided to help India become “a major world power in the 21st century”. The two countries are due to pursue a strategic dialogue to cover missile defence and various security initiatives and new weapons systems. Expanded cooperation in high-tech and energy, including nuclear energy, is expected.

This report is consistent with Mr Pressler’s article which advocates “a robust pro-India stance” so as to build it as “a major bulwark against China in East Asia.” He goes further by suggesting that the United States should inform China of its intention to help India match China’s arms build-up.

One needs to examine carefully the implications of such a policy. Does it fit in with the requirements of today’s post Cold-War world?

One can, of course, defend the closest economic, scientific and defence cooperation between the two countries in order to help raise the standard of living of the people and to protect them from likely aggression. But it is unheard of for one country to help make another country a world power. During World War II, the United States helped Britain because they were fighting a common enemy. The purpose was decidedly not, as Roosevelt’s closest advisers made plain, to preserve the British Empire although Churchill wanted this to be so.

The hazards of helping India become a world power for the purpose of opposing China should be evident to all but the most simple-minded novice in international relations. Far from “containing China”, such a policy is almost certainly a recipe for disaster.

America needs China as a willing partner in maintaining peace and stability in the post-Cold War era, especially in East Asia in on-going efforts to help resolve the nuclear issue with North Korea through negotiations.

Regardless of differences over Taiwan and trade and currency issues, China is at least as important for the United States as India in terms of geopolitics, economics and trade. The volume of US-China trade ($177 billion) is eight times greater than US-India trade ($21.6 billion). The flow of global FDI into China stood at $53.5 billion and was largely capital-intensive, while FDI flow into India was $4.3 billion and skill-intensive, concentrated in information technology.

India’s greatest strength is that it has forged a symbiotic relationship with the US based on its ability to adapt its IT industry to American requirements. Indian scientists, engineers, accountants and other technical personnel are taking full advantage of the Internet’s growing capacity and the level playing field it provides to play an increasingly important role in servicing the US economy.

Similarly, the organized efforts of many highly educated, affluent, politically active Indian immigrants in the United States have translated into unusual clout for the mother country in Washington.

Once during the Cold War Soviet leader Nikita Khrushchev threatened Pakistan with annihilation and in the 1980s the Soviet Union warned that unless support to the Afghan mujahideen was stopped, it would take “a strategic decision” to deal with Pakistan.

The bald fact is that India has never, ever, during its 58 years of independent existence sided with the United States on any vital strategic issue. But past behaviour is not determining American policy towards India.

Likewise, the fact that Pakistan laid its neck on the line on several occasions in history. The present is more important than the past and the future will one day become the new present. Pakistan therefore needs to broaden the base of its cooperation with the US to encompass as many mutually beneficial activities, just as India has done with telling effect.

India, commensurate with its size and growing economic strength, has regional and global aspirations, some of which do not necessarily comport with the interests of its smaller neighbours. Its ambition to become a permanent member of the UN Security Council is a case in point.

The smaller states of South Asia worry that India is more likely to wield its growing clout to further its narrow interests rather than collective regional interests. A Pax Indica in South Asia is unacceptable to them simply because India has yet to earn the credentials of a benign power.

Pakistan’s leaders have finally understood that India is forging ahead because its private sector has made available to it a very large number of English-knowing engineers, scientists, technologists and managers. The Indian government has merely facilitated this economic revolution by allocating resources to education and ensuring that the money was actually spent on schools and teachers. This did not happen in Pakistan to the same extent.

Having made the US economy dependent on Indian human skills, and having gained an influential voice in American politics and industry, India is now being offered crucial help to become a world power. Surely, that is a far more momentous development than the sale of a few F-16 aircraft to Pakistan, and our government needs to draw the appropriate lessons from it.

The writer is a former ambassador.

IN SPITE of the fact that he is an extremely wealthy man and can take off for Cannes at the drop of a hat, one can’t help feeling sorry for Prince Charles, who wants to be something he cannot be. For years, he had to suffer an exhausting relationship with a fairytale princess who overshadowed his every public appearance and whose growing unhappiness, incompatibility and extra-marital affairs were pounced upon by paparazzi and gossip columnists throughout the world.

However, irrespective of one’s politics, one can’t help agreeing with Geoffrey Wheatcroft that the royal couple whose wedding has been dogged by controversy certainly doesn’t deserve this orgy of malice and cruelty that the British tabloids were orchestrating against them two weeks ago, where papers appeared to be in some sort of competition to flush out some fascinating new evidence. One tabloid actually showed the couple with horns on their heads! When you really come down to it, all the prince is doing is marrying a rather nice person with whom he has had a 30-year relationship.

Not many people in this part of the world have met Prince Charles. Those who have, said they came across a rather quiet and private person, interested in architecture, ecology and reading about Islam. I discovered I shared a common interest when the late Derek Nimmo informed me after a play in a hotel in Dubai, that the prince is a great fan of the Goons — Spike Milligan, Peter Sellers and Harry Secombe, who were driven by an inspired lunacy and who wrenched humour into a new dimension with their own anarchic style. Who can ever forget those outrageous, surrealist, unpredictable cartoons in sound? As a British politician once put it, anybody who was weaned on the Goon Show can’t be all that bad.

I never met Prince Charles or the Queen. In fact, the closest I ever got to meeting a member of the royal family was when a ship of the British navy docked at Karachi many years ago. The deputy high commission held a quiet sit-down dinner for 14 people in honour of the captain and his officers. I was placed next to a handsome young officer in a starched white uniform who turned out to be Prince Edward. Nobody made any fuss. He was just one of the guests.

Now what does one discuss with a member of the British royal family? Wittgenstein? National treasures like John Morse and David Jason? Trout fishing in Scotland? The prince solved the problem by talking about life in the navy. He was interesting and human and had a wry sense of humour. When I asked him what he did the first time he got seasick, he said he just stuck his head over the rail and threw up!.

Unfortunately, things were fated to go wrong in the House of Windsor, the moment the prince popped the question. First, the nation was informed that Queen Elizabeth would not attend the wedding. The palace spokesman said Her Majesty planned to stay away to respect the couple’s wish for a low-key wedding. Antennae went up all over Fleet Street. Wouldn’t this move further embarrass the royal family and add to the air of farce around the April 8 ceremony?

Of course, it would. But sections of the British public stood firm. Mrs Phyllis Bradshaw of Willesden Green, London, caught by the tabloid camera while serving her husband Alf his midday dinner said, “I don’t ‘arf know wot’s going on. Where I come from mums always go to their sons’ weddings whoever or wherever they are.”

Her neighbour, Mrs Carlotta Powell from the island of St Lucia in the West Indies heartily agreed, and said that when her Willie had decided to tie the nuptial knot for the second time to a woman with two kids, she flew all the way to Edmonton in Canada. She added that she had heard that a flaming row has developed between the Queen and the heir to the British throne over the marriage plans.

She wasn’t too far off target. The top-selling tabloid The Sun under the headline ‘The War of the Windsors,’ reported that the queen was ‘horrified’ by aspects of the wedding. Some opinion polls suggested that the British public was opposed to the marriage. Royal commentator James Whitaker went as far as to say to BBC News that this would further split the country and asked if the queen really believed in the marriage!

To make matters worse, constitutional experts were seen arguing over whether members of the royal family are even allowed to marry in a civil ceremony in England. One expert, David Starkey told the news agency Reuters that the plans had graduated ‘from a smooth operation to a fuss and then a farce.’ Her Majesty was unhappy the venue had to be changed and that the original plan for a low-key wedding had mushroomed into something much bigger.

The spokesman at Buckingham Palace who seemed to be the only sensible person around, kept a stiff upper lip and rejected any suggestions of a row, adding that Her Majesty would indeed attend a church blessing of Prince Charles and Camilla Parker Bowles by the Archbishop of Canterbury.

Eventually, Prince Charles was forced to change the venue from Windsor Castle to Windsor Town Hall because of difficulties of getting a licence for the castle that would not force it to throw it open to the public. And then, just when the bridesmaids were getting their hair done and deciding what to wear, His Holiness the Pope died and plunged the Catholic world into grief.

After a series of hiccups, the ceremony finally took place. For those in Karachi who missed the wedding on television because they were watching Sheikh Rashid Ahmed telling the nation that he would not be travelling to Srinagar on the bus, Camilla Parker Bowles had donned an ivory chiffon dress, an oyster silk basket weave coat offset by a wide brimmed feather-detailed hat. The groom was in a conservative double-breasted suit and a cream coloured waistcoat. The wedding rings were crafted out of traditional Welsh gold.

There were 15,000 well-wishers cheering the black Rolls Royce that snaked past, and just 30 people witnessed the nuptials — a far cry from the fairytale wedding of 1981 when millions lined the streets. The 20-minute ceremony was low-key, but the words that were uttered by the bridal couple were extraordinary and astonishing, to say the least.

It was probably the first time in the history of the British monarchy that a royal couple participated in an act of public penitence, watched by 180 million viewers from Wellington in the east to Tierra del Fuego in the west.

“We acknowledge and bewail our manifold sins and wickedness, which we, from time to time, most grievously have committed, by thought, word and deed, against the Divine majesty, provoking most justly they wrath and indignation against us. We do earnestly repent and are heartily sorry for these misdoings. The burden of them is intolerable. Have mercy upon us most merciful Father. Forgive us all that is past.”

In England where the newspapers have been littered by stories of infidelity, cheating and other types of immoral behaviour, Charles’ and Camilla’s public confession sounded a little excessive. Nobody bewails their sins and wickedness anymore. It’s obvious those terse lines were put together by a churchman. They are hopelessly out of tune with what is happening in the world around them.

When Charles finally ascends the throne, (if one can ignore all the theories of who is and who is not be groomed to take over,) Camilla wishes to be known as queen consort, in deference to public opinion polls that show that 70 per cent of the population is opposed to her being referred to as Queen Camilla.

One is sure that with the passage of time the British people will come to like her. Ms Parker-Bowles might not be glamorous and a little matronly, but she comes of solid, Tory, country stock, and it is her very contrast

to Princess Di that might prove to be her strength in the years to come.