Pakistan downed an Indian jet — but the economy is the real battleground

Securing Pakistan’s economy is the key to securing its borders.
Published March 19, 2019

The events of the last few weeks have underlined the need for Pakistan to invest in robust defence.

While we can take a lot of pride in our military’s protection of our borders, it would be foolhardy in the extreme for us to allow these events to significantly inform the way forward. We must, instead, take stock of deeper and more powerful dynamics.

For decades, Pakistan significantly outperformed India in many ways. Our economy outdid theirs: in 32 years between 1961 and 1993, Pakistan’s economy grew nearly twice as quickly as India’s.

In military conflicts, while India’s size always led to eventual advantage, Pakistan leveraged a close alliance with the United States to give as good as it got in the 1965 war.

Even in 1971, Chuck Yeager — a top American pilot and the first man to break the sound barrier — was deployed in Pakistan in close support of the Pakistan Air Force. Pakistan even enjoyed supremacy on the cricket field for decades.

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These facts, undeniable and culturally salient, cemented the idea of relative strength in our national psyche. It is equally undeniable, however, that India has reformed and Pakistan stagnated over the last 30 years.

This is well documented, but has not reflected in significantly updated beliefs in Pakistan. Part of the reason might simply be mental inertia; part of the reason might be that economic strength takes time to manifest in diplomatic and military consequences.

India initiated economic reforms in 1992, but it took more than a decade for the US to start investing seriously in its relationship with India, firmed up with the two countries’ civil nuclear deal of 2006. Militarily, change is even slower: relative capabilities are as much a reflection of past economic performances as current ones.

Consider that the MiG-21 shot down in late February was a type that India first acquired in 1964, and that Pakistan took first delivery of the F-16 in early 80s and signed the first Memorandum of Understanding in 1995 leading to JF-17 production two years later.

Our respective resource envelopes in bygone years affected our defence procurements, and thus had a bearing on the events of February.

By the same coin, we must understand that our past growth deficit creates a defence imbalance overhang: over the next decade or two, India will reap the strategic benefits of investing in its economy as its superior military acquisitions come on line.

It is the size of an economy that determines a country's ability to spend on it defence. If Pakistan fails to undertake serious economic reforms, our stagnation will further worsen our military imbalance with India.

Rise and fall

Let us review the scale of Pakistan’s economic decline relative to India.

In 1991, the Pakistani economy was 17 per cent as large as India’s. By 2017, a decade-and-a-half of being outmatched on economic growth has left us less than 12pc their size. This is a 41pc decline in our relative economic strength.

Due to the sheer size of the Indian economy, reforms there have quickly increased their size advantage over Pakistan. In the five-decade period between 1963 and 2002, India generally grew slower than Pakistan, yet there were six instances of India’s annual economic growth exceeding the size of Pakistan’s entire economy.

More worryingly for the strategist, in the 15 years since 2003, India has achieved this feat nine times.

India’s size and robust growth has allowed its military expenditures to increase vastly since the 1990s, while falling slightly as a percentage of gross domestic product (GDP).

Living next door to a strong adversary, Pakistan spent decades with the largest proportionate expenditure on defence in South Asia, but decreased defence spending significantly in the 1990s.

A simple, but fatal reaction to increased tensions with India today would be to once again increase the proportion of our government revenues spent on military spending. In fact, some scholars speculate that Indian defence planners may actually be interested in provoking us to do precisely this.

This would be suicidal: a rise in military spending today means less money to educate our children, invest in our infrastructure, support our police and courts and do all the other things that we can do to correct our economic decline.

Even after the decline noted above, Pakistan’s military expenditures as a percentage of GDP remain amongst the highest in the world. There is simply little space to squeeze non-military expenditures.

This presents us with a true dilemma: an increase in military spending today will crowd out economic growth and thus means paying for our near-term security by further reducing our capacity to increase defence spending in the future.

If India continues growing at its 15-year average annual rate of approximately 7.5pc and we stick to our current average growth rate, its economy — and thus its ability to spend on its military — will be more than 20 times our size by 2047.

Where does Pakistan go from here?

Simply to return to our relative strength with respect to India to 1990 levels, we need to grow at an average of 10pc for the next 30 years — achievable, but a feat accomplished only by Ireland, China and Vietnam in the past.

The key out of this mess lies in understanding that this is as much a story of our stagnation as it is of India’s rise. Since the 1980s, every major South Asian economy has improved its citizens’ health, and since 1990 its wealth, faster than Pakistan.

The most optimistic projections suggest that the China-Pakistan Economic Corridor will add 2.5pc to our growth rates. Useful, but not enough by half.

We will have to do the hard work ourselves: we need to shatter protectionism, slash inefficient public expenditures, invest in quality education and improve the functioning of our legal system.

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This requires profound, deep-cutting, unprecedented economic reform. Ironically, we can learn much from considering two determinants of India’s growth.

While it stagnated economically, India invested early and well in elite public universities. This helped set the conditions for its growth post-reforms.

Then, when India’s foreign exchange reserves dipped to covering only three weeks of imports in 1991, Narasimha Rao was willing to absorb the political blowback of Manmohan Singh’s reforms.

As economies grow, so does the value of trade amongst neighbours. Already, World Bank estimates suggest that a failure to trade costs India and Pakistan $35 billion in lost economic value.

As Pakistan grows, the gains from peace will only rise. Who knows, perhaps our economy itself will one day secure our borders within a peaceful and prosperous South Asia.

The article has been updated with additional charts and analysis.

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