To Help Pakistan, Undo South Asia’s Economic Partition

A briefing of mine was published in the World Politics Review on June 27th, 2011. I argue  that, instead of continuing a military aid-based relationship that only empowers Pakistan’s military and militants, Washington should encourage a longer-term solution: reintegrate the region and economically ‘undo’ the partition of the subcontinent.

The piece, a briefing of a longer, forthcoming paper, is available at the WPR site here, and below.

To Help Pakistan, Undo South Asia’s Economic Partition

By Neil Padukone | 27 Jun 2011

The discovery of Osama bin Laden in Abbottabad, Pakistan, has raised uncomfortable questions about both Islamabad’s relationship with terrorism and Washington’s relationship with Islamabad. Even as the U.S. edges toward its goal of “disrupting, dismantling and defeating al-Qaida in Pakistan and Afghanistan,” a cocktail of other groups in Pakistan — Harakat-ul-Jihad ul-Islami (HuJI), Jaish-e-Muhammad (JeM) and Lashkar-e-Taiba (LeT) key among them — are ready to step into any void left by al-Qaida, often with official support.

In fact, Islamabad has an economic incentive to keep them alive: As long as such groups are active, the U.S. will provide Pakistan with aid and weapons to help the Pakistani military destroy them. But if these groups are gone, many in Islamabad fear that the U.S. will abandon Pakistan.

But the main reason Islamabad has nurtured militants is Pakistan’s insecurity about India. Islamabad’s fear of annihilation is driven by Pakistan’s smaller population, size, economy and military; the fact that Pakistan is the lower riparian of the Indus River; the fact that New Delhi is increasingly currying favor in Washington; and Pakistan’s own identity crisis over the role of Islam. Since 1947, this combination of factors has driven Pakistan to use subnational Islamist militants as a cost-effective way to target India.

In its quest to bolster the country’s strategic position, Pakistan’s military has long dominated governance. At partition, Pakistan, with one-fifth of India’s population, received nearly half of the British Indian Army, skewing the civil-military balance from the start. Instead of instituting land reforms that would break up feudal land ownership, Pakistan’s military and landed elite allied to bring about the new state’s quick integration: The economic elite staffed the officer corps of the army, whose retirees in turn headed important civilian bureaucracies. Since 1958, the army has invested in ventures controlled by industrial elites, while subsidizing real estate for retired officers.

Today the military itself uses more than one-sixth of the national budget, yet its assets are much larger. The Fauji Foundation, an organization run by and for armed forces personnel, is Pakistan’s largest business conglomeration, with interests in cement, food, finance and security that account for nearly 4 percent of total market capitalization in the Karachi Stock Exchange. The same military-political elite inefficiently controls agriculture, producing an average per-acre yield that is less than 40 percent of its full potential.

These economic arrangements not only predispose the country to militarism, but are also financially untenable. Fewer than 2 million people in a country of 190 million pay taxes. Power shortages cripple businesses and lead to circular debt, displacing the cost of electricity subsidies. Pakistan faces a 350 percent increase in energy demand by 2030, but lacks the finances to undertake major energy projects alone. This military-heavy economy only survives thanks to the lifeline of American aid, which is locked in by Washington’s fears of Pakistan’s implosion.

To build themselves up as a viable alternative, Pakistan’s middle class businesses need sustainable economic growth driven by reliable sources of energy and open markets for Pakistani products. To achieve that, Pakistan must reconnect economically to the rest of the region. Meanwhile, India, which seeks access to Central Asian energy supplies and more-efficient distribution networks for food staples, would also profit from integration, as would Afghans and Kashmiris, whose isolated economies need connectivity to flourish.

The main proposed projects for regional integration — the Iran-Pakistan-India (IPI) and Trans-Afghan natural gas pipelines — would improve India’s energy access and give Pakistan $200 million a year in transit fees, but they also have a strategic dimension: These projects as well as other Central Asian trade would flow from the region’s northwest, putting Pakistan “upstream” of India. This would give Islamabad economic leverage over and increase its confidence vis-à-vis New Delhi — and it would do so in a way that is less volatile than increasing Pakistan’s military arsenal. Even if the Pakistani military’s preponderance guarantees the army’s control over the resulting trade, commercial ties could reorient Pakistan’s engagement with the region.

Yet overblown “security concerns” have capped bilateral trade between Pakistan and India at $2.1 billion, most of which occurs through smuggling and third-country intermediaries. The trade potential may be 50 times higher. The subcontinent’s geographic unity once facilitated joint resource management as well as direct trade and shared production of commodities like textiles and produce via highways and railways that stretched from Dhaka to Kabul. With infrastructural links severed at partition, this trade has since been consigned to the history books. But if rebuilt, such infrastructure would bolster each country’s growth and extra-regional exports today.

Instead of aggravating these problems with more military aid, Washington should encourage structural change in Pakistan’s economy, by reintegrating the region and economically undoing the partition of the subcontinent. Washington must urge both Pakistan and India to reduce or eliminate obstructive tariffs; requirements that ships touch a third country before importing goods; “sensitive lists” that prohibit imports of items as harmless as tea; restrictions on transit trade to third countries; obstacles to foreign direct investment; and other barriers to intraregional infrastructure like power grids. It should also expand its own free trade with Pakistan.

Finally, bringing Iran into the process would help Washington reduce its destructive dependence on Pakistan, both in terms of NATO’s war effort and the larger goal of integrating Afghanistan into the regional economy. One place to start is to open the cheaper, stable trade route to Afghanistan through Chabahar-Zaranj in eastern Iran. Another is to lift U.S. objections to India’s participation in the IPI pipeline.

Political and financial support for the trade corridors that cross South Asia are the best way for Washington to reconcile its “Islamabad or Delhi” policy, while weaning Pakistan off its aid-based military economy and addressing the structural problems that underlie its decades-long concerns in the region.

Neil Padukone is a strategic affairs analyst and author of “Security in a Complex Era.” He is currently writing a book on the future of conflict in South Asia.

Photo: U.S. President Barack Obama and Pakistani President Asif Ali Zardari at the White House, May 6, 2009 (White House photo by Pete Souza).

This entry was posted in Central Asia, Governance, India, Pakistan, South Asia, Uncategorized. Bookmark the permalink.

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