Banking on our neighbour | The Indian Express

Banking on our neighbour | The Indian Express

Banking on our neighbour

A critical look at why Pakistan’s growth decelerated and what India can learn from it.

Written by Y V Reddy | Updated: April 28, 2018 12:28:47 am

“We, in India, have our own governance problems which are often ignored because of impressive growth in Gross Domestic Product.”

Book: Governing the Ungovernable: Institutional Reforms for Democratic Governance

Writer: Ishrat Husain

Publisher: OUP Pakistan

Page: 568 

Price: Rs 995

Dr Ishrat Husain, a former governor of the State Bank of Pakistan, has exhibited courage in titling his book, describing his country as perceived to be “ungovernable”. The question posed is: “Is Pakistan preordained to remain ‘ungovernable’, mired in a state of ceaseless, recurring crises, or can it become ‘governable’ once more?”

There are no absolutes in governance. There are different degrees of imperfections or mis-governance. In a way, all countries are ungovernable in different degrees, but the difference matters. It matters a lot. This well-researched book by Husain, who is highly regarded globally, explains how governance matters in the case of Pakistan. We, in India, have our own governance problems which are often ignored because of impressive growth in Gross Domestic Product.

At one level, the book is very light reading, describing the challenges, achievements and shortcomings of Pakistan over the past seven decades. At another level, it is also very informative and appealing, backed by substantial research, analyses and insights — a very serious read on those counts, which concludes on an optimistic note, showing the way forward. There are many books on how countries have become richer, and how reforms can lead to growth and prosperity, but Husain explores the reasons for deceleration of economic growth. Why and how does a country get left behind?

The author is admired as a public intellectual in Pakistan, and I was familiar with his personal and professional reputation globally, even before I became Governor of the Reserve Bank of India, and we interacted closely as Governors in SAARC. His book, consisting of 18 chapters, can be divided into four parts. The first two chapters provide the background. The chapters on the economy, polity, society, provincial governments and local governments provide the macro picture. The components of governance are examined in detail over eight chapters, namely the civil services, judiciary, legislator, military, religious edifice, private sector, justice and external actors. Of the last three chapters, which suggest the way forward, the chapter titled ‘Lessons from the Experience of Other Countries’ is of particular significance for us in India.

The author provides a comparative picture of Pakistan, Bangladesh and India in relation to various governance rankings compiled by different organisations. He offers enough evidence to show that India remains one of the top performers among the emerging economies, despite weak governance and the frailty of institutions. The author refers to Devesh Kapur’s exploration of this paradox. The relevant question for us now is whether a high growth rate can be sustained in India with continued weak governance. One is left with the lurking fear that the weak governance standards in India may not be able to sustain high growth, and that the growth process will be under serious threat if the deteriorating trend is not immediately reversed. In brief, the challenge to India is to make its governance standards catch up with its ambitious development agenda.

While the author laments the immediate past, he gives hope for the future of Pakistan. At the same time, the book recognises contextual challenges, which are more complex now than they were 25 years ago. To quote the author: “Going forward, Pakistan’s economy has to face a myriad complex challenges arising from an uncertain global environment, an explosive knowledge economy, disruptive technologies, demographic transition and climate change.” This is a brilliant summary of challenges ahead. Are these challenges not totally valid for India, too?

The objective of the book, according to the author, is to generate debate on actions “necessary to arrest and reverse the process of institutional decay that is identified as critical for development.” Should we in India also be provoking a debate precisely on this subject?

Pakistan out-performed India till 1990. The critical question raised is: Why did a top performer till 1990 fall behind later? Husain dismisses common beliefs, with impressive evidence, as partially true, at best. They are: security deficit, availability of generous foreign assistance, global economic conditions, the garrison state syndrome and the nexus between the military and big corporates.

Husain’s conclusion is that institutions of governance matter. Are institutions of governance in India under stress now? For example, the functioning of the Supreme Court, the Reserve Bank of India and the Finance Commissions have thrown up unprecedented controversies recently.

The conclusion of the book is wise: It says, “Single-factor explanations are simplistic and misleading, although each of them is a contributory factor.” Just as there are multiple explanations for the deterioration in the economic performance of Pakistan in the last 25 years, there are multiple explanations for India’s prowess.

The most important explanation for India’s success is given in the summation. “In India, competitive federalism and administrative reorganisation of states lowered political tensions and mistrust, infusing a sense of unity and common purpose which proved beneficial to the economy.”

“Bangladesh also allowed non-governmental organisations to play an active role in the provision of basic social services such as education, health and micro credit, thus improving social indicators.”

The situation in Pakistan is explained thus: “Political uncertainty in Pakistan lowered the time horizon of the private economic actors who used their returns for investment in real estate and the stock market, or capital flight.” Husain adds, “Insecurity of life and property because of the terrorism during the post 2001 period also played havoc with the economy.”

The book is a good example of how extensive research, going beyond narrow economic policy, can contribute to appreciating the complex factors that explain a nation’s success, as well as the drift to a failed state. Husain has shown the way towards writing a similar book on India, but his book, in itself, is invaluable and strongly recommended reading.

YV Reddy is former governor of the Reserve Bank of India

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