Borders sometimes appear blurry and meaningless in today’s digitised world. Yet, they come into sharp focus when a crisis appears on the horizon. The economic crisis confronting South Asia today is one such reminder. If you were living across the border in any other country of this region, your economic prospects would have been grim.
There are four large economies in South Asia: India, which produces an annual output well over a trillion dollars; Pakistan and Bangladesh, each of whose
Borders sometimes appear blurry and meaningless in today’s digitised world. Yet, they come into sharp focus when a crisis appears on the horizon. The economic crisis confronting South Asia today is one such reminder. If you were living across the border in any other country of this region, your economic prospects would have been grim.
There are four large economies in South Asia: India, which produces an annual output well over a trillion dollars; Pakistan and Bangladesh, each of whose output exceeds $100 billion every year; and Sri Lanka, whose output tends to be a little below $100 billion in a normal year. Of the four, India is the only country that doesn’t require funds from the International Monetary Fund (IMF) to pay for its imports today.
The rest need dollar funding from the IMF to mitigate a balance of payments (trade-financing) crisis. Bangladesh’s trade-financing problem is less severe compared to Pakistan’s or Sri Lanka’s, but it too needs the IMF’s help. An IMF loan is a bitter pill since the funds are accompanied by stern prescriptions the borrowers must follow. India’s last SOS to the IMF was in 1991 when another war had driven up oil prices, causing a spike in India’s import bill.
Since 1991, India has never required IMF bailouts. Even during the currency crisis of 2013, India had adequate forex cover to tide over any short-term emergency. For Pakistan, the current IMF loan will be the 12th since 1991. For Sri Lanka, it will be the sixth such loan over the same period. For Bangladesh, it will be the third IMF package over the past three decades.
Seven-and-a-half decades after the British colonialists left the subcontinent, only one successor State has been able to attain true economic autonomy. India’s relative stability in an unstable neighbourhood makes it a curious outlier.
India’s resilience seems to be driven by three distinguishing factors. The first is the Indian State’s relatively conservative economic policy mix. Since 1991, both state and Union governments have largely tried to live within their means, bringing down average public debt levels. The pandemic has led to a sharp reversal in that trend, but some amount of fiscal consolidation is already underway this year.
On the external front, Indian policymakers — at the finance ministry and at the Reserve Bank of India (RBI) — have, till recently, focused on liberalising trade flows more than capital flows. Within capital flows, equity rather than debt flows received greater encouragement, keeping risks low. After the Asian crisis of 1997-98, RBI realised the need for building a war chest of forex reserves. We are still reaping the benefits of such policies today.
The second factor is India’s economic diversity. The range of goods and services produced in India exceeds that of its South Asian peers. Bangladesh has several development achievements to be proud of. But its economy is essentially a one-trick pony, relying overwhelmingly on garment exports. Unsurprisingly, India ranks far ahead of its South Asian peers on the Harvard Growth Lab’s economic complexity rankings, a measure of economic diversity.
Economic diversity builds economic resilience in two ways. First, it ensures that some growth engines are up and running when others get battered by global shocks. Second, it leads to a proliferation of lobbies. This means that any one lobby can drive economic policies only to a limited extent, or only for a limited period of time. It encourages politicians and policymakers to tread the middle path, avoiding policy adventurism.
The third factor underpinning India’s economic resilience is its constitutional stability. Apart from a 21-month period in the mid-1970s when the constitutional liberties of Indians were suspended under the Emergency, the Indian Constitution has acted as an abiding anchor for India’s society, polity, and economy.
Our neighbours haven’t had such luck, with the constitution getting changed more than once in Sri Lanka and Pakistan. Younger Bangladesh hasn’t seen its constitution get rewritten, but it has suffered a long era of military rule when constitutional liberties were significantly diluted.
In their 2009 book, The Endurance of National Constitutions, the American scholars Zachary Elkins, Tom Ginsburg and James Melton showed that the average constitution has lasted only 17 years since 1789. Constitutions of post-colonial countries, which gained independence after World War II, have had especially short lives.
Despite its weaknesses, the Indian Constitution has allowed disaffected communities across the country to hold on to the “idea of India” even under the gravest provocations. The long period of deliberations on the constitutional framework led by the economist-turned-lawyer BR Ambedkar ensured that India’s basic operating system has survived the test of time.
Yet, it is worth keeping in mind that the forces of linguistic and religious chauvinism that have wreaked havoc in the rest of the neighbourhood find patronage in this country as well. There are other threats too. Several institutions set up by the builders of modern India have decayed over time. India’s youth is becoming restive about the slow pace of job creation.
Without social cohesion, inclusive growth, and institutional renewal, India’s economic autonomy will be at peril. Our exceptional history is no guarantee of our future well-being.
Pramit Bhattacharya is a Chennai-based journalist
The views expressed are personal
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