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India and Pakistan must learn to live together

New Delhi and Islamabad are locked in a dangerous triangular contest with Beijing

HENNY SENDER, Nikkei Asian Review columnist | China

Once a week, Pakistan International Airlines flies from the port city of Karachi to Mumbai, on the west coast of India -- less than the distance from Karachi, Pakistan's biggest city, to Lahore, its second biggest. It is hard to believe that the flight lasts little more than an hour; Mumbai feels 30 years ahead of Karachi, with its glitzy skyscrapers and striking Sea Link road bridge sweeping along the shore of the Arabian Sea.

Links between the two countries are so poor that very few Indians are even aware of the PIA service. Government-controlled Air India does not fly to Pakistan, and there are no reciprocal arrangements between the neighboring flag carriers, reflecting a tense political relationship and extremely limited economic and communications links.

In 1950, just three years after independence and the partition of former British India, with its bloody aftermath, India's gross domestic product per head was about $597 at today's values, while Pakistan's was $650, according to the World Bank. Nearly seven decades later the Indian figure is $1,709 with Pakistan at $1,468. Pakistan largely ignores the dismal fact that it has fallen behind India -- just as New Delhi does its best to ignore an even larger gap with China, which has done far better than either of its neighbors. In 1950, China's output per head was $614 per head; that swelled to $8,123 in 2016, according to World Bank data.

Today, as the fanfare (and mourning) commemorating the 70th anniversary of independence and partition fade, these three countries are locked in a complicated triangular game of attempted one-upmanship that is becoming increasingly aggressive. The game is now jeopardizing the uneasy peace that has mostly prevailed in recent decades, allowing many people in all three countries to achieve improvements in living standards.

Increased tensions over past months culminated in a confrontation -- temporarily on hold -- between Indian and Chinese troops in Doklam, a remote corner of the Himalayas claimed by China and Bhutan, a close ally of India. This dispute has the potential to destabilize the entire region, and could be as dangerous in the long term as the nuclear threat from North Korea.

On Sept. 6, the Indian army chief of staff, Bipin Rawat was quoted as saying that wars on two fronts with China and Pakistan was possible.

The standoff comes at a time when the political and economic circumstances of each of the three countries differ radically. Even before Pakistan's Prime Minister Nawaz Sharif was forced to step down in August, political leadership in Pakistan had become weak -- perhaps fatally so in the light of internal divisions within his own political party, continuing agitation by armed Islamist movements, an army which often has its own agenda, and serious economic challenges.

Pakistani exports are flagging, and without Chinese support for Islamabad the overvalued Pakistani rupee would collapse. Pakistan does not earn enough hard currency to repay the loans it is taking from China to finance infrastructure development, and it is moving down the economic value-added chain -- 60% of its exports are textiles, but that increasingly means low-end raw cotton and yarn, not more profitable garments. Power cuts are frequent and widespread, while regional rivals such as Bangladesh have more reliable power and far lower labor costs.

By contrast, India and China have leaders that face virtually no internal political challenges. Chinese President Xi Jinping and Indian Prime Minister Narendra Modi both oversee robust and growing economies, and have ensured popularity at home by adopting stridently nationalistic stances. Both have ramped up military spending. Every other day seems to bring another visit to Modi from a world leader peddling military hardware, from Japanese Prime Minister Shinzo Abe to Israeli Prime Minister Benjamin Netanyahu.

Water threat

In the last year, Modi has been seemingly opposed to any conciliation with Pakistan. In September 2016, after gunmen attacked an Indian army base in Kashmir, he threatened to tear up the Indus Water Treaty, which provides for the orderly distribution of water between the two countries from rivers that flow first through India. The treaty has been in effect since 1960, yet this is virtually the first time that it has become hostage to cross-border sparring, according to analysts. Pakistan's apparent inability to control attacks from its territory across the border does not help.

Modi also claimed that counterfeiting from across the border was one of the reasons for India's "demonetization" exercise -- a major currency upheaval last November in which high value notes were suddenly withdrawn from circulation, causing chaos for Indian businesses that rely on cash transactions. Modi learned from elections in March in Uttar Pradesh, India's most populous state, that uniting Hindus (who in the past had fractured along caste lines) against Muslims pays off at the ballot box, undermining domestic political support for reconciliation with Muslim Pakistan. He then installed a militantly religious Hindu figure, Yogi Adityanath, as chief minister of the state.

Meanwhile, India's relationship with China is in part hostage to its relationship with Pakistan. China has become Islamabad's closest ally. Pakistan will be the biggest beneficiary of Chinese economic and strategic initiatives such as the China-Pakistan Economic Corridor, and is set to receive more than $60 billion in the next few years as part of the Belt and Road Initiative, a massive Asian infrastructure program. India believes that such Chinese plans are a way to unload its excess capacity on the rest of the world and wants no part in its giant neighbor's ambitious programs.

This is short sighted. For example, Pakistan may well become the first country on the planet to run out of water. Its arid land struggles to support a population of around 200 million -- though nobody knows the exact figure because there has been no census in almost 20 years. Several of the China-based Asian Infrastructure Investment Bank's first projects (in conjunction with the Japanese-led Asian Development Bank) are aimed at supporting water infrastructure in Pakistan.

The continuing tensions between India and Pakistan are rooted in partition. But New Delhi also believes that a weak Pakistan is in its interests. There may be some truth in this, but only up to a point. A collapse of Pakistan's economy and institutions would pose a serious threat to India, which should welcome Chinese investment in Pakistan, including AIIB lending, as a way of avoiding the problem of a failed state on its doorstep.

Scholars continue to debate whether the events of 70 years ago that divided India from Pakistan were inevitable or not. Either way, however, New Delhi needs to accept that the fates of the two countries remain inextricably linked, for better or worse.

Henny Sender is the Financial Times' chief correspondent for international finance, based in Hong Kong, and a regular contributor to the Nikkei Asian Review.

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