Friday October 07, 2022

Finance and economics: A look back

August 14, 2022

Upon hindsight of a few centuries, it is evident that the Mughal Ruler, Jehangir, didn’t know the damage he was inflicting upon the sub-continent when he warmly received his Ambassador Sir Thomas Roe, from the court of King James I. What was meant to be a trade delegation ended up being rulers of undivided India. The British, by the turn of 1615, when Shah Alam II was ruling Delhi, had started establishing factories and the low-level employees of the East India Company (EIC) were made tax collectors. Indian labour had begun to be exported to other British colonies.

The Rulers of Delhi were oblivious of the dynamics of commercial economics, and hence fell prey to the machinations of the British. Little did they appear to have realised that economic dominance would make them susceptible towards losing political power. An East India Company officer is recorded to have made the following remark, “little court disappears; trade languishes; the capital decays; the people are impoverished...the Englishman flourishes and acts like a sponge drawing up the riches from the banks of Ganges, and squeezing them down upon the banks of The Thames”.

Shashi Tharoor, in one of his books, mentions that each year over £18 million were remitted to Britain from India. He has quoted, Comte De Chatelet, the French Ambassador to the Royal Court in London, who says, “There are few kings in Europe richer than the directors of the East India Company.” It wouldn’t be wrong to assert that the Industrial Revolution in Britain was constructed on the pyre of South Asian resources. Under the guise of trade, the mother tax collected by Aurangzeb, estimated to be at £100 million, was tactfully stashed away in London. The economic surrender had begun...

Between the years 1857 to 1900, The Parsees and Hindus dominated the local business conditions. Jamshedji Tata was able to set up iron and steel production by 1912. Through nationalisation, the ship building industry of Muslim Keralites was completely destroyed. The end of the Second World War saw the beginning of the British Empire’s decline. Minorities, especially Muslims, were the most exploited.

The Muslims of India had become to realise their pitiable conditions and status in terms of economic wellbeing. This deep crevasse of exploitation, both politically and economically, led Mr Jinnah to propose the creation of a separate Muslim homeland. It was difficult to achieve, but “resoluteness” helped. Mr Jinnah and his associates diligently pursued the idea of a Muslim homeland. Due, to his indomitable spirit and unparalleled leadership, we were able to obtain Pakistan: a land of our own. Blessed with unique, distinct, and different leadership qualities, he recognised the need to emancipate Muslims of the sub-continent, both politically and economically. He captured the imagination of Muslims across the board, enabling him to carve out a nation state in 1947.

Pakistan upon formation was unprepared both financially and economically. The division of assets and liabilities between Pakistan and India was entrusted to the partition council, who indulged in utter trivialities of how office pencils, rubbers, gem clips, etc., should be shared. Equally messy was the distribution by the Reserve Bank of India (RBI). The cash on hand at RBI was Rs.400 crores - common currency remained in vogue until September 1948 - of this amount, Pakistan’s share was worked out at a dismal low of Rs.75 crores. India made an initial payment of Rs.25 crores as working funds, prior to August 1947; the remaining 55 crores became hostage to the wily politics of the equally wily Sardar Patel, who made it known that the balance amount was repatriable only upon settlement of outstanding political disputes. Gandhi fasted against this decision in protest. His fast, real or a farce, was of no fruitful consequence for Pakistan, for the money never came. This amount remains outstanding as receivables from India to this day.

Following independence, Pakistan, more than India, had to begin learning the ropes of economic and financial management. Because of Nehru’s penchant towards the socialist economic model, India immediately embarked upon a centrally planned economy; Pakistan caved in and succumbed to the demands of a capitalist economy. The feudal structure of Pakistan was the principal motivating factor for heading in this direction. Whilst India had done away with the jagirdari system (a feudal form of land tenancy, dating back to the 13th century) by 1951, Pakistan remained content with the feudal structure, which unfortunately continues to haunt our current democracy.

India stood at an advantageous position for she inherited a large number of industries and production units. In a true Soviet style of economy, the Indians had successive Five-year Plans that were extremely successful, resulting in a cumulative 11% growth of economy. Towards the start of the Sino-Indian war, this number bettered itself to become a 21% growth. To our collective dismay, all this occurred in India while our Five-year Plans were floundering due to incessant political upheaval. Political instability rocked economic ventures badly. Our growth rates were in single digits.

Being in SEATO (The Southeast Asia Treaty Organization) and CENTO (Central Treaty Organization), we were recipients of generous aid under the Marshall Plan. This did bolster our economy but the aid acted as opium, leading Pakistan to become a perennial borrower in the international markets. This continues to be a cause of embarrassment for our nation even today. We have lost respect in the comity of nations. However, for a few years during the Ayubian Period, the dark era of Zia’s years and the enlightened years of moderation of President Musharraf, we did see some substantive growth, that exceeded 7% GDP per year.

During the 1960s, Pakistan had become a model economic state for other newly independent countries of Asia and Africa. Private enterprise soared to new heights, giving opportunities for employment. The industrial base grew rapidly. However, the capitalist model Pakistan ran on obviously created a concentration of wealth and the country saw the emergence of its 22 infamous family lines. The socialist political forces made them look like exploiters; due to the charismatic Zulfiqar Ali Bhutto, this gathered mass appeal.

Following the assumption of office by Z.A. Bhutto, the golden period of development and growth of the sixties collapsed. During Bhutto’s reign, all critical industries of the economy were nationalised which inflicted a great damage. The private sector went into hibernation for a very long time and came out of its recluse only towards the early 1990s.

In the arena of financial intermediation, Pakistan boasted a robust banking industry, with specialised financial institutions. However, politicians later plundered all the institutions and today most are part of the corporate cemetery. Unlike the current crop of Pakistani politicians, Jinnah was the rock of Gibraltar, with no susceptibility to temptations of power, pelf or acquisition of wealth. India was lucky to have Nehru and other politicians to guide it in its nascent stage of development; we lost the generation of freedom fighters and founding fathers very early to Mother Nature.

Having great foresight, Quaid knew the importance of economy, banking and finance. In his speech at the inauguration of the State Bank of Pakistan, on 1 July, 1948, he said, “I shall watch with keenness the work of your Research Organisation in evolving banking practices compatible with Islamic ideas of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster...the adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contented people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice.”

While in the last 75 years we could still have fared better, a lot of opportunity has been lost due to political instability. Yet, we have created a name for ourselves. Given the benefit of good leadership, the country is bound to strike back with better economic numbers. Those who will, God Willing, celebrate this country’s 100th independence anniversary, shall hold their chin high in the air. This scribe is confident of the current and future generations of Pakistan’s abilities to steer the country northwards.

-The author is a senior Banker in Pakistan