Moody’s Report: India Surging Ahead in Development… Pakistan in Deep Crisis!
Since gaining independence, the neighbouring nations of India and Pakistan have followed distinctly divergent paths, and their contrasting economic trajectories are now increasingly evident. While India is emerging as one of the fastest-growing major economies in the world, Pakistan is reeling under a severe economic crisis, teetering on the brink of collapse. In this context, recent reports by global institutions shed significant light on the prevailing economic conditions of both countries.
According to the World Bank’s 2024 statistics, India’s Gross Domestic Product (GDP) has reached approximately $3.88 trillion, which is more than ten times that of Pakistan, whose GDP stands at only $0.37 trillion. The International Monetary Fund’s (IMF) World Economic Outlook estimates that by 2025, India’s nominal GDP will rise to $4.187 trillion, surpassing Japan to become the fourth-largest economy in the world. India currently holds substantial foreign exchange reserves amounting to $688 billion.
On the other hand, Pakistan’s economy is in a state of near-collapse, sustained mainly by loans from the IMF. Its foreign exchange reserves have dwindled to just $15 billion. In 2023, Pakistan narrowly avoided default with a $3 billion IMF loan, which offered temporary relief. However, the country continues to face serious financial difficulties. It is presently making strenuous efforts to secure an additional $1.3 billion loan to support climate resilience initiatives.
In the early post-independence years, Pakistan’s economy grew at a comparable pace to India’s, supported by American aid and contributions from oil-rich Islamic nations. However, India charted a democratic course, focusing on economic growth and poverty alleviation. In contrast, Pakistan grappled with bloody military coups and authoritarian rule. The continued dominance of military generals, antagonistic posture towards its wealthier neighbour India, and sponsorship of terrorism through training and funding are seen by analysts as major reasons for Pakistan’s economic decline. These policies have backfired, leading to violent unrest in regions such as Balochistan and the North West Frontier Province.
Despite recent escalations in tensions with Pakistan following a brutal terrorist attack in Pahalgam that killed 26 tourists, India’s macroeconomic fundamentals remain strong, according to global rating agency Moody’s. On Monday, Moody’s stated that robust government investment and strong private consumption are supporting India’s economic stability. Although defence spending is expected to rise, it is unlikely to significantly impact India’s fiscal stability.
However, Moody’s warned that if tensions with India persist, Pakistan’s fragile economy could be further destabilised, jeopardising current fiscal consolidation goals. It noted that escalating geopolitical conflicts could reduce Pakistan’s access to external financing and intensify pressure on its already depleted foreign reserves. With reserves just above $15 billion, Pakistan will struggle to meet its external debt obligations in the coming years. Additionally, since Pakistan accounts for less than 0.5 percent of India’s total exports in 2024, any deterioration in bilateral relations is unlikely to disrupt India’s broader economic activities, Moody’s observed.
These developments underscore the long-term consequences of the distinct policies adopted by the two nations. India is powering ahead on a path of growth, while Pakistan continues to fall behind economically due to its own strategic choices.