Pakistan’s current economic situation calls for a fundamental change in the way the economy has been managed over the last couple of decades. Much has been said and written about the mistakes made by Islamabad’s policymakers during that period.

Relatively little has been suggested about the way the economy should be pulled back from the edge of the abyss where it stands today.

Unless the government takes stock of the current situation and carefully assesses the future, there is a real possibility that we will fall behind all the countries in the region if not into the abyss itself. There is also considerable danger of social chaos if the situation people face is not urgently addressed. Thanks to an open and aggressive media, people are becoming increasingly aware of their predicament in a regional context.

That Pakistan is the South Asian ‘sick man’ today was underscored by a report released to the public by the World Bank on the eve of the institution’s spring meetings held in Washington a couple of weeks ago. The Pakistani delegation to the meeting was led by the new de facto finance minister, Dr Hafeez Sheikh. According to the report all South Asian economies with, the exception of Pakistan and Afghanistan, have pulled out of the partial slowdown caused by the Great Recession of 2008-09. Even Nepal, which has had its share of economic and political problems, is expected to do better than Pakistan in terms of economic expansion.

In the World Bank Global Monitoring Report 2010, South Asia’s GDP growth rate is expected to increase to seven per cent in 2010 and 7.4 per cent in 2011. India will lead the way in this resurgence followed by Bangladesh. India’s projected performance is particularly impressive. It will approach a GDP growth rate of nine per cent which means an increase of 7.5 per cent in the country’s per capita income. Even some of the laggard states in India are being pulled out of economic stagnation and are joining those that are performing well. Bihar, for instance, will see its economy grow by 11 per cent in 2010. It has been the slowest growing state in the Indian Union and also the poorest.

A number of factors will contribute to the pick-up in India. The most remarkable of them will be the steady increase in the domestic savings rate which will draw close to 40 per cent of GDP, the level achieved by fast-growing economies such as China. This makes India considerably less dependent on external capital than Pakistan. India will also benefit from the pick-up in international trade. Unlike its previous record, exports will become more diversified with manufacturing joining services as the sectors responsible for growth.

In the past India’s IT sector had pulled the rest of the economy towards modernisation. Now manufacturing has become another area of dynamism. The source of the impressive performance of manufacturing in international trade will be based on exports that make use of some extraordinary technological developments. A small motor car brought to the market by Tata Motors is one example of this development. Called the Nano, it is designed entirely by Indian engineers, uses mostly Indian materials and inputs and is meant to be driven on the country’s depleted roads. The car is expected to do well in other parts of the world that have a growing demand for cheap and sturdy models. Nano sells for only $3,000.

India will also continue to develop new markets for exports. China has emerged as the country’s largest trading partner, buying mostly commodities of which India has abundant supplies, China, becoming increasingly dependent on material inputs for feeding its expanding industry, is turning to India for such important inputs as coal and iron ore. The point of making these observations about this happy economic situation in India is to emphasise the important role the state can play in helping the economy to grow and for people to enjoy the fruits of development. India may have been in a more advantageous position when it, together with Pakistan, acquired independence from the British in 1947. But through the use of disciplined state action in the 1960s, Pakistan brought itself to India’s level. Not only did it close the income gap with India, for about a decade and a half, it was treated as a model of economic success. That, of course, is no longer the case.

At that time India was labouring under what was called the Hindu rate of growth, above three per cent per annum. Pakistan at that point was growing at a rate twice as high: six per cent a year. Even then Pakistan had a higher rate of population growth. In spite of that its per capita income increased at a rate 75 per cent higher than that of its neighbour. Pakistan then overtook India as South Asia’s most prosperous economy.

If we were to search for the one reason why the country has been standing at the edge of a social and economic abyss, it will have to be the failure of the establishment to provide what is loosely described as ‘good governance’. By good governance is meant a number of different things; effectiveness of the various parts of the administration to provide for people’s varied needs; effectiveness, also, of the legal system and the judiciary to provide speedy justice to the people in civil and criminal matters; and reducing the level and incidence of corruption.

Without moves such as these Pakistan will not be able to pull back from the edge of the abyss where it stands today. The passage of the 18th Amendment has set the stage for bringing about improvement in this context. One can only hope that the opportunity that has become available will not be lost as several others were missed in the past. If policymakers continue to dither, the consequences may be too grim to contemplate.