The Muslims of the subcontinent of India got an independent state for themselves in 1947. Unfortunately, however, the party leading the demand for Partition of India, the All India Muslim League, never had any concrete and comprehensive economic plan for a separate state. But the Indian National Congress had one in the form of ‘Karachi Plan’.

The leadership in All India Muslim League, including its Quaid, belonged to the legal community but not a single person in the initial team had any sufficient background in economics and finance.

Thus the first finance in-charge or someone with overall responsibility was adopted from the bureaucracy. This umbilical defect has not been corrected in the last seventy five (75) years and even today when the country is in a serious economic impasse the elite as well the masses do not attribute it to lack of economic planning.

Pakistan’s political and economic crises in 2023 are not the result of any particular event of the recent past. It is the accumulated result of the actions taken in the past, especially after 2000. The biggest politico-economic event in the history of Pakistan is the secession of its eastern wing in 1971.

There are hundreds of thousands of pages of books and other publications seeking to explain what actually led to that profoundly grim event in the history of the country; nobody, however, is ready to make a serious intellectual effort to find out whether or not economic injustice was one of the principal reasons behind the secession of the then East Pakistan. In short, they were, rightly or wrongly, not happy with the economic policies framed and pursued by the state dominated by the people from the western wing of the country.

Same is the case again in 2023. There is a serious fear of the unknown but there is no concrete or firm action except more and more blame games. Economics and finance, unlike many other subjects, relate to the future events.

A day that has passed becomes irrelevant. With each new day there is a need for food, medicine, education, housing, security and transport. All these ‘worldly’ things are essential for a human being. Every society is required to provide the basic necessities to its peoples on a daily basis.

The state cannot absolve itself of this obligation on any pretext. This requires economic planning and a determined role of the state. If a state fails in fulfilling its duty it is likely to encounter a situation where the structure, authority (legitimate power), law and political order have fallen apart and must be reconstituted in some form, old or new. It is unfortunate but increasingly clear that the state of Pakistan is gradually failing to meet its obligations.

Many in Pakistan are said to be raising the question that when the state is unable to fulfil its five primary obligations (food, health, shelter, security and transport) then why should its citizens continue to finance the apparatus of the state by paying taxes? This resentment is quite discernable in Pakistan, a country which is not able to generate reasonable taxes by way of direct taxes.

Around seventy percent of taxes are collected by way of indirect taxes, which further aggravates the situation, so to speak. The very high incidence of indirect taxes and woefully low base of direct taxes constitute some empirical evidence of a failing state.

No state can remain isolated from its neighbours for a very long period of time. Furthermore, no state can live on foreign aid and borrowing forever. But Pakistan is one such state that has extremely strained relations with at least one of its major four neighbours, India, and is dependent on foreign lending since its inception.

Moreover, it relations with neighbours Iran and Afghanistan are still far from satisfactory. In other words, we are not comfortable from all three sides of our borders. It is for this reason we have been spending around four percent of our Gross Domestic Product on defence alone. This is not sustainable for an economically feeble country like Pakistan.

Pakistan with a constant high expenditure on defence and a limited tax base has been resorting to domestic and foreign borrowings indiscriminately for the last seventy five years.

Now in 2023 the country has reached a stage where both domestic and foreign debts are no longer serviceable. There may be further borrowing to help avert a sovereign default. However, that action will further aggravate the already precarious situation.

(To be continued tomorrow)

Copyright Business Recorder, 2023