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Kashmir: The Bane of India and Pakistan

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    Kashmir: The Bane of India and Pakistan

    Kashmir: The Bane of India and Pakistan


    Raging for decades, the conflict between India and Pakistan over Kashmir has embroiled the two countries in a vicious cycle of fighting. This cycle has been reinforced by Kashmir’s strategic location and the use of the conflict to foster nationalism in India and religious fundamentalism in Pakistan. By fueling the fighting, both countries then limit their relationship with each other and other nations in the region, which in turn hinders economic advancement and regional stability.


    Both India and Pakistan’s new leadership have set economic growth and reform at the top of their 2000 agendas. Yet the two countries face economic obstacles. Before solving these problems, India and Pakistan must resolve their differences over the issue of Kashmir.

    The conflict in Kashmir — with $14 billion in combined defense expenditures, according to BBC — has entangled both countries in a decades-long conflict. Both countries' economies suffer from innumerable burdens: high foreign debt, high levels of illiteracy, shoddy or non-existent infrastructure and graft and corruption. The fighting encourages political and economic instability, therefore discouraging foreign investment and trade opportunities and limiting economic growth. The sluggish economies feed religious and national extremism, further encouraging instability. The self-perpetuating, cyclical nature of the conflict prevents either country from advancing.

    India has the greater potential to become a regional leader. Its real GDP has experienced steady growth for the last decade. Indian corporations have developed a healthy information technology (IT) industry, providing software solutions and back office support like data processing. The recent boom in India’s software industry created a growth sector capable of global competition. One in five Fortune 500 companies outsource software needs to India. Software exports totaling $2.7 billion in 1998 account for 10.5 percent of total exports, the Economist reported. And software exports are predicted to garner $9.5 billion by 2002, with projected earnings of $50 billion by 2008, according to the London Times.

    With India's software exports heading to reliable markets – the United States accounts for 61 percent and Europe buys another 23 percent – confidence in India’s economy grows. In addition to IT development, the new government’s economic reform platform includes measures for partial privatization of state-owned enterprises (SOE) such as the insurance, telecom and petroleum sectors.

    However, corruption and excessive government spending have contributed to a runaway fiscal debt of $93 billion. India's population of one billion is both a strength and a weakness. The abundant supply of labor encourages foreign investors in search of low wages. Yet more than 35 percent of the population lives in poverty and the country has an illiteracy rate of 45 percent, which hinders economic growth. Also, institutionalized corruption and opacity of governmental practices raise the costs of doing business in the country.

    Security concerns also inhibit economic expansion. The Kashmir problem, the longest running conflict in the region, consistently limits India’s military and economic ability. The insurrection in Assam in northeast India and border squabbles with China also drain India’s resources. By concentrating on Kashmir, India has difficulty in trying to settle these other security issues or focus attention on its economic concerns.

    One option for future economic expansion would be the greater development of regional trade. But its current security concerns will force India to look further abroad for trading partners, such as to the Middle East and Southeast Asia. Land routes would necessitate travel through politically unstable regions. One option would be the utilization of the Indian Ocean’s shipping lanes. But India’s navy is too small to protect these routes. With the Kashmir conflict a constant source of instability, the Indian army receives the majority of the defense budget.

    India’s 1998 defense expenditures totaled $10 billion, approximately 2.7 percent of its GDP. Although down in total expenditures from the last few years, the constant need for forces in Kashmir will not permit a significant reassignment of resources. Already, Indian military officials, citing Pakistan’s 6.9 percent of GDP for defense expenditures, have called for a larger share of the 2000 budget.

    In Pakistan, the economy suffers even greater obstacles. With an illiteracy rate of more than 60 percent, inadequate infrastructure and an economy based largely on agriculture, the populace is incapable of creating new wealth. More than 40 percent of the population lives in poverty. More than 47 percent of the population is involved in agriculture yet it contributes only 24 percent to GDP, which stands at $270 billion — compared to India’s at $385 billion. Another major problem is the country’s external debt, currently more than $34 billion, mostly due to graft and corruption from past administrations.

    According to the Economist, Pakistan’s growth in GDP is expected to be around 3 to 4 percent. Military leader Gen. Pervez Musharraf has appointed a former Citibank vice president as the new finance minister, rescheduled Pakistan’s debt payments, met with the IMF in January and seems to be developing a new economic plan. Foreign aid, however, is contingent upon Pakistan’s actions in Kashmir.

    Islamabad’s concentration on defense spending also constricts its economic advancement. The defense budget for 1998 was $3.2 billion, 6.9 percent of GDP. With a total armed force of only 587,000 compared to India’s 1.8 million, Pakistan must concentrate a greater amount of resources – including support of Kashmiri separatists – to the fighting in Kashmir. Also, the new military leadership has promised to increase defense spending.

    The proximity of Kashmir to Islamabad makes strategic control of it vitally important. The conflict keeps Indian forces at arm’s length, but it also stokes the fundamentalist movement within the country. Fundamentalism, within the lower ranks of the military and the country’s poor, feeds religious and national extremism. This leads to instability. The dispute over Kashmir becomes a sticky issue of Islamic nationalism and pride and continues to drain the country’s resources.

    Neither India nor Pakistan can concentrate on economic development while fighting in Kashmir. Neither country is willing to give up the territory due to its strategic location. Leaders on both sides use it as a tool for creating and maintaining nationalistic and religious sentiment, ultimately fueling the dispute. The resultant instability and tension limit India and Pakistan’s ability to create normal relations with each other and their neighbors, limiting trade and economic development and fostering fundamentalism. The added instability and continued fighting discourage foreign investment, again limiting economic development. Unless the Kashmir issue is resolved, the prospects for the subcontinent remain dim.