With all other factors, it’s basically the difference of institutions which play a crucial role in shaping the current performance of an economy. The region of subcontinent shared many common characteristics like religion, languages, food, clothing, traditions, rituals, beliefs, living style, social structure and geography. Still India and Pakistan set on different paths. Therefore, the difference in institutions can only be the valid reason for the difference in economic performance presently. The questions arises here is that why same coloniser created different institutions in the same region. Creation of different institutions involves different factors in the backdrop.

Firstly, British colonialism’s shaping of the borders of both Pakistan and India is seen to be the major factor in the differing trajectories of both nations. The subcontinent before British colonisation was a group of independent states dominated by the rule of the Mughals. So it is very obvious that they were having the power and had the choice of formulating such institutions which could favour them in the form of rents or political power. British completely took over the Indian subcontinent after the downfall of Mughals in 1858. British colonialism of the region led the Muslim community feel a loss of supremacy and later they perceived oppression and subjugation by Hindu dominance in the regional social hierarchy. The tensions grew gradually over the distribution of resources, apparently on the basis of religion. This resulted in 'Two-Nation Theory' and the demand for separate homeland for Muslims of subcontinent arose. Pakistan and India became newly independent nations on the midnight of August 14 and 15, 1947, and were no more in the clutches of British colonial rule.

The shared timeline of both the countries is one of the valid reasons to draw the comparison between the two but the problem is that both countries started their journey as independent nations, some seven decades ago then, why, today the economies of the two countries stand at absolutely different levels? There is hardly any disagreement among the observers that at the time of partition India was much advanced on all indicators of economic provisions, resource bequest, potential yield and growth relative to Pakistan. At the time of partition India gained almost 90 percent of the total industry of the sub-continent with a large taxable income base. India also benefited from the big cities including Calcutta, Delhi and Mumbai. This shows that India already had some strong institutions and also had some metropolitan cities depicting, somehow, free market machinery. Pakistan on the contrary gained only 18 per cent of the combined possessions. Pakistan’s economy was mainly based on agriculture while India possessed more diversity. Therefore, Pakistan’s was a few steps behind, right from the beginning.

Secondly, owing to the impact of Hinduism, India was able to carry on with democracy further, except for a case of brief state of emergency once. The people of Pakistan use to be so disappointed by the poor performance of politicians, that they became much less reluctant to the military rule. Many scholars also explain the institutional differences as cultural, as they link it to the propensity of Islam towards autocracy and incompatibility with democracy and Hinduism’s affinity to democracy. This has led to much consequent guess in considering role of religion; leading both the nations in different trajectory paths. Pakistan was faced with the formation of a new nation state and many of its institutions, be they civil or martial, as it sought to create a new non-Delhi route. India maintained much of its own bureaucratic machinery, expertise, and capability within its civil and forces’ institutions. The flaw in the Pakistan’s civil institutions affected its capacity to carry out the rule of law and control other powerful internal actors. Indian institutional strength in contrast was evident in this regard.

Thirdly, the political legacy, education, and experience of democracy inherited by Pakistan were not consistent with that which was adopted by India. Britain excluded Pakistan from most of the democratic practices that were being undertaken in India, due to its later conquest and the role of the Punjab and Kyber Pakhtunkhwa (former North West Frontier Province), as militarised buffer against other regional powers. The British military recruited heavily from both the Punjab and Khyber Pakhtunkhwa as they were seen as martial races. At partition, almost 97% of the Pakistan Army was made up of Punjabis (76%) and Pashtuns (22%), whereas they represented 26% and 9% of the total population. The legacy of this securitisation of large parts of West Pakistan impacted its political culture, as it created acquaintance with autocratic governance and a dominant military. India’s political endowment was much more orderly with a much larger experience of democracy. Prior to Britain’s exit, their policy from 1882 onwards actively focused on creating the decentralisation of power, ceding more and more autonomy to native Indians, albeit under the oversight of their leadership. This paved way for Government of India Act 1935, which established at the provincial level, a degree of parliamentary democracy. This laid the basis of much of what was to be later codified into the Indian Constitution in 1950, with many of its articles being drawn from it.

Furthermore, Pakistan was an agrarian economy in which a small number of powerful landowners with large holdings dominated the landscape. The majority of the population consisted of tenant farmers who cultivated small plots for a meager existence. So, it can be deduced that in Pakistan political elite played an important role in shaping institutions in such a way that favoured them. Thus, it can deduce that roots of bureaucracy were well established in present day India whereas Pakistan faced feudal culture. Partition aggravated the situation for Pakistan as the feudal lords, who feared sense of insecurity and little say in state affairs as they were turned into minority in the new set up, moved to Pakistan and purchased large portions of property and made the poor people work for them, thereby, promoting the feudal culture.

Fourthly, in Pakistan, religion holds an important position in our social framework, for historic and cultural reasons. It is one of the chief sources of our values, norms and national symbols. Thus religious beliefs have great influence on our institutions (family, education, government, politics etc.) Unfortunately, Islam is widely misinterpreted in our society, from individual to public affairs. Thus many of the so-called values and norms, which are supposedly rooted in Islam, are actually an outcome of this misinterpretation. And due to the influence and emotional value attached to Islam in the society, these norms and values are hard to change. The natural outcome of this phenomenon is cultural stagnation, religious dysfunction and lack of adaptability. While, owing to its diversity India transformed itself into a secular state after independence. In the Indian context, secularism is considered a sign of modernity, plurality, co-existence, rationalism and developing with a fast growing multicultural society. This is the reasons which led India towards the formulation of stronger institutions that led to a better economic outcome.

Fifthly, there is a basic defect in Pakistan's political system. Democracy has never flourished here, at least in part because landowning remains almost the only social base from which politicians can come out. In general, the educated middle class which in India seized control in 1947 and started weakening the power of its landowners, but in Pakistan it is still largely excluded from the political process. As a result, in many of the more backward parts of Pakistan the local zamindar can expect his people to vote for his chosen candidate. Such loyalty can be enforced.

Lastly, Pakistan does have the British legacy of functional institutions such the nation's military and the bureaucracy which have been able to sustain the state. The members of the civil and military services have the basic educational facilities, such as a number of staff colleges and academies for training to perform well in their respective areas. As a result, the military and civil service officers are rationally capable in carrying out their assigned responsibilities. However, no such training exists for the politicians who get elected to the highest positions of leadership in the executive and legislative branches. Under the constitution, they are charged with appointing judges and making and executing laws and policies to solve the nation's problems. Yet, most of them lack the basic competency to recognise and appreciate their responsibilities. The parliamentarians are usually uninformed about most of the key issues of governance brought for discussion on the floor. As a result, the level of parliamentary debate is very poor, and important budget priorities and policies are agreed, and laws are passed without fully taking into account all of the issues involved. 

It is very clear, from the analysis that all the above mentioned factors resulted in the choice for the coloniser to opt different institutions in different areas of the same region because that was in their best interest. That is why, formulation of different institutions caused difference in the economic trajectories of Pakistan and India.