CAPITAL FOR REGENERATION OF AGRICULTURE IN PAKISTAN

DISSERTATION

Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University

By

UMAR KHAN NIAZI, B. S., M. S.

The Ohio State University 1957

Approved by: /

Advi:Adviser Department of Agricultural Economics and Rural Sociology PREFACE

A TREATICE CN THE UNDERSTANDING OF THE NEED FOR CAPITAL FOR

THE REGENERATION OF AGRICULTURE IN PAKISTAN

The Almighty's vicegerant's functions of life on this side of the grave, popularly known as the Triangle of Life, are to make a good living, worship Him and reproduce so as to keep up his race.

He loves to live as long as possible but cannot escape from death.

Undoubtedly, everyone will agree that life is short in duration, and therefore, the first economic principle for anyone should be, not to waste his time, but to make the most out of it. In fact, his economic program, is to sharpen his common sense to maximize gains in transactions, in order to achieve the noble goal of life called success. There is no dearth of anything, save the state of knowledge and for it, speaking economically, he needs a lot more than ever before the desirable as well as admirable services of his servant termed capital, hardly his "exploiter," a good joke for Marx. Therefore, what is required is to create more capital.

The history of mankind tells us that his race as a whole, has trav­ ersed a long distance and nobody knows what is in the nature's store for him, but he is responsible for making his own fate. While Pa­ kistan, that constitutes a part (3%) of his race, today, is facing a great difficulty in the field of his first function i.e., food.

She can easily overcome the obstacle and progress equally well if her farmers are able to use inanimate power.

ii ACKNOWLEDGMENTS

Mo sooner had I begun the dissertation, than I became aware of how tremendously complex this seemingly simple and direct idea of

"Capital for Regeneration of Agriculture in Pakistan" was, Cer- tainly, I would never have persisted in the effort had it not been for the help of those to whom I should now like to express my heart­ felt thanks. Needless to.say, none of these, bears responsibility for the short-comings or errors of the analysis. But they are highly responsible for whatever merit it contains. No brief statement of acknowledgments can do justice to the many individuals who have helped in their own right. In addition to the following, acknowled­ gments is due to many American friends who have helped me in one way or.vanother particularly, Guy ¥. Hiller for his encouragement and help in supplying much of the data for the analysis of this problem.

The final product, of course, necessarily more than most, owes its existance to Dr. Mervin G. Smith, the Chairman of the Department of Agricultural Economics and Rural Sociology. For this, and for his inestimable help, I am pei*sonally indebted to him beyond all re­ payment. Certainly, I would never have undertaken such a project without his warm encouragement and therefore, it is the tutor of mine, to whom I, once again extend my sincere thanks. I should also recognize with deep appreciation the guidance given me by my Adviser

Dr. Virgil R. Wertz, under whose careful supervision, this analysrs was conducted. Every stage in the development of this study shows

iii the impact of his suggestions and of his constructive criticism. The

author is also indebted to Dr. Elmer F. Baumer and profited greatly

from the benefit of his critically thoughtful judgment and invaluable

help. Many people in both the Departments of Agricultural Economics

and Rural Sociology and Economics have been most generous in supplying

needed information. I have the pleasant duty of extending my sincere

thanks to all these persons with a special reference to Ralph ¥. Sher­

man, Dr. Clifford L. James and Dr. Robert D. Patton for the unfailing

help.

Finally, I should like to add a note of thanks to the personnel

of the Ohio State University library, who must have wondered how any­

one could possibly want so many books but who however, supplied them

almost all with admirable efficiency. Mrs. Sara Smith provided much

help in typing it and any acknowledgments would be incomplete with­

out a word of special thanks to her. In fact, she has been unfail­ ingly helpfuL at all times. Most of all, I am grateful, to my friends,

collegues and professional acquaintances for their similar help with

special mention to Mr.. Abbas Ghezelbash for his controversial dis­

cussions. Last of all, I deeply appreciate my wife for the sacrifice made by her in keeping the family running during the period of my

stay here for this study. TABLE OF CONTENTS

PREFACE

ACKNOWLEDGMENTS

TABLE OF CONTENTS

LIST OF TABLES

CHAPTER PAGE

I. INTRODUCTION ...... 1

The Problem ...... 1

Objectives of the S t u d y ...... 2

Importance of the S t u d y ...... 2

Definition of Terms Used ...... 3

Organization of the Study ...... h

PART I

AH ANALYTICAL VIEW OF THE PROBLEM ...... 3

II. A REVIEW' OF THE ECONOMY OF P A K I S T A N ...... 6

Emergence of Pakistan ...... 6

Pakistan in Miniature ...... 7

Population ...... 7

Agriculture ...... 9

Obstacles to Rapid Development .... 15>

Finance ...... 18

General ...... 21

Philosophy of People ••••...... 23

III. THE STATEMENT OF THE PROBLEM ...... 26

v vi

CHAPTER PAGE

IV. THE METHOD USED IN THE ANALYSIS OF THE PROBLEM . . 33

The S c o p e ...... 33

Economic Methods and Principles Applied in this S t u d y ...... 35

Statistical Methods Used in this Thesis . . . 35

Economic Considerations ...... 35

Statistical Considerations ...... 37

V. A REVIEW OF THE CURRENT L I T E R A T U R E ...... 38

VI. SOME OBSTACLES TO BE OVERCOME TO PERMIT ECONOMIC ADVANCEMENT IN PAKISTAN ...... U5

PART II

TOWARD A SOLUTION FOR IMPROVING THE PRODUCTIVITY OF AGRICULTURE IN PAKISTAN ...... 52

VII. A STATISTICAL ANALYSIS OF THE ECONOMIC STATUS OF AGRICULTURE IN PAKISTAN ...... 53

The Program $k

Justification of the Program 58

VIII. THE PROBLEM OF INCREASING PRODUCTION ...... 65

Historical Perspective ...... 65

Agricultural Production ...... 66

Industrial Production ...... 7 k

Small Scale and Cottage Industries ...... 77

Water as a Basic Resource ...... 78

IX. THE PROBLEM OF SURPLUS RURAL POPULATION...... 81 vii

CHAPTER PAGE

Implications of Land. Scarcity ...... 82

The Extent of Surplus Rural Population in Pakistan ...... 85

X. THE NEED FOR SUPERIOR TECHNOLOGY ...... 93

PART III

WAYS AND MEANS OF INCREASING THE SUPPLY 0? CAPITAL IN PAKISTAN ...... 105

XI. THE ROLE OF FINANCIAL ORGANIZATION IMINCREASING THE SUPPLY OF CAPITAL ...... 106

Governments ...... • 106

Corporations 112

Banks ...... lll|

I n s u r a n c e ...... 117

XII. OTHER MEANS OF INCREASING CAPITAL ...... 122

Foreign Aid ...... 122

Foreign Trade ...... 127

XIII. TAXES AND THE BUDGET. AS A FACTOR CONTRIBUTING TO CAPITAL FORMATION ...... 135

XIV. EFFECTIVE MOBILIZATION OF PRODUCTIVE SAVING.. . llj.3

XV. OTHER METHODS OF PROVIDING CAPITAL ...... 155

Devaluation ...... 157

XVI. THE PLACE OF OTHER MEANS FOR CAPITAL FORMATION IN PAKISTAN ...... 166

Capital Imports on Deferred Payments Basis . 167

Revolving Funds and Reinvestment Schemes • . 168

Economizing of Capital ...... 168 viii

CHAPTER PAGE

XVII. IMPORTANT FINDINGS MID SUGGESTIONS ...... 171

Findings ...... 171

Suggestions ...... 17U

APPENDICES ...... 179

Appendix A ...... 180

Appendix B ...... 207

Appendix C ...... 210

Appendix D ...... 213

Appendix E ...... 217

Appendix F ...... 219

BIBLIOGRAPHI ...... 220

AI7T0BI0GRAPHI 222 LIST OF TABLES

TABLE PAGE

1. Land and Population in Pakistan: 1931 ...... 7

2. Land Situation in Pakistan: 1 9 3 1 ...... 11

3. Area, Production and Yield Per Acre of Principal Crops in Pakistan in 1933-36 ...... lU

li. Principal Exports of Pakistan in the Selected Years . 13

3. Foreign Aid to Pakistan 1%) to the End of September 1936 19

6. The Direct Contribution of Agriculture in the Total National Products of Pakistan ...... 33

7. The Cost of Operation in Rupees Per Acre in Two Different Methods of Cultivation in Pains tan ..... 3>6

8* Per Capita Consumption of Mineral Fuels and Waterpower in Selected Countries: 1930 ...... 36

9. Consumption of Electricity Per Capita, Selected Countries: 1930 ...... 37

10. Yield Per Acre of Wheat, Maize and Rice in Selected Countries ...... 39

11. Disproportion Between Land and Labor Factors of Prodixction in Pakistan: 1931 ...... 61

12. Land Tenure Situation in Pakistan: 1931 • ' 6l

13. Total Area and Area Cultivation in Pakistan: 1931 • . 62

13. Food Grains Situation in Pakistan ...... 67

13. Food Requirements of Pakistan at the Present Level of Consumption ...... 68

169 Land Utilization in Pakistan in 1933-36 *...••• 69

17. The Adjustment of Area Eider Potato Crop to Meet the Given Shortage of Rice and Wheat in Pakistan ...... 71

18, Industrial Production of Pakistan: 1938-36 ..... 73

ix X

TABLE PAGE

19. Cost of Living Indexes of Industrial Workers in Selected Centres of Pakistan ...... 75

20. The Promotion of Small Scale and Cottage Industries in Pakistan: 1 9 5 U ...... 78

21. Acres of.Arable Land Per Capita of Agricultural Labor Force in Selected Countries: I9 I1 8 ...... 83

22. Domestic Investment^ Disposable Personal Income and the Per Cents of Unemployed Persons of the United States' Labor Force During the Great Depression and Last 2 Y e a r s ...... 85

23. Manpower in Pakistan in Selected Years ...... 86

2k. Increase in Employment in Pakistan from 19U7 to 1956 • 88

25. The Per Cents of Unemployed Persons of the Total Population in Pakistan ...... 88

26. The Per Cents of Urban and Rural Surplus Population of the Total Population in Pakistan ...... 90

27. The Per Cents of Fully Employed and Unemployed Persons of the Total Population in Pakistan ...... 91

28. Showing the Difference in the Number of Workers Engaged in Agriculture and Their Output in Two Selected Countries: 195U ...... 95

29. Values of Different Sectors of Agricultural and Industrial Production of Pakistan in Selected Years . 97

30. The Time Required to Purchase a Food Basket of Four Items in Selected Countries ...... 98

31. The Per Cent Share of Animate and Inanimate Sources of Energy in Total Work Output in the United States . . . 99

32. A Method of Enlarging the Size of Land Holdings for the Mechanization of Agriculture in Pakistan ..... 103

33• Distribution of Public Expenditure on Development in the Five-Year Plan of the I4. Selected Countries .... 109 Expenditure' on Defense and National Debt Services in the United States and Pakistan 1951-53 ...... Ill

Authorized and Paid-Up Capital, Loans Sanctioned and the Per Cent of Government's Share in Important Government Sponsored Corporations ...... 113

The Consolidated Position of Scheduled Banks in Pakistan in Selected Years ...... 115

Net Premium Income Relating to the Business of Insurance in Pakistan in Selected Years ...... 118

The Total Amount Insured in Selected Countries: 195)4-55 118

Foreign Aid Allocated to Pakistan from 1950 to the End of September, 1956 ...... 125

Exports and Imports of Pakistan for Selected Years . . 130

Total Interzonal and Foreign Trade of Pakistan in Selected Years ...... 131

Pakistan's Total Foreign Trade by Various Accounts and Ways in Selected Years ...... 131

Pakistan's Balance of Payments on Current Account in Selected Years ...... 133

Total Revenues of the Central and Provincial Governments of Pakistan...... 138

The Capital Budget of Pakistan and Her Units for Selected Years .... 139

Pakistan's Budgetary Position in Selected Years . . . 139

Cost- of Food Indexes of Industrial Workers in Two Selected Centres of Pakistan •.•.•••••••••»• ll',6

Indexes of Average Retail Prices of 20 Necessaiy Commodities in Pakistan inSelected Years ...... lU6

Indexes, of Wholesale Prices of Four Major Crops in Pakistan ...... li).?

The Estimated Rate of Productive Savings in Pakistan . lU9 xii

TABLE PAGE

51. Required Conditions for Progressive Equilibrium in Pakistan: 1957 ...... 150

52. Capital Requirements of Underdeveloped Areas Annually in Industry and Agriculture to Raise Their National Income by Tuo Per Gent: 19JL4.9 ...... 151

53. The Present Annual Rate of Gross Investment in Selected Countries ...... l5l

5U. Postal Savings in Pakistan from 1951-1956 ...... 153

55. Pakistan's Currency in Circulation and Money Deposits and Supply in Selected Years...... 156

56* The General Price Level and the Price of Bullion in Pakistan in Selected Years ...... 1.56

57. Indexes of Unit Value of Imports and Expoi’ts and the Ratio of Unit Value of Exports of Pakistan in Selected Years ...... 158

58. A Small Savin^ Scheme on a Nation-Wide Scale for the Effective Mobilization of Small Savings of the People 177

59. Estimates of National Incomes of Pakistan at Constant Prices by Industrial Origin from 19^9-50 to 1955-56 . • 180

60. Population Estimates and Projections for Pakistan from 1937 to 2000 ...... 181

61. Land Tenure Situation in Pakistan in 1951 ...... 182

62. Total Area and Area Under Cultivation in Pakistan: 1 9 5 1 ...... 183

6 3 . Area, Production and Yield Per Acre of Principal Crops from 19hB-h9 to 1955-56 ...... loU

6U. Pakistan's Food Requirements at the Present Standards of Living 185

65. Production of Manufacturing and Mining Industries in Pakistan: 19W-1956 ...... 186

66. Cost of Living Indices of Industrial Workers in Selected Centres of Pakistan...... 188 xiii

TABLE PAGE

6 7 . Values of Crops, Livestock, Fisheries and Forestry in Pakistan at Constant Prices from 19U9-50 to 1955-56 • 189

68, Government of Pakistan's Overall Budgetary Position: 19U8-U9 to 19^6-57 ...... 190'

6 9 . Details of Activities of the Pakistan Industrial Development Corporation During the Period, January 12, 1953 to January 12, 1957 ...... 192

70, Consolidated Position of Scheduled Banks in Pakistan: 19U9-56 ...... 193

71* Foreign Aid to Pakistan Since Inception Up to the End of September 195...... 19U

72. Exports and Imports of Pakistan: 19U9-60, 1951-52 and 1955-56 ...... 195

73. Imports of Commodities into East Pakistan from west ^ Pakistan and into West Pakistan from East Pakistan V from 19U9-1955 ...... 196

7h* Total Pakistan Foreign Trade by Various Accounts: 19U9, 1951, 1953 and 1955 ...... 197

75* Total Foreign Trade of Pakistan ...... 198

7 6 . Pakistan's Balance of Payments on Current Account: 1950-1956 ...... 199

77. Budget Position of Pakistan and Her Units from 19h&-h9 to 1957-58 ...... 200

78. Average Retail Prices of Selected Commodities in Pakistan ...... 201

79. Indices of Wholesale Prices of Selected Commodities . . 202

80. Postal Savings in Pakistan from 1951 to 1956 ..... 203

81. The Position of Provincial and Central Government of Pakistan's Permanent Debt: 1 9 )48-1 956 ...... 20U

02. Pakistan Currency in Circulation and Money Supply: 1 9 1 ( 8 - 1 9 5 6 ...... 205 xiv

TABLE PAGE

83. General Price Indices and Prices of Bullion and Government Securities of Pakistan from 19h9 to 1956 . 206

8)4. Net Income Received by a Pakistani Farmer from 1 9 ii.8-ii.9 to 1 9 5 5 - 5 6 ...... ', 207

85. Manpower in Pakistan from I9I1.7 to 1957 ...... 211

86. Number of Persons Fully Employed in Pakistan from 19^7 to 1 9 5 6 ...... * ...... 211

87. Employment Situation of Population in Pakistan from 19)47 to 1956 ...... '...... 212

88. The Projection of the Rate of Productive Investment in P a k i s t a n ...... 21)4

89. Required Conditions for Progressive Equilibrium in Pakistan in 1957 ...... 215

90. A Small Savings Scheme for the Effective Mobilization of Small Savings in Pakistan ...... 219 CHAPTER I

INTRODUCTION

The Problem

The big question before every nation is how to supply enough money for both guns and butter. ?Jhile justifying political preoccupations and the impact of social changes in a world situation which is unsettled, the real issue is how much can the nation produce and spend and still maintain a normal rate of economic progress. But to net these achieve­ ments and performances require the creation of real capital by sub­ stantial investment in economic resource development. Consequently, the potentialities of savings to finance these undertakings are what is to be explored. It is evident, that there is a great need to in­ stitutionalize and to mobilize savings so that they majr be directed into the fields of greatest urgency and highest productivity. This quest for wealth has another tacit assumption in Pakistan, the economy of which today mainly rests on agriculture which is performed by out­ moded techniques and with the use of animate power. .hat is more, Pak­ istan has a surplus rural population or dissavers and wants to strengthen her economic position so as to attain the strategic importance of her geographical and political status in the atomic age. Also, there is a serious imbalance among factors of production. Finally there is much opportunity for industrialization due to the presence of natural resources and markets at home and abroad. Moreover, a large discrep­

ancy exists between per capita incomes earned in industry, services and

agriculture. Therefore, as long as these conditions prevail, there is

an economic case for occupational redistribution that would bring about

a higher level of national production and increased savings. In order

to give some assurance of success to this venture, this dissertation

attacks the problem of "Capital for Regeneration of Agriculture in Pa­

kistan."

Objectives of the Analysis

It is the purpose of this study (l) to show how to regenerate ag­

riculture first to make it the number one source of capital formation

(2 ) to find out other major sources of real capital and (3 ) to show

some ways and means for capital growth and reconstruction of agricul­ ture in Pakistan.

Importance of the Study

The number one function of mants life on this side of the grave, is to make a good living to enable himself to live as long as possible.

Therefore, the importance of the study, can by no means be overempha­ sized. Furthermore, human destiny is so obviously bound up with the increases in agricultural production or in a broad sense with economic development that the problems involved therein can be ignored only at a great peril to our present and future welfare. In addition, Pakistan is faeing an acute shortage of capital in the midst of its multi-dimen­ sional necessities for her to develop natural resources that have been recently found in substantial quantities and outpace the rapidly growing as well as the existing surplus rural population. On the one hand, the excess supply of labor is affecting the level of effective demand to stimulate vigorous expansion in investment and promote already remarkably low earnings for farm workers but on the other hand, is blocking the flow of capital into agriculture because the shift to superior technology is hampered by an unfavorable disequilibrium position in the land-man ratio.

Moreover, on account of the lack of know-how and will to use it, this has become very difficult and in fact, a challenge for her to make the best use of the known but unexploited economic resources. Thus in this study which is related to the relatively unexplored field, an attempt is made to suggest the solution of this problem.

Definition of Terms Used

The term "capital" is used in its broad general sense such as it is man1 s servant, hardly his "exploiter." When it is applied to agri­ culture it appears as capital equipment. Also, it includes the know­ how for the operation of instrumental goods, e.g., the skill of the operator.

In order to "Regenerate Agriculture in Pakistan" it is not only neceissary to increase the output per worker in the field of agriculture but also to expand industries to absorb the surplus rural population; mechanization of agriculture and electrification of farms mainly for the supply of water to the soil and preservation of perishable farm commodities and also to live better electrically at home. The words "genuinely surplus rural population11 are used for those rural laborers who are fully involuntarily unemployed for ten months or more of the year, and their withdrawal from agriculture does not lower its output. Besides, a person partially employed for less than two months in a year during the busy seasons but in fact unwanted in agri­ culture is included in this group of people.

All persons above five and below sixty years of age were considered as "workable members" of a family and economic units. While the econom­ ically active males between twelve and sixty years of age were taken as

"adult male units". And, persons below five and above sixty years of age, as well as disabled, were considered "economically inactive".

Organization of the Study

The study is divided into three parts. The first deals with the analytical view of the problem and includes a chapter on some obstacles to the creation of capital. Part two undertakes a proposed solution for increasing the productivity of agriculture in Pakistan with the object of increased capital formation while the last deals with other important sources and ways and means for increasing savings for productive pur­ poses in the country.

In order to facilitate exposition, only summary tables are pres­ ented in the text of the dissertation. Footnotes refer to supporting data in the appendix, or show further explanation of the facts. Further­ more, separate chapters are presented on: the statement of the problem, the method used in the study, a review of the economy of Pakistan and the current literature very closely related to it. Part I

AN ANALYTICAL VIEW OF THE PROBLEM

5 CHAPTER II

A REVIEW OF THE ECONOMY OF PAKISTAN

As the present study is concerned with "Capital for Regeneration of Agriculture in Pakistan" it has become absolutely essential at the outset to review very briefly the present economy of the country.

This is by no means a random chapter in the dissertation but rather an attempt to show the route connecting us -with the undertaken problem.

Furthermore, it not only enriches our understanding of the problem in question, as a dynamic whole, but throws useful light on the practical aspect of the proposed study.

Emergence of Pakistan

Historically, India is one of the oldest countries of the world but had almost always been captured and ruled by foreign conquerors, un­ til the recent independence of ±9h73 mainly due to the effect of a hot climate upon the native's power, the traditional belief of her people and the caste system. Its boundaries have always been changing but nob its name. Once present Iran, Afghanistan, Pakistan, Burma and Ceylon were its parts. However, the partition of India into India and Pakistan was not brought about by Britain or any other political reason, as in case of Israel, but by the policy of Moslem Rulers of India who accepted it as their own country. The Moslems lost a thousand years old empire about a hundred years before Britain colonized India. By the end of the

6 Colonial Rule over India (when India rejected June 3, 19h7, the Confed­ eration Plan) it was finally decided by both parties representing Mos­ lems and Non-Moslems to divide India into two independent countries, namely Pakistan and India on the basis that the geographical contiguous

Moslem majority areas of India should constitute Pakistan. In this way,

Pakistan came into existence on the world map on August ll|, 19U7.

Pakistan in Miniature

Population: Carved out of the sub-continent of India into two land masses, one in the southeast Asia and the other in the Mideast, sep­ arated by 1100 miles, Pakistan came into being on August lU, 19h7.

Table 1

LAND AND POPULATION IN PAKISTAN: 1951

East West Particulars Pakistan Pakistan Pakistan Area (thousand square miles) 365 55 310 Population (million) 75.9 1(2.1 33.8 Urban Population (million) 7.9 1.9 6.0 Land-man Ratio (per square mile) 208 777 109 Civilian Labor Force (million) 22.7 12.9 9.8 Agricultural Labor Force (million) 17.1 10.7 6.U Annual Birth Rate (per hundred inhabitants) 2.80 mm mm Annual Death Rate (per hundred _ — inhabitants) 1.53 MM Annual Increase of Population (per hundred inhabitants) 1.27 MM MM

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan.

As shown in Table 1 above, it has a very wide disparity of geographical conditions and has today an estimated population of 82. U million within a total area of 3 6 k ,737 square miles excluding the disputed state of "Kashmir. 8

East Pakistan has only 1 6 per cent of the total area but £>6 per

cent of the total population of the country while West Pakistan has 8I4

per cent of the area but only UU per cent of the population. The aver­

age density of population in East Pakistan is 777 per square mile, making

it one of the most densely populated areas in the world.1 (Belgium 717,

Japan £>83, Netherlands 737, and Puerto Rico 778) There are not many new

areas there that could be brought under cultivation. The problem is likely to intensify as the growth of population and immigration exerts further pressure on land. In West Pakistan, the picture is somewhat better and different. But the difference is not so great as might ap­ pear at first sight because the density of population works out to be about 109 persons to the square mile.2 (China 123, Cuba 122, Indonesia

127, Ireland 111, Malaya 102 and Spain 1U5) Here the problem Is not of lalnd but of water and over half a million of "Kashmir" refugees. How­ ever, vast areas could be brought under cultivation if waters were made available. While economic development is being put in jeopardy by the diversion of waters to India, the population in West Pakistan is growing not merely through natural increase but by a continuous stream of ref­ ugees from Lidia. West Pakistan is therefore, forced with a population problem as great as that of East Pakistan in the light of her lack of irrigation. The rate of natural increase in population of the country is estimated to be of the order of lU per cent per decade. This means

1Waytinsky, W. S., "World Population and Production," The Twentieth Century Fund, New lork, 1953, pp. U8-lt9.

2Ibid. about one million more people each year. (Annual birth and death rates 3 per 100 inhabitants are: China I*.07, 2.01$ India 2.67, 1.60j Japan

2.8U, 1.10$ Pakistan 2.80, 1.53 and United States 2.3U, 0.96) The labor

force in the country is estimated at 23 million people about 75 per cent

of which are employed in agriculture.^ (Columbia 73$, India 67$, Mexico

65$ and Yugoslavia 72$) There is considerable underemployment in the

rural areas of the country. Hence, the problems are first, to provide

one pound of food grains per person per day or to produce about 0.16

million tons of food grains annually to feed the increase in population

and second, to provide jobs for O.U million people, which at a capital

investment of Rs. UOOO per person requires Hs. 1.5 billions of new cap­

ital each year.

Agriculture: East Pakistan has a tropical monsoon climate. Its rain

drenched plains are traversed by hundreds of miles of rivers and their

tributaries that also provide for fish ponds and navigable waterways.

The alluvial soil is constantly enriched by heavy silt deposited by

rivers and is thickly carpeted with vegetation. The forest however,

still covers hilly regions in spite of the fact that the land has been

cleared to support the growing population over the centuries. Rainfall

is high (over 100 inches per year) and there is a problem of frequent

floods, drainage of soil and excess of water. In West Pakistan, the

climate is characterized by wide variation of temperature. It is an

^Ibid., pp. llUj. and 163.

**Ibid., p. 363. 10 arid to semi-arid region (12 inches per year) with thick-set mountain ranges and by their side, lie the plains watered by the Indus River and its 0 tributaries over 3 of which India is using her might. The waters of this extensive system of river3 are still being tapped to increase areas under irrigation. So far, nearly 22 million acres of land have been brought under irrigation systems. Next to political and popula­ tion considerations, lack of water is the greatest economic problem of

West Pakistan.

Pakistan’s economy is essentially agricultural. Approximately

8 6 . 6 per cent of the total population lives in villages. (The propor­ tion of urban population in the world varies from a minimum of 13% in

Korea to a maximum of 80$ in Britain)^ Agriculture is characterized by a subsistence type of farming with a relatively simple technology and economic organizations. In the whole evolution of the agricul­ tural organization there has been such an integration with the other aspects of cultural life that agriculture in this part of the world has been immemorially spoken of as not just an occupation but as a way of life. So far neither forces from outside or inside the country have had much influence in bringing about desirable results of econ­ omic development. The agrarian character of the economy is underlined by the fact that agriculture accounts for 6 0 per cent of the total nat­ ional income, that is, the economy of Pakistan rests mainly on agricul­ ture, which provides food, clothing and even shelter to her immense population* Exports of agricultural commodities is the only major

^Waytinsky, W. S., “World Population and Production," The Twentieth Century Fmd, NewvYork, 1903, p* ll£« 11

source of foreign exchange earnings and machinery imports. The rural

population constitutes the bulk of consumers and therefore, the level

of internal trade of the country depends upon the spending of the

farmer. The reconstruction of agriculture, or in other words, in­

creasing agricultural production and maintaining remunerative prices

for farm produce form the basis for improvement in the standard of

living of the people. Recession in production or in prices of these

products means all round distress, the first victim of which is the

farmer himself. Therefore, the peasant and his occupation must re­

ceive fullest consideration in any scheme of planning for the welfare

of the state and the stability of its economy. It would be well to

describe first the basic feature of land situation before reviewing

the other salient features of the country's economy.

Table 2

LAND SITUATION IN PAKISTAN: 1951 (million acres)

East West Particulars Pakistan Pakistan Pakistan Area Surveyed 1 1 8 . 1 3h.3 83.8 Cultivable Area 8U.3 26.3 58.0 Current Fallow 13.1 2.3 10.8 Net Area Sown U8.0 19.8 28.2 Forest 5.U 3.0 2.U ThcuLtivable Area 28.U 5.1 23.3

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan.

Of the surveyed area of 118 million acres, cultivated land accounts

for 61 million acres of which 13 million acres consists of fallow land,

so that the net area sown adds up to U8 million acres. Of this, East 12

Pakistan has 19.7 million acres of sown area and 10.7 million "ag­ ricultural workers" in the province. However, the average in East Paki­ stan wo'rks out to 2.06 acres of arable land per capita agricultural labor force. In Indonesia this ratio is 1.97* in Egypt l.lfL and in Japan 0.8U acres. West Pakistan employs 6, 6k million agricultural workers on a som area of 28.2 million acres giving an average of !;.£ acres of laid per ag­ ricultural worker. The arable area per cap ita of agricultural labor amounts to £.88 acres compared with Poland it.03, Austria it.61;, Turkey

7.62 and India 2.£7 acres.^ The total acreage under cultivation has ranged from !;£ million after 19l;7 to £2 million acres in 19££-£6 . How­ ever, on account of shortage of water in West Pakistan, a part of hold­ ing remains uncultivated.

Many large estates w ere awarded by the British to those who fought for her in the struggle for power. In fact, land tenures in Pakistan, have evolved over a period of l£0 years or more under the influence of changing political and social forces and do not follow any uniform pat­ tern. East Pakistan is considerably ahead of West Pakistan in the field of reforms while in West Pakistan progress in this respedt has varied from one province to another. There are 1.7 million land tenure holders,

9.it million tenancies and 3.1 million subtenancies. An average culti­ vated land-holding for an agricultural family, tenancy and subtenancy work out to 3«9it» 1.8£ and 0.69 acres in order. In short, It7 per cent of these land-holdings are less than 2 acres and there are 72 per cent petty land-holders and tenants, 19 per cent share croppers and 9 per

^Buchanan, N* S., "Approaches to Economic Development," The Twentieth Century Fund, New York, 19££, pp. U58-60, cent agricultural laborers. In West Pakistan, in a former province of

West Punjab, one-fifth of the cultivable area is owned by about 0.£

per cent of the total land-owners and the rest, 80 per cent of the area

is owned by 99*5 per cent tillers of soil both small land owners and

tenants. Since Partition to date according to some estimates the num­

ber of tenants ranges from 60 to 6£ per cent. However, this position

has changed somewhat as a result of migrations of Non-Moslems landlords

and the distribution of their lands among refugees. In the former Prov­

ince of Sind it is reported by the then Revenue Minister (19!?£) that

small land-holders with 100 acres or less have only l.£ million acres

and big landlords hold more than 6 million acres. There are 29k big landlords who hold £000 acres or more while 12k estate owners have 1.1 million acres. In the former North Western Frontier province large owners hold 1.2 out of l.£ million acres or 80 per cent of the culti­ vated land. However, there are 69 per cent tenants over the total ag­ ricultural labor force of the province. The data regarding former

Baluchistan and other states in West Pakistan is not available. It may be added here that t he size of landholdings is relatively large there, but the areas, due to lack of water supply, are underdeveloped.

As a rule landlords live in towns, leaving the management of their lands to agents, who have little interest in the tenants or the im­ provement of land. Landlords enjoy high economic and social status and with their influence in politics and administration are able to exploit in various ways, thereby obstructing and delaying the process by which tenants can raise their economic and social status. The area Ill

and production of principal crops in Pakistan given in Table 3 brings

out the salient features of the economy of Pakistan.

Table 3

AREA., PRODUCTION AND YIELD PER ACRE OF PRINCIPAL CROPS IN PAKISTAN IN 1955-56

Yield Area Production Per Acre Crops (million acres) (million ton) (pound) Rice 21.90 7.21 737 Wheat 11.29 3.32 658 C o m 1.06 o.U5 950 Sugar Cane (raw sugar) 0.97 1.20 2789 Jute 1.63 1.00 1369 Cotton (lint) 3.5U 0.30 192 Rape and Mustard 2.01 -0.32 358 Tea 0.08 0.02 673 Tobacco 0.20 0.09 103 k

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan.

More than ijl million acres (85/° of cultivated land) are used for

growing food crops. However, on account of low yields per acre, self-

sufficiency is reached only in normal years. About i|B per cent of the

total cultivated area is used for growing rice and 21 per cent for wheat.

Of the non-food crops, jute and cotton occupy less than 10 per cent of

the total acreage under cultivation. Nevertheless, these provide about

90 per cent of the total exports of the countxy and contribute substan­ tially to government revenues. With this heavy dependence upon two

fibre crops, any changes in the conditions of their marketability have

a tremendous effect on the balance of payments, the central budget, in­ comes originating in the agricultural sector and also the capacity to sustain the rate of economic growth. The following table illustrates the point and shows the agrarian character of the economy. 2$

Table 1*

PRINCIPAL EXPORTS CF PAKISTAN IN THE SELECTED YEARS (Value in million rupees)

Commodities 1955-56 1951-52 191*9-50

Jute 828.7 996.1 525.8 Cotton 1*62.1 777.5 397.6 Wool 68.3 31.2 35.1 Hides and skins 38.6 33.1 29.6 Tea 3lu3 1*2.5 1*5.6 Total Agricultural Exports 11432.0 1880.1* 1033.7 Other Exports 351.7 208.2 160.3 Total Exports 1783.7 2008.6 119U.0

Source: Report on Currency and Finance for 1955-56, State Bank of Pakistan, Karachi, Pakistan.

In the last couple years by adjusting the area under jute to its

outside demand, the exports and imports have been more stable at 1*3 to

1.5 billi on rupees and the balance of payments has been even or on the

plus side for Pakistan. In fact, the economy of the country is much

improved when there is reasonable stability in the prices of fibres

in the world market and there is self-sufficiency in food requirements

of the country.

Obstacles to Rapid Development: The economic development of a country

is fran one point of view, the creation of real capital. The imbalance

among the acknowledged factors crucial for the dependent mobilization

of real savings is the existence of innovations, i.e., the use of new methods of production. But whether and what kind of innovations find a fruitful soil in a given society, which forma and mechanisms are most adequate to provide the real savings and make it possible to channel them into productive Investment, calls for a word of explanation. The answer to it lies in file cultural and social conditions of a given 16

population and also in their economy. It is evident that one way of

reaching a general theoretical scheme consists in the attempt of

deriving generally valid propositions that are the cause of hinderance

in the formation and use of capital creation.

Limitations to rapid development can be summarized as the conspic­

uous shortage of capital in the midst of its many and varied requirements,

the lade of entrepreneurial as irell as managerial talent necessary to

direct it, and the need for balance in the proportion of agents of prod­

uction and economic development. The fewness of business-minded men is

an important reason why sane of the surplus of little savings in the

underdeveloped world, fails to find its way into added investment. In

Pakistan, the businessman can call none of the specialized financial,

technical and marketing institutions and services which are common­

place in the West. He is somewhat handicapped by an unskilled and un­

educated labor force. He also lacks credit facilities which are con­

sidered to be a necessity now In every modern business of life.

There are two things in Pakistan that have changed very little.

One is the ruling party and the other is the peasant. Crises after

crises have struct at Pakistan's destiny, but only faint ripples of

the economic disturbances, have reached out among the sorry lives of

the teeming peasant majority. To an average Pakistanian, time has no meaning. There is this instant. It has no span. This insensitivity

to time is not the product of a hidebound tradition as of stupidity, but it is a combination of social and other factors. Even the most violent upheavals have failed thus far to change their lives. Part 17

of the incalculable difficulty to better their economic conditions can

be attributed to the tangled maze of landlord1 s overall rule in the

country. Besides, officialism can be held responsible for this gross

neglect.

The peasant fights changes because it has not been proved to him

that even a little saving is good for him. He fights it also, because

he is suspicious of some kind of imposition. In short, the conditions

in 'which he lives reflect the weakness of his government which in many

instances cannot be summarized as a net product of his own "soil." The

disease that racks his body, saps his financial strength and his pro­

pensity to change. The result in most cases is that he finds it easier

to borrow on the spot from the village money-lender at ruinous rates

of interest because his whole make-up is geared to living for the moment.

He finds it easier to sell his produce to the lender for the ready cash

he needs rather than to wait and bargain shrewdly for a profit. How­

ever, the hopeless situation does not stop him from splurging with

tragicamic pride, going deeper into debt at every religious feast or

on a wedding or a burial. If anything is saved it does not go into

productive investment for one reason or another.

It is generally believed that the timid investments of the past by

the Imperial Rule has added to the genuinely surplus rural population

which is today a big problem for the country. Furthermore, the develop­

ment of economically underdeveloped countries has become a serious con­

cern for big world powers. The reason for their growing interest is very difficult to understand in the light of soviet experience which demonstrates the formidable dangers inherent in our time in the exist­ ence of economic backwardness. In fact, the problem is as much a pol­ itical as it is an economic one. Buchanan^* had nicely recapitulated that "our stake in the underdeveloped areas is political as well as economic and humanitarian." Perhaps, in conditions of a bipolar world, this stake and "international interference" have become indirectly the root cause of political instability for the underdeveloped world.

Finance! The role of finance is not merely one of producing money* rather its fundamental task is to make the real resources available for development purposes. ’•‘■he financial pattern in Pakistan is one of fed­ eral finance. The annual national income of Pakistan at constant prices in was rupees 18.9 billion while that of the United States during the same period was 32I4..O billion dollars.® On a per capita basis, taking unit of currency as equal in effect, there is a ratio of about one as to eight. This gives a general idea of the relative income and output per person and it is obvious that Pakistan, does not have the financial resources to carry cm a program, similar to that in the United

States and therefore stands in need of foreign aid for rapid industrial- zation of the country. Pakistan is no different from the United States which spends more than two-thirds of its national budget for defense at home and abroad and for veterans benefits of past wars. According to...

7 Buchanan, N. S,, "Approaches to Economic Development," The Twentieth Century Fund, New York, 19!?5.

®0n official level, one United States’ dollar is equal to U.76 Pakistans' rupees. 19

the "White Paper" on foreign aid and its utilization in Pakistan in last

December, Pakistan has been offered 675.6 million dollars up to September, 1956. Table 5

FOREIGN AID TO PAKISTAN UP TO THE END OS? SEPTEMBER, 1956

Amount Country (U. S. Million Dollar) United States U6U.08 Australia 30.06 Canada 55.03 New Zealand It. 17 United Kingdom 29.68 Ford Foundation 7.23 World Bank 77.25 Other Countries 0.28 United Nations 7.78 TOTAL 675.56

Sources "Foreign Aid and its Utilization in Pakistan", Government of Pakistan.Press, Karachi, Pakistan, 1956.

Budget estimates of both revenue receipts and expenditure of the

Federal Government of Pakistan for the year 1957-58 are 2.78 billion

rupees while that of her states governments for the same period amount

to 1.99 billion rupees. Permanent debt (on 31st of December, 1955) of the central government was 1.66 billion rupees and it represents a bout

8 per cent of the annual national income which is -very low in comparison with the United States. The permanent debt of her states governments is only about one-fifth as much as carried by the central government.

It indicates that Pakistan's debt position isl good and if other things being equal, chances seem to lie for more foreign aids.

The main sources of central revenue are customs, taxes on income, corporation tax, central excise duties, sales tax and the net earnings 20

of commercial departments of the government but a certain proportion of the income tax, sales tax and central excise duties is still divisible between the central government and the provincial governments. Net col­ lection of taxes from East and West Pakistan from the principal heads of revenues such as customs, central excise duties on income, sales, salt, refugee and other heads amounted to 397 million rupees during the year 195U-55* One of the criteria for judging whether the scheme of federal finance is functioning in an equitable manner, is how much the public is contributing towards the administrative expenses of the cen­ tral government and that amounts to Rs. 10.63 billion rupees or over a billion rupees a year. With respect to low national income per capita,

(Rs. 2b$ in 195U-55) it would not be correct to infer a base for higher taxation by a cursory look at the above figure, but it signifies over­ all economic growth of the country.

. The Government of Pakistan are cariying out the First Five-Year

Plan (1955-60) and according to the plan it has been estimated that

11.6 billion rupees consisting of 1.5, 5»9 and ij.,2 billion rupees of public saving, private saving and external finance in order, would be on the economic development program of the country. However, increases in total public revenues have been large and significant in the country mainly due to increases in electricity receipts and sales of crown lands.

Therefore, a high level development program is being led by the share of public revenues and it indicates the foundations of a continuing process of economic development. It has been estimated by the Planning Board that annual public saving would be of 300 million rupees during 1955-60. Immediately after Partition the country faced a serious banking situation due to the wholesale migration of the banlcing staff to India but the progress of commercial banking and credit institutions since then has been rapid. The State Bank of Pakistan, which is the central bank of the country, has not contented itself merely with the per­ formance of the traditional duties of banking but still is far behind the level of a similar bank in a country- like United States. The banks should possess technical knowledge about rural credit, commercial banking and the basic function of making possible a flow of credit and money to foster orderly economic growth and a stable unit of currency.

Life and general insurance in the country are in an early stage of development with a large unexploited promising field. 1'he total amount insured represents rupees 5> per head against rupees 26 in India because like banking, insurance too, suffered a serious setback after Partition

Now under active and imaginative state policies it is making more ad­ vances than an encouraging recovery.

General: The increasing crowdedness of labor in agriculture, due to the lack of alternative employment in other fields has resulted in ex­ ceedingly low earnings for farm workers and correlatively has led to high rental charges per acre. The consequence has been a deterioration in the level of svibsistence. A substantial part of little savings of the masses are drained into hoards of currency and precious metals in the form of ornaments or diverted into land speculation. This prevents the development of resources which have promising investment potentials

The level of effective demand on the part of unemployed masses is too 22

low to bring a rapid increase in investment and about 80 per cent of the

population receives less than the average per capita income which is re­

markably low as compared to industrialized countries. Capital shortages

are reflected in high interest charges and in lack of modem machinery'

in agriculture as well as in bulk of industries. Therefore, the very,

low per capita investment in secondary and tdrtiary industries operates

both as cause and consequence of limited capital development.

The country is indeed, underdeveloped and poor but the degree of

vulnerability has been reduced to some extent since the achievement of

independence and a greater balance imparted to the economy through in­

dustrial development. In the private sector, investment has been dir­

ected mainly to the industrial development rather than to agriculture

and therefore, due to the lack of capital investment in agriculture

the shortages of food have developed in the country. However, Pakistan

now, is a surplus country in textiles, cotton yam, cement, tea, salt,

leather, shoes and some paper products but competition is very keefa in

exports with Japan and India. Moreover, the country still imports about

two-thirds of its coal supply, 80 per cent of its petroleum and prac­

tically all of the iron and steel much of which is processed after it

reaches Pakistan. Thus, findings of additional sources of natural gas

and oil for which prospects are promising, will not only reduce ex­

penses on the exploration and imports of fuels but also hasten the

speed of economic development. Furthermore, the need to raise internal productivity, to gain some momentum in the task of development and to improve the foreign exchange earnings for the imports of machinery. 23

remained as urgent as ever. Today, nearly 10 per cent of the national

product is sold abroad and is matched by corresponding imports.

In any discussion of future development, it should be kept in mind

that industry and agriculture support and complement each other. Also,

the shift of manpower from agriculture to industry is not necessarily

desirable but is achievable if mineral resources such as iron, coal,

natural gas that have been recently found in substantial quantities and

have not yet been exploited due to the acute shortage of capital, are

rapidly brought into use effectively. Therefore, looking at the agrarian

character of the economy, there is every reason to expect that Pakistani's

further advance towards its cherished goal of better standards of living,

lies in the program of regeneration of agriculture.

Philosophy of People

The constitution which came into force on the twenty-third of March,

1 reflects some directive rules concerning the principles of economic

well-being of the people such as, compulsory social security by social

insurance or otherwise, eliminating usury and the introduction of the

scheme of "poor-due" to reduce disparity. The idea of the people is

toward industrialization through peaceful transition of scarce resources,

fair distribution of wealth reflecting inequalities of natural talents

and to discourage conspicuous consumption and ostentatious living. They believe that man is created in "choicest frame" and has the responsibility

of freedom of action and must have opportunities for free development in this life to enable him later to render an account of his performance as an individual answerable for his actions. Briefly, the public likes "democracy11 and the free enterprise system because they are supported by religious belief and therefore they are termed natural allies of the West.

For those who see a relationship between challenge and sincerity,

Pakistan has much to offer. Some weak spirits may bemoan their hard luck in being b o m in a poor nation but their attitude to it is to face facts and accept the difficulties as a challenge to the creative spirit in us. The argument in its defense, if put forward, is that no nation has won prosperity and power except by hard work. To talk some kind of birth controls may seem essential to halt the spiral of over-population, but these measures are highly objectionable to them in general. Women are considered supreme in their homes. Co-education is very rare and the centuries old system of hiding their glamour behind the veil, is still there.

Historically the Hindus and the Moslems belong to different reli­ gious philosophies, social customs and literature. They belong to two conflicting civilizations which are based mainly on two ideas and con­ ceptions, namely, their aspects on life and of life are different. A forced unity was therefore bound to cause final destruction of India, had there been no Partition. It is believed now, that Moslems have a positive goal to strive for, to live for and to die for. In a way, they have the law of social equality based on humanity, racial unity and religious patriotism that are seldom found in the modern world.

In interpretating religious laws to suit modern needs, they feel this is all the more reason why they should be all the more conspicuous of their more significant role and high destiny. In fact, they have their

own definite code of ethics, jurisprudence and social organization that

exercises a definite influence on the actions and thoughts of the people.

Very predisely, the people of Pakistan are the product of Egyptian civil­

ization that removes them far away from other cultures and civilizations and nicely embraces the Ideal of Humanity. Therefore, the effect of

Indian culture is fast disappearing due to the will of the people to live

as a distinct nation because of their independent and easily separable culture and outlook. There is much that is not ideal in Pakistan as in the rest of the world and this is unfortunate.

The Pakistanian puts American economic advance in this wqy, that their productivity, which is several times ours is because they have what he lacks. On the other hand, had he had in Pskistan equal land resources, credit facilities, superior technology and "materialistic mind," there would have been practically no difference at all. Some­ one may say, this is to over-simplify and over state the case that the

Pakistanian is not basically materialistic but spiritualistic. These terms are largely generalizations and surely neither label is definitive.

The idea that riches can buy many things but not that elusive commodity

called happiness, still dominates and persists in Pakistan. Furthermore, he is not individualistic because family patterns are highly united by strong and indissoluable ties of culture and ideology. The controversy over the desirability of economic growth ends itself when he concludes that progress which implies "change" does not always diminish strife and moreover, promised phase of life is a test and nothing else. CHAPTER III

THE STATEMENT OF THE PROBLEM

In view of the need for a more general understanding of a prob­ lem, one will want to know the objective description of the exist­

ential phenomena. Logically, a research problem in its mare highly developed form includes the analysis of existing relationships with­ in some framework of cause and effect and is usually so stated that it implies the tendency of an hypothesis. It is basically intended to discover truths and to demonstrate its applications and uses.

In general, an hypothesis is a statement of a tentative supposition as to the existence of some cause-effect relationships adopted to serve provisionally as a guide to investigation leading to its final verification or establishment, as a principle or law. But every research problem presupposes an expressed hypothesis and it must accept certain known facts or evidences from which new truths may be discovered. Therefore the object of this chapter is to state in research terras certain prepositions, which seem capable of sup­ porting the total super structure of this study.

There are many difficulties before an underdeveloped country to maintain her independence in this bipolar world. While recog­ nizing the national security as most important, the number one problem is how can the nation achieve the objective of a special­ ized economy to weather any storm of economic disturbance. With respect of area and population, Pakistan is the twenty-eighth

26 27

(361*,737 square miles) and sixth (82.1* million) largest country in the world and constitutes 3 per cent of the world's population. If she is to strengthen her economic position, so that she will attain the old historical fame in the atomic age, she will probably find her greatest potentialities, at least in the near future, in agri­ culture because the country since its inception, is typically under­ developed and its economy mainly rests on agriculture. Due to the pressure of population and her manifold immediate needs, there exists a conspicuous shortage of productive land and capital. Human prog­ ress with the disproportion of factors of production is so obviously disturbed that the problems involved in their adjustments can be ig­ nored only at a great peril. Another important note on it is that the country has become deficient in case of two cereals (rice 280,000 tons and wheat 11*0,000 tons or 3% of all cereals) production largely because of their rise in consumption and the low productivity of her agriculture. (Yield per acre of wheat and rice in bushels for 19 h 9 -

$0 in Pakistan was 13.9, 27.1* compared with Japan 29.7, 79»h) The low yield per acre can be attributed to muLtidiraensional factors, such as imperial rule, subinfeudation and timid investments in soil improvements, that have made the country weak, and in fact, have placed it at the crossroad. Besides, Pakistan is sticking to prim­ itive methods of agriculture. In general, their motive power is almost all muscle or animal power which is about, according to one estimate, seven times lower than mechanical power. Moreover, Pakistan from the very beginning, due to the lack of investments in the past, is facing a great danger of surplus rural population. The rural population makes up 86 per cent of the total population of the country. In addition, the population of the coun­ try is not merely growing on account of its natural rate of lU per cent per decade but the condition is further deteriorating owing to the continuous flow of refugees (0,1% of total population) from India and the disputed state of "Kashmir." Since Partition to date, there has been a net addition of 1.2 million persons from India to Pakistan.

In all, talcing the effects of the foreign rule, population growth and the refugee problem, it is estimated that 16,2 per cent of people are surplus, 26.8 per cent economically inactive including "femininity ef­ fect" and 53*0 per cent employed persons in the country. According to the census of 19E>1, out of the total civilian labor of 22.7 million,

7f>.3 per cent or 1 7 . 1 million are included in the agricultural labor force. If the population growth is taken into account, there has been very little change in the employment situation of the country since

I 9I4.7 . It indicates that there has been an increase in employment a little more than her rate of population growth.

When most people think over the problem, they will certainly conclude that further research to find out a better solution of the major problem of Pakistan lies in productivity and the in­ creased use of capital. But the problem, indeed, is much broader than that. The program of regeneration of agriculture in Pakistan becomes inseparable in its underlying concepts, not only from the

point of our capital formation, but from the means to be employed

in the attainment of the end. Greater emphasis is necessary now

on agriculture, -which, as before, continues to be the foundation

of the country1 s economy. It provides sustenance and employment

to more than 80 per cent of the population, and contributes 60 per

cent of the national income and 89 per cent to the foreign exchange

earnings of Pakistan. Above all, most Pakistanian industries are

based on agricultural raw materials produced in the country.

Agriculture must be regarded as a vitally important source of

capital creation due to her unimaginable supreme role in the early

stages of development of other sectors of the economy. But it has

its own peculiarities that compels one to call it a refugee camp.

Because, no one likes to die, and there is no other alternative for

the masses of people in underdeveloped countries to live without it

unless an industrial revolution comes to its rescue and offers them

avenues of employment. It is unthinkable and difficult to oppose

the idea of mechanization of agriculture in Pakistan for several

reasons. In fact, the answer does lie in regeneration of agri­

culture, which will not only increase the productive capacity of

the country but will also check inflation caused by an industrial program. In other words, self-hufficiency in food and a substantial increase in agricultural exports will go a long way to overpower the scarcity of capital that exists on account of her fourfold need,

1 to renew agriculture, 2 to build industries, 3 to employ and ur­ banize surplus rural population and U to increase her productive capacity, as a whole. 30

For those who argue that mechanization of agriculture in Fdc istan will cause further unemployment, the answer is that there is always a before the storm. It may be explained here that mechanization of agriculture is not a necessary evil in the atomic age, bub it is the route to be followed by Pakistan if she wishes to live longer and independently. The present state of knowledge, though inadequate has shown that it means more jobs, rather than the other way round, even for an overpopulated country e.g., West Germany. Thus, a farmer can have of soil's bounty if he does not abuse it by scratching it with his wooden plough drawn by bullocks but adpots tractor cultiva­ tion.

It is also quite impossible that agriculture can be reestablished even with the increased use of capital and ability to use it, so long as the excess of rural population is not provided with jobs in non-ag- ricultural sectors of the economy. Furthermore, Pakistan is in an advantageous position if she can build more and localize industries in such a way to enable herself to substitute and utilize more of the source of cheap labor for capital. An abundant supply of cheap labor will enable her to produce at low cost and increase her exports because her peoples' thought thus far (as for example, the non-existence of a labor party on account of the firm belief of the people in the law of productivity of wages and being used to hardships due to neck to neck competition now as well as in the past) favors industrial revolution.

Therefore, industrialization stands a fair chance and can be made a better means to achieve the end of regeneration of agriculture. In addition there is a clear, though not perfect correlation, between

urbanization and industrialization* In general terms, the limit of possible urbanization is set by the productivity of agriculture or the ability of the country to buy food from abroad. The ratio of urban to total population in 1901 was 6$ per cent in Japan and ten per cent in Pakistan. However, the latter course is not suitable to Pakistan in her initial stages of development because she lacks capital and can feed her people more cheaply than Britain and Japan.

But to produce food more cheaply she must give priority to the task of reestablishment of agriculture.

Obviously, industrialization is a very important part of re­ generating agriculture in Pakistan. To what extent can she in­ crease her urban population will primarily depend upon how fast

Pakistan can solve the venture of rebuilding agriculture, or pre­ cisely it rests mainly on the ability of the people to use the scarce resource of capital and increase the rate of new capital formation. In view of these facts, investigations into important factors affecting the rate of added capital formation as well as to suggest some ways and means to improve and measure its growth, in order to set up a target for some useful results pertaining to economic development and employment in the country, I have chosen the problem of "Capital for Regeneration of Agriculture in Pakistan" for my dissertation. The problem* in spite of being very important to the country, is yet relatively unexplored and unsolved for it is difficult. However, it is not enough to discover that the problem did exist and to point out that a satisfactory answer has not yet been found. We need to continually look ahead and to ferret out

the important problem. But every problem is a challenge and every

challenge is an opportunity. Therefore, a special research to find

out a possible solution of the problem, is a number one venture,

and it will go a long way to serve a means to the end of regeneration

of agriculture for which each Pakistanian is looking for and working

hard and endlessly. CHAPTER IV

THE METHOD USED IN THE ANALYSIS OF THE PROBLEM

The Scope

The central theme of this thesis is the capital formation and regeneration of agriculture in Pakistan. Another important aspect of the problem is to suggest some methods of increasing the supply of capital from various sources such as from a reformed agriculture, the government of Pakistan, foreign sources etc., and to measure its growth in order to know about what is happening to the national in­ come and employment situation of the country. The plain fact is that we stand in need of some economic and statistical methods.

Precisely, it is a well known fact that increased production is the key of prosperity as it adds to the national income which is another name for the values of goods and services of a country produced in the year. A deficiency of any factor of production relative to others is a challenge for the economist. The degree of disproportion in the factors of production in Pakistan is acute and has given rise to her many economic ills. Possibly, these can be remedied to a great extent by her own efforts with the help of some economic prin­ ciples applicable to this problem. But, what is first required, is that the task of regeneration of agriculture should be given top most priority, because it will serve as a means to the end of capital for­ mation. Besides, a complete renewal of agriculture is vital to re&ist

33 shocks of abnormalities such as the refugee problem and price infla­

tion caused by the elements of seasons and industrial program of

the country* Therefore, the following items have been taken into

consideration in this analysis*

Regeneration of Agriculture by,

1* Urbanization of surplus rural population via industrialization,

2. Mechanization of agriculture to raise productivity,

3. Electrification of farms to build new agriculture*

Capital Formation From Increased Production by,

1* Maintaining self-sufficiency in food and its lesr prices,

2* Increasing agricultural exports for the imports of machinery to

industrialize the country,

3* Cheap raw materials for industries to make them the greatest

means for the employment of surplus population aid enable them to win the export market*

Capital Formation at the Levels of,

1* Individual savings,

2* Financial organizations such as governments, corporation, banking

and insurance and municipalities,

3* Taxation and the budgets,

U* External finance and technical assistance*

Capital Formation From the Role of,

1* Monetary and fiscal policy to foster orderly economic growth and a stable unit of currency

2* Money and credit system, 3. Research and education,

k» New incentives such as nationalistic spirit, industrial drive

and small savings scheme,

Reformation of social and economic system.

Economic Methods and Principles Applied in this Study

1. The principle of substitution of a cheap factor (labor) for a

relative costly one (land and capital),

2. Specialization and division of labor,

3. The law of comparative advantages,

The mobilization of aviilable domestic capital,

J>. Deficit financing and government borrowing,

6. Devaluation of the currency to promote trade.

Statistical Methods Used in this Thesis

1. Capital requirements for creating a job,

2. The projection of the rate of added investmentin Pakistan,

3. A formula for deficit financing for Pakistan,

U. Substitution of potatoes in diet to meet the shortageof cereals

in Pakistan,

5. The simple Harrod's growth equation,

6. Determination of the rate of economic development in Pakistan,

7* Measurement of the genuinely surplus population.

Economic considerations i The substitution of cheap labor for capital is an economic principle to restrict the lavish use of the scarce capital. But the limits of substitution are clearly finite both in

consumption and production. However, economic necessity will force the substitution of labor for land or capital equipment whenever possible in the struggle to raise total production as far as the marginal physical product of labor does not become zero. In view

of the fact that almost all food and clothing are indigenously pro­ duced and there has been so little effect on the cost of living of her working classes, the country can increase her foreign exports by producing more cheaply and bringing into use thus far unexploited resources. What is more, she can devalue her unit of currency to achieve the required result. Besides, industrialization as the greatest employer for surplus rural labor can bring about special­ ization and division of labor in the country.

Pakistan has an almost monopoly in jute production in the world.

Therefore, she is comparatively at an advantageous position to in­ crease her foreign exchange earnings. Besides her geographical con­ ditions are such that the climatic factor allows her to follow the practice of localization of crops such as the growing of sugar cane, jute, banana and tea in East Pakistan and wheat, cotton and potatoes in West Pakistan in order to increase her agricultural exports. The ineffective mobilization of available domestic capital constitutes a real trouble in Pakistan. Only a small part of the hard savings of masses that live too close to the level of subsistence are actu­ ally channelled into a productive investment. While a major portion of these savings again make a way for various kinds of consumption or traditional entertainments. Or it disappears into hoards of jew­ elry or in baying a small piece of land. The circumstances clearly hold deficit finance to be a legitimate means of mobilizing resources.

The underdeveloped stage of the private sector to use effectively the available private savings, make a strong case for government borrowing and amplifies the need for a nation-wide organized banking system.

In view of these facts, the above-mentioned economic methods and principles have been used in this analysis.

Statistical Consideratlohs: The simple Harrod’s growth equation can be used for estimating the capital requirements because the simplest method establishes the relationship between capital and rate of growth. However, the relationship among these 1hree variables, income, capital and savings are important and any one of them can be estimated when any two variables are given. It is a matter of policy which solution is to be preferred. But, in fact, this is a highly aggregative approach and therefore, it must be recognized that in the absence of actual data, these estimates must be taken with due limitations.

Douglas production function does not take into account all the variables such as circulating capital, and therefore, it has not been used in this analysis. Estimates of the capital requirements made by the United Nations experts provide useful information.

Indeed, these results are of great value f cr an underdeveloped country due to the lack of the degree of the reliability of the existing figures. For these reasons, a nunber of statistical methods have been used to reach the solution of the problem. CHAPTER V

A REVIEW OF THE CURRENT LITERATURE9

A study of the available literature on the problem investigated

that is, ’’Capital for Regeneration of Agriculture in Pakistan" reveals

that work on some aspects of the problem such as capital accumulation,

economic development and problems of underdeveloped world, though un­

der different lines of work and conditions has been done. The ac­

complishments are, of however, limited application for one reason or another but does advance the subject and consequently thereby acquires

a right to the gratitude of their fellows and of those who will come

after. No doubt, it is still difficult to get upon the right road but we ought to advance more heartily now than before while we have

some help from them. It has been often heard and I have also noticed that the "economics of capital growth" is a collection of the most difficult problem of all parts of economics. It is because it almost circumscribes the whole field of economics. Besides, it must be recognized that on account of different approaches for similar

objectives or vice versa, the results of their work have been reviewed here with due limitations. What is more, for the matter of brevity, only immediately related current literature to this problem have always been kept in mind. However, the procedure used has also been summarized so as to have the opinions of more than one author together

?For complete references, the bibliography of the dissertation may be seen. In this chapter only,names of authors have been given. 38 39 on some selected issues of major importance and highly linked with

capital formation aid the need for agricultural development in

Pakistan because these two itans constitutes the heart of this study.

It would be useful at the outset to point out what others mean

by growth and capital and its major source other than natural

resources. Precisely, technology is our inexhaustible resource and

growth implies change while according to W. H. Peterson's definition

capital is man's servant, hardly his "exploiter." He says it is not

perpetual as it wears out. Savings must therefore go forward, lewis

seems to regard Ihture output as of the same value as present output.

Hcwever, it is an arguable question especially when the distant

fixture is involved. P. T. Baur while reviewing Lewis', book says

that capital is created in the process of development rather than

that development is a function of capital.

Schumpeter's theory of economic development is generally recog­

nized as one of the great contributions to the botty of economic

thought, but Celso Furtado in his article refines Nurkse's belief

and puts it that the inducement to invest is limited by the snail

size of the markets in underdeveloped countries. To him profit

chances would be brighter if capital would pour into the production

of many different comnodities at the same time. Also, the vicious

circle of scarcity can only be broken by external factors such as

foreign tradej not by the ingenuity of innovators. Usher, in his paper develops his familiar contentions that invention in a broad sense is a continuous process and that it generally attends the flow of new investments He believes also that innovations in tech­ nology encounter more resistance in an authoritarian th m in a market economy# He states that inventions or acts of insight occur in the normal course of the exercise of skills# By contrast, MacLaurin follows along the path of Schumpeter# T# C# Oochran concludes that growth depends more on -where and how capital is invested than on the absolute quantity of voluntary savings.

By surveying the American scene of prosperity, one can take a stand that the imagination of individual entrepreneur and the role of superior technology are the two major farces that go far to deter­ mine the rate of economic progress of a country# The statement is not subject to important qualifications because, for exanple, living in the uflst of natural plenty, but lacking superior technology, the

American Indian was unable to achieve an advanced standard of living#

Therefore, it has been given much emphasis on technology in this thesis# In the world of my thoughts, without it man's progress is an utter failure.

•James N. Morgan's reaction to the hypothesis advanced by Fried­ man and Kuznets is that it is too simple a theory# Tet its impor­ tance cannot be neglected by saying that consumption does or does not depend upon permanent income# Dorothy Brady herself insists that savings are determined independently of the consumption level and that all families make some provision for the fixture# This idea has led me to suggest a small savings scheme on a nationwide scale to enhance the rate of productive savings in Pakistan# la

Kuznets finds that foreign investment as a proportion of total capital formation varies widely and from this fact he emphasizes over current trade as a more important factor than capital movements in

economic development. F. D. Halzman shows that where the state is the chief saver, taxation is the main source of capital formation, while Aubrey points out many handicaps besetting investment in un­ derdeveloped countries. Besides, Levy's analysis of the social ob­ stacles to capital formation are worth praise. It must be added here that Charles Wolf's work on capital formation and foreign in­ vestment in underdeveloped areas certainly prove a goldmine for graduate students seeking topics for dissertations. Thus, priority to agriculture over industrial development has been given because it constitutes 89 per cent of her current trade in this study.

Franco Feraldi's study on capital formation is a useful summary.

He points out that care should be taken that forced savings do not result in inflation and loss of real purchasing power. Franco em­ phasizes economic progress is not just industrial development. Cer­ tainly he is right as the underdeveloped world needs agricultural im­ provements first. He claims that private entrepreneurs will judge and decide better than the government planner of public work. He holds that even with a large supply of labor, it is still desirable to import new machines to a large extent. He also advocates more use of self-financing and specialized public financial institutions.

His thoughts not necessarily strengthens this study but also strongly support my stand against the use of forced savings.

I Since Kuznets has been criticized rightly by Johnson of the

Food Research Institute who found that between i860 and 1920, Jap­ anese food output rose 77 per cent and was achieved by improved techniques. Truly, an agricultural country should be self-sufficient infbod if she knows that food imports affect foreign exchange earnings seriously and in turn reduces the rate of saving more and more.

However, in this regard, the question of Great Eritain is altogether different on account of the fact that she has many colonies and is a very highly industrialized country.

Lockwood details the importance of the role of the government in Japan’s economy. Helen Lamb contends that the government in

India at the time of British Control was a major retarding factor, halting the innovating efforts of native enterprises merely because to expand her foreign trade and to develop her mother land at the cost of the colony. Some observers even today argue that govern­ ment has had decreasing effect on private initiative. However, it is a very highly arguable question in this uneasy world of today.

Edward Nevin remarks that what the monetary authorities.can do under the cheap money condition, is to insure a favorable climate for enterprise and then hope for the rest. His argument is that a cheap money policy is not merely a passive factor, but has an active stimulating effect. Therefore, the role of the "State Bank of Paki­ stan” has been duly emphasized in this problem. The report on "All India Rural Credit Survey" favors the finance of wholesale trade in agricultural crops. Rural borrowers are pre­ dominantly small cultivators, who are poor, illiterate and ignorant. Opposed to them are the relatively strong and well informed lending agencies. The money lender is less hampered by few inhibitions which keep him from exercising to the full his monopolistic competition.

Charges of twenty-five per cent per annum are low and range upward as high as one hundred per cent. Regulation of interest has proven ineffectual owing to the numerous methods of easy evasion and the im­ possibility of supervising millions of small individual transactions.

Moreover, loans' are ill-related to productive purposes and there is, in fact, no element of supervision. The report does not end here and states that the villagers need guidance at every step in pro­ duction. But the report has failed to suggest any other alternative method, and emphasizes the importance of money lender cooperatives in the rural economy. The exhaustive report clearly tells that one of the major problems of the underdeveloped world is the ineffective mobilization of small savings. Therefore, efforts have been made to improve the supply of capital to bring down the soaring rates of inte­ rest that seriously affect the use of added capital in these areas.

Lewis says that much of the small volume cf savings by agri­ culturists make a way to buy more land. He concludes that higher rate of capital formation is simply a characteristic of a developed economy. To him capitalists are the only source of productive sa#Lngs and others do not save or invest significantly. It means that only capitalists save productively and those who save productively are capitalists. It is not simply a matter of the definition of a cap­ italist but certainly has some validity. He? frequently mentions the exploitation of cultivators and implies a strong value judgment.

The problem however, is that a farmer in an underdeveloped country needs guidance in the use of credit and in the avoidance of wastes

as his farm is exposed more to nature due to inclements of season than his fellow who runs the firm in a town. In the light of his view, the peculiarities of agriculture with special reference to its role in the industrial development of the country has been given due considerations throughout this thesis.

Lawrence Hews insists that we can have of soils' bounty, if we do not abuse it. Perhaps he refers to the primitive methods still used in backward countries. It is true, that the absence of the use of inanimate power at the farm in an overpopulated country means the soil lacks proper cultivation. Arthur Carhart stresses

man's kinship with the soil. He says that like all kinfolks, the soil repays shabby treatment in like coin. His emphasis does show that farming is merely a profession. In fact, the profession is noble if duLy understood and not made poor by national policy and therefore, much emphasis in this dissertation has'been laid on agriculture so as to make it number one source of capital for­ mation in Pakistan.

Much has been written in regard to capital formation and is known about the importance of agriculture but more summary and evaluation in accordance with needs of the problem at this point has been discussed in this chapter. CHAPTER VI

SOME OBSTACLES TO BE OVERCOME TO PERMIT ECONOMIC

ADVANCEMENT IN PAKISTAN

Pakistan is a decade old country but has a long history of its own. She as a child, has developed a name for a way of life of which it had dreamed in the recent past. The country has also achieved a respected place among the free nations of the world. Her people faced these and subsequent difficulties with determination, an impressive confidence which denied any possibility of failure, and a firm belief in the values of a free enterprise system. The problems surrounding her people have been many, one being a lack of investment capital within the country, but they have actively worked to create conditions favorable to private foreign investors. In spite of certain discour­ aging features to be found, Pakistan does have much to offer in econ­ omic potentialities— both real and intangible.

Perhaps the most important of the negative aspects seen in Paki­ stan is the food situation, marked by a serious decline in her foreign exchange reserves, due in large part to her failure to realize the importance of the regeneration of agriculture. Other negative aspects include the fact that ‘’Officialism1’ is too heavy for the masses and is inefficient and costly. Its cause can be traced back to Imperial

Rule and the intertwining of two quite different philosophies. How­ ever, there is strong sentiment for the government to encourage new enterprises in the younger generation. kS In spite of widespread unemployment, known reserves of certain important natural resources such as iron, coal and natural gas in substantial quantities give her hope to progress. Furthermore, these factors give a suitable climate for her to attract foreign investors for self supporting projects and the Pakistan market which is re­ stricted by the low per capita income of the population but will be increased through an expansion in industry. Serious differences that exist between her and her next door neighbor, India, it is hoped, will be solved sooner or later through the efforts of the United Nations.

Seen in this light, she will be able to promote her land borne trade between East and West Pakistan as well as India. Moreover, expendi­ ture now being spent on defense, can be diverted toward her develop­ ment program. The problem of refugees from India to Pakistan and the dispute over the use of water from rivers which are the basic cause of her food shortage will be solved.

Capital formation mostly depends upon the real per capita income because an economic man cannot reduce his expenditure on basic nec­ essities except luxuries and moreover the danger of sickness is in­ volved. But the increase per capita income is out of relatively low cost production and there is a demand for low cost products at home and abroad. In this regard too, Pakistan has some unique prospects.

Some of the features of modem society due to world level contacts are fast developing and acting as a starter in the economic development prog­ rams of underdeveloped countries. The economic and political advances of the industrialized countries have made the people of Pakistan to

reflect upon their past neglects and glories. Consequently, they • - i. are somewhat awake from a long slumber that had enslaved them in the

recent past and this feature still has its influence upon their lives

in the atomic age. For these reasons they have now a will to develop

their economic resources in order to maintain their independence in 10 the world, and are found prepared in favor rapid industrialization.

This tendency to accept industrialization has overcome all the social

implications that one thinks a great handicap in the labor shift from

agriculture to other industries. Moreover, the rural population in

the country is eagerly looking fcr such opportunities in industry.

In fact, this is a great s ign of fast development found almost all

over the world these days*

Another major change that is fast spreading all over the globe

is the idea of the creation of a welfare state for lasting political

stability. It has beoome a great challenge to the leaders of all

the nations and a fear for landlords. The attitude of landlords

towards their land and tenants in many cases is fast disappearing

in Pakistan. The created tendency by the circumstance is compelling

them to turn toward industries where they can find a future full of

fortunes. This factor, plus the presence of markets and raw mate­ rials far the manufacture of industrial goods, are considerably in­ fluencing their minds to economize and to invest as much capital as

lOFrank, Peter, "Economic Nationalism in the Middle East," Middle East Journal, Autumn 1952, pp. 1*29-51*. ilfl

possible in industry. This too, -without any doubt, is a healthy

sign for the economic march of -the country.

The existence of surplus rural population and its being reliable

and willing to bear all sorts of hardships is one of the outstanding

features for Pakistan to enter into international trade of finished

goods because there is a considerable scope in furthering the

division of labor and utilization of thus far unexploited economic

resources due to the lack of capital. Furthermore, there is a great

possibility of small savings schemes that can be launched on a nation­ wide scale among various classes of labor as they are accustomed to

simple life and have a desire to save. Besides, the government is

in a position to manage the food shortage and price level in the

country by regeneration of agriculture. The present low productivity

in the field of agriculture, although one of the major obstacles as

far as capital formation goes, yet is a clear indication that there

exists a lot more scope for agricultural development of the country with the given knowledge and even meager use of capital.

Furthermore, many of the unfavorable factors can be and are being^' faced realistically and corrective measures are being taken by the State and Federal Governments. Notable in this respect are pro­ jects designed to increase the power and transportation facilities.

Rigid import restrictions on luxury goods have resulted in increased domestic private investment in industry. In addition, there is present in Pakistan, a generally favorable attitude toward private enter­ prise. The large pool of unskilled labor is frequently considered an unfavorable factor, but in view of the ability of Pakistanians

to become skilled laborers after adequate training is a clear sign

of further improvements. Also, these provide a potenbial market

of great size. Moreover, foreign businessmen comment that they get

along well with Pakistanian businessmen as they understand them and

like to do business with them. There appears to be relatively little

of the hedging and fine subtleties characteristic of business trans­

actions which are a common factor in many other parts of the world.-*"*-

Pakistanians have a definite pro-freeworld bias on account of their

natural climate and by their religious belief.

Perhaps the most important asset possessed by the Pakistanians

however, is their indomitable spirit of determination. This quality,

once it is appreciated, leads to the belief that, come what may,

Pakistan will somehow manage to overcome the shortages of capital and

take its place among the highly developed countries. For those who

see a relationship between challenge and opportunity, Pakistan has much to offer in terms of Toynbee's relation between challenge and

response. In all the unmechanized civilizations, kin-groups are much more extensive and functionally much more important than one

finds in some heavily industrialized countries. In particular the

ideal family is the * joint family." The natural advantage can give her hope to ever come the land tenure i. e., enlargement of the size

of land—holdings if proper attention is paid by their government to this fact.

^"Investment in Pakistan," Bureau of Commerce, The United States Government Printing Office, Washington, 19$k» Borrowed technology, so ranch and so rightly stressed by Veblen, is one of the primary prospects assuring a high speed of development in a backward country, entering the state of industrialization. The iniustrial ization prospects of an underdeveloped country are frequently discussed in terms of cheapness of labor for capital goods, tut crea­ tion of an industrial labor that really deserves its name is not a difficult problem in Pakistan. The history of Russian industry provides some striking illustrations in this respect. The growth of nationalism and desire for rapid industrialization clearly show that the rate of capital format ion in a country can be increased rapidly.

The time has come for the advanced nations to recognize that they 12 hold their comparative advantage in trust. Perhaps the greatest force behind economic development in Pakistan has been the initia­ tive, imagination and the venturesomeness of independence. There is one more problem of change in her favor. Labor unionization is not greatly advanced in Pakistan and there is thus far no clear pattern of organization. It is largely because of their belief in hard work for economic gain.

On account of the past failures of the cooperative movement in the Indo-Pakistan subcontinent, doubts have been expressed regarding its success in the future. Its stagnant position is merely because of officialism, inactiveness, apathy and corruption. There is one school of opinion that insists that villagers are dishonest and narrowminded. But the fact is that the opposite is more nearly

12 By R. K. Lamb: "The progress of Underdeveloped Areas," The University of Chicago Press, Chicago, I9k9» 51 correct. The educational standards of the public, as a whole is im­

proved, the cooperative system can grow up from Pakistan's soil.

Sir Frederick Nicholson observed:

The history of rural economy, has no lesson more distinct than this that agriculturists must and will borrow— credit is a necessity, and borrowing and indebtedness are useful and dangerous in proportion not merely to the use made of the sums borrowed, but in proportion as they are the result of a prudential foresignt, or of necessity extraneous to the demands of agriculture.15

As a matter of fact Sir Frederick Nicholson's idea may be emphasized

today even with a greater force. However, it is a great sign of im­

provement for the country that the masses have begun to understand

that agriculture is a business and should be run as one.

An additional factor which bears upon the whole problem of

investment in Pakistan is the injunction against taking interest which

is found in the tenets of Islam. However, it is now serving as a

better means of capital formation because those who oppose interest

have altered into real estate or commercial and trading ventures which return profit rather than interest. For others and the

government in case of foreign loans, it dees not qppear to be a major difficulty. In spite of few limitations such as illiteracy,

the greatest value of these prospects suggest that the increase in capital growth is possible in the oountiy.

11 "^Report on Agricultural Bank, "Agricultural Indebtedness in India," Published by Calcutta University, 1?15, p. 283-28It. PART II

TOWARD A SOLUTION FOR IMPROVING THE PRODUCTIVITY

OF AGRICULTURE IN PAKISTAN

52 CHAPTER VII

A STATISTICAL ANALYSIS OF THE ECONOMIC STATUS OF •

AGRICULTURE IN PAKISTAN

The program of regeneration of agriculture is more important for

an underdeveloped and over-populated country than a mechanized nation.

Table 6

THE DIRECT CONTRIBUTION OF AGRICULTURE IN THE TOTAL NATIONAL PRODUCTS OF PAKISTAN* (At constant prices: average of 19U9-50 to 1952-53)

Percent Con­ National tribution Product of Agri­ Per Total from Ag­ culture Capita National riculture to Total National Products Sector National Income Year (billion rupees) (billion rupees) Products (rupees) 19h9-$0 17,2 10.5 60.7 230 1950-51 1-8.3 10.8 59.1 2U2 1951-52 18.2 10.5 57.8 236 1952-53 18.5 10.9 59.2 23k l953-5ii 19.U 11.7 60.0 . 2 h3 195U-55 19.9 11.6 58.6 2U5 1955-56 19.5 11.2 57.5 237 Average 18.7 11.0 ... 238

Source: "Data from Economic Survey and Statistics for 1956," Govem- Ment of Pakistan Press, Karachi, Pakistan.

There is no time to lose in matters of such grave concern. In such a case, one should not wait for favorable chances and depend upon outside help. The iron necessity of the program of regeneration of agriculture in Pakistan can hardly be over-emphasized and the figures given in the above Table strongly support this view. It is obvious, that the economy of the oountry mainly rests on

agriculture which contributes on the average 59 per cent of the total national products on the basis of the data for the years 19l|-9-50 to

1955-56. The conspicuous decline in the daare of agriculture to the

total national income in 1951-52 and 1955-56 clearly indicates its

adverse effect on per capita income of the country compared to their previous years. This shows if something happens to agriculture, the

national income of the country is held back. In other words, agri­

culture is greatly responsible in influencing the real incomeand the rate of accumulation of capital in Pakistan. It is in fact, at pres­

ent the greatest source of her income. Sixty per cent of thepresent rate of added saving, which is 6.1i. per cent of the total national income, has been contributed by the agriculture sector alone in the

country. Therefore, even a little increase in the annual rate of added savings brought by the proposed program of regeneration of agriculture will serve greatly as a renewed source of capital growth in the country.

The Program

The proposed program is primarily aimed to absorb surplus rural population in industries so -that agriculture can weatter the existing high pressure of population in Pakistan. It is the only means left for her to build a new agriculture and prevent a further deteriora­ tion which is otherwise inevitable. For this, mechanization of agriculture and electrification of farms are as essential as anything for the country. There is no other alternative but to restrict further decreases in the size of land holdings. Cn the basis of landholdings, land­ lords should be taxed progressively so that they should be persuaded to sell some land and take an active part in the industrial revolu­ tion of the country to absorb a maximum population in the non- agricultural sectors of the economy. By law, only the tillers of soil should be allowed to buy more land. Each landlord should appoint an agricultural inspector. Research, seed, demonstration and model farms should be created over his land and kept under the supervision of the inspector. Furthermore, all the public land or new areas should be reclaimed by the government and then the land should be sold to land owners in twenty-five acres lots as a unit and this to be varied according to the type of farming with the condition that these will be farmed with the greater use of inanimate power. Electri­ fication of farms should be stepped up in order to overcome the scarcity of water and the perishability of farm food products.

These are the necessary points of the proposed program that will build a new agriculture in order to make the basic industry a re­ newed and best source of capital formation in the country.

By regenerating agriculture, the country cannot only overpower the existing shortage of food that greatly affects the rate of ac­ cumulation of capital, but will attain an increased production at a cheaper rate than the present method of bullock cultivation which is utterly ineffective to add to the yield per acre. In order to illustrate the fact, the comparative figures of cost of cultivation per acre by these two methods are reproduced below:- Table 7

THE COST OF OPERATION IN RUPEES PER ACRE IN TWO DIFFERENT METHODS OF CULTIVATION IN PAKISTAN

Rupees A. Bullock Cultivation

1. Ploughing 1 acre in 2 days at Rs. 2.5 a day « 5*0

2. Labor at Rs. 1.25 per day for 2 days 2.5

3. Depreciation of cattle and implements 0.5 Total 8.0

B. Tractor Cultivation

Cultivator (light diesel by crude oil) at Rs. 0.75 per gallon of oil and Rs. O.U per hour for depreciation and including labor cost ss

The above figures show that tractor cultivation is about half as

expensive as bullock cultivation.^ It has been estimated that the cost

of raising crops by the use of inanimate power is one seventh as expen­

sive as bullock power in Pakistan.

Table 8

PER CAPITA CONSUMPTION OF MINERAL FUELS AND WATERPOWER IN SELECTED COUNTRIES: 1950

Country Coal Equivalents in Pounds United States 17,515 Japan 1,670 India 2U0 Pakistan 65

Source: "World Population and Production," The Twentieth Century Fund, New York, 1953, p» 9Ul«

The conversion factor between these two Kinds of powers is very rough and controversial. But the increased use of inanimate power

of the Pakistan Agricultural Inquiry Committee," The Manager of Publications, Karachi, Pakistan, 1951-52, pp..10-22. instead of animate energy in agricultural production, through reducing the cost of production will add to the capacity of the farmer to save.

All in all, the comparison of a mechanized civilization with the old one is well illustrated in the above Table.

The negligible consumption of mineral fuels and water power can be largely held responsible for the difference in production between

Pakistan and these countries. The world's farmers had 6.1 million tractors and out of them, the whole of the Far and Near East's share was about 0.0 per cent of that in North America alcne. In 1901, the total number of tractors in Pakistan was 2600 for an area of 19,691 acres of arable land per tractor as compared with 119 acres in the

United states. Even the consumption of electricity per capita in

Pakistan is very low and the following figures speak themselves or prove this important facfc:-

Table 9

CONSUMPTION OF ELECTRICITY PER CAPITA, SELECTED COUNTRIES: 1900

Consumption Country Kilowatt-hour United States 2,06b Turkey 38 India Hi Pakistan 2 Source: "World Population and Production," The Twentieth Century Fund, 1903, p. 972.

Indeed, man's progress today is highly linked with the power resources on the one hand and their best use on the other. Water­ power will be used on a much larger scale than now in most places, to the limit of potential capacity. Pakistan is also rich in the waterpower resource and it is up to her to substitute hydro power

for fuel wood and domestic animals as resources of energy that are

fast declining all over the globe. Hence, mechanization and electrification of farms is essential to increase the rate of capital growth and expand output in Pakistan.

Justification of the Program

The gap between the have and have-not nations is largely due to mechanization. It gives a useful message to the traditionally Tinder- developed, slumbering areas. The new economic techniques challenge the patterns of life that exist in Pakistan. Those who still insist that the country will be broken by unemployment brought on by the program of mechanization of agriculture is an admission that the country is under the pressure of old customs and social institutions inherited from time immemorial, that are now being shaken by fires blazing in all parts of the world. Indeed, this is not a necessary evil in an over populated country but only a means to maintain the cherished goal of independence.

Undoubtedly, a Pakistanian farmer is made to live in the dark and thus far he is not cultivating but abusing the soil that "lays golden eggs". Mechanization is relatively less costly and it does mean more jobs rather than the other way round if industry is ex­ panded concurrently. To adopt this method of cultivation of the soils requires that first, its importance be shown to villagers and that the hopeless disease of breaking the land into smaller 59 holdings in the absence of a decrease in population or an increase

in the areas under cultivation. Secondly, a workable solution of

land tenure for a given society is fundamental. Appropriate legis­

lation is needed to help bring about more economical farming units.

How much increase in yield per acre, even by a vigorous "grow- more" campaign has been achieved by the country through her old sys­ tem can be seen by the perusal of the data given in the following

Table:-

Table 10

YIELD PER ACRE OF WHEAT, MAIZE AND RICE IN SELECTED COUNTRIES (Three years average 1953-55)

Yield Per Acre in Pounds Country Wheat Maize Rice Egypt 1968 1977 3U86 Japan 3.926 II4.28 3889 China 95U 1210 a 2275 Burma N.A. N.A. 1301 Turkey 89U 10U2 3033 Italy 1560 2027 U552 France 2022' 1988 Brazil 77U H 5 9 a 1301* U.S.A. U 06 3186 26U3 I^dia 690 669 115U Pakistan 702 966 1192 a19U5-U9 figures Source: "Economic Survey and Statistics for 1956," Government of Pakistan Press, Karachi, Pakistan, p. 15>.

The low level of the crop yields is attributed mainly to the conservative methods employed by Pakistanian farmers and to a wide difference in the quantities of irrigation water and fertilizers used on crops in Pakistan compared to countries like Egypt, U.S.A.,

Japan and Italy where the Acre Yields are much higher than dn Pakistan. 60

The low level of crop yields per acre which is difficult to

raise by the primitive methods used in Pakistan has become a serious

problem particularly for her agricultural labor and agricultural

population, as a whole. The possibilities of the substitution of

labor for land and capital equipment are however, much limited in 15 scope due to high pressure of population on hand*

When the principle of marginal physical product becomes zero, no further increases in total output from merely applying more labor are possible. If population beyond the point and still more, is applied with the existing land and capital equipments, total output will remain the same and output per person will fall. The average person will be worse off because more people need to be fed and these additional people add nothing to total output.

In view of the above fact, the answer for Pakistan, at least,

lies in the regeneration of agriculture because in most cases the

physical marginal product has already- become zero and it is very

difficult for her to raise the margin as long as she is sticking to the old method of cultivation of crops.

The regeneration of agriculture for the following conditions becomes most important as the country is not only having conspicuous shortage of capital but also the complimentary factor of land is even more scarce. The following tables in this chapter will arapliiy this factj-

1 5 Buchanan, N. S., "Approaches to Economic Development," The Twentieth Century Fund, New York, 1955, pp* U3-U5. 61 Table 11

DISPROPORTION BETWEEN LAND AND LABOR FACTORS OF PRODUCTION IK PAKISTAN* 1951

West Pakistan East (Former Particulars Pakistan Pakistan Punjab) Total Population (millions) 75.8U U2.06 18.83 Agricultural Population in Per Cent to Total Population 76 8It . 6h Agricultural Labor Force in Per Cent to Total Population 23 31 29 Persons per Square Kile 207 772 299 Average size of Holdings (acres) b .7 2.25 6.2

^Appendix Tables 60 and 6l.

The above table shows that the pressure of population on land

in East Pakistan is high compared to the former Punjab which, rela­

tive to other parts of West Pakistan is thickly populated. Obviously,

the agriculture of East Pakistan cannot be prevented from further

deterioration without the proposed program of regeneration of agri­

culture as the population per square mile is one of the highest in the world.

Table 12

LAND TENURE SITUATION IN PAKISTAN;* 19 £L

West Pakistan East (Former Particulars Pakistan Pakistan Punjab) Tenancies in Per Cent to total Population 32 2h Uo Small land owners in per cent of total population 60 Big Land Owners (number) N.A. N.A, 10,000 Agriculture Labor in Per Cent to total population 13 3 IS® 10a *Appendix Table 6l. alt includes also village artisans and social labor. 62

In East Pakistan, the number of agricultural laborers is 5> per

cent higher than the former Punjab. The large number of tenancies

clearly reveals the fact that there is also a large number of big

land holdings in the country. If these big holdings are to be main- * tained, they will bring an increase in production. In order to raise

agricultural productivity these large areas must be mechanized. In

other parts of West Pakistan the situation of land holdings is much

better than in the former Punjab area. In fact, in West Pakistan

mechanization of agriculture can very easily be followed if all the

farms are electrified to meet the deficiency of soil moisture that

is a serious problem of the region. The irrigation and hydro-electric

projects should be considered the number one item in the program of

regeneration of agriculture by the Pakistan government to increase

her output.

For the appraisal of the proposed program, the total area and

that under cultivation in Pakistan is given below:-

Table 13

TOTAL AREA AND AREA CULTIVATION IN PAKISTAN:* 19^1 (million acres)

Not Total Net Available Country Area Cultivable for Unit Area Sown Area Cultivation East Pakistan 3*>.2 19.8 22.1 £.1 West Pakistan 198. k 28.2 39.0 23.3 Pakistan 233.6 U8.0 61.1 28.1* ^Appendix Table 62.

In interpreting the data of the above table, one can arrive at the conclusion that there are not many new areas to be bought under cultivation in East Pakistan. While in West Pakistan the area

can be greatly extended with the proposed program of the regeneration

of agriculture largely through irrigation.

In conclusion, it is too difficult to devaluate the program on

the mere assumption that labor is more and land is less abundant.

The disproportion of factors of production in Pakistan can only be

reduced by creating more capital and by the increased use of it.

Pakistan is very largely an agricultural country and therefore needs

an agricultural and industrial revolution at the same time but the

whole program can be made possible if agriculture is given priority

and is not subject to the tempo of industrial program. Otherwise,

it will be difficult to industrialize the country if her agriculture

is not made the number one source of capital. Moreover, the required

resources and the markets that are there are of no use. Industrial

revolution will in turn, enable the country to regenerate her agri­

culture. Someone may insist that the proposed program is difficult

to achieve. But this is the final remedy for the country. Erom an

economic point of view, any further delay is objectionable because

the land of East Pakistan is too hard to be thoroughly cultivated by the use of wooden ploughs drawn by her soil grown pair of bullocks.

While in West Pakistan the scarcity of water can only be met by the

electrification of farms. Land-holdings can be maintained or in­ creased in size by suitable legislation and mechanization by all accounts in a growing economy means more jobs. Therefore, one should not be afraid of the lull that is always before the storm. In short, if agriculture is to make its effective contribution

to the economic development of Pakistan, producing more, selling

more and in turn resulting in capital formation, the solution of

many of these problems depends not on mere institutional change but

on the underlying spirit which gives meaning and validity to changes

in form. After all, institutions are a means, the end is the devel­

opment of human desire to live in the spirit that he has before in

him. Some weak spirits may bemoan their hard luck but for them

there is a hope that lies in mechanization of agriculture because

it overcomes the vicious circle— bullock cultivation— less produc­

tion— less capital formation— unemployment— loss of independence.

But this vicious circle can only be overpowered if the proposed

program is immediately and sincerely followed because "mechaniza­ tion" means increased production, more capital formation, employ­ ment and prosperity. CHAPTER VIII

THE PROBLEM OF INCREASING PRODUCTION

Historical Perspective

The object here is to relate the present situation of Pakistan to the policies for increased production. The method of analysis associated with economists from Smith to Marshall consists in explaining and describing the way in which self-interest determines what particular goods are produced. It was supposed that self- interest, working through the pricing mechanism, would automatically lead to an optimum allocation of resources. It was but natural that

J. B. Say expounded his famous "Lavra of the Markets," that is, he denied the possibility of general over-production, while J. M. Keynes 16 took the affirmative position over the theoretical proposition.

It is not hard to see why Sismondi and Marx vainly attacked Say’s

Laws. However, Say’s Laws as Ragnar Kurkse argues, comes into its 17 own for underdeveloped areas:

The idea seems to be winning more and more acceptance that the secret of development— if there is any one formula— is the expansion of the domestic market and mass purchasing power. For this the prime requisite is production— pro­ duction correctly oriented toward producer's and consumer's needs— in other words "balanced growth.11 If deficient demand episodically or cyclically plagues the more developed economies, deficient output chronically besets the under­ developed areas.

16 Essays in Biography, Horizon Press, New York, l?5l. ^Ellis, H. S., "Economic Growth and Development," Journal of Farm Economics, Vol. XXXVU, No. 5* December 1955, P# 8o8. 65 66

These few words clearly Indicate that what is required in

Pakistan, is more production, far more production and yet more pro­ duction. The technical revolution in the eighteenth century reached agriculture but has not been so complete as in industries. Still agriculture is carried on throughout the entire world, while indus- trail production is localized. Along with diversification goes considerable regional specialization. Climate and soil, however, limit the possibilities of adjusting its production to consumer demand,

In its rudimentary form of handicrafts, manufacturing can be traced back to the primitive economy of hunters and tillers of soil. The m o d e m factory is a product of long development; the term manufacture reflects its origin in the handicraft shop. In no other countries are these features of the factory system so conspicuous as in the United States. Even now, except for a score of countries, large parts of the world have just entered as apprentice­ ship in the art of building and running factories.

Agricultural Production

In Pakistan the basic and most important problem for capital growth is to increase production first in agriculture that requires relatively less capital than industries. As a matter of fact, the possibility of over-production in underdeveloped countries is still considered less than an actuality. Her craftsmen, despite their skill and diligence are pathetically inefficient in comparison with that of the m o d e m manufacturers. Moreover, in the underdeveloped countries, where raw materials are processed by hand, the customers

are usually so poor, and the price they can pay for purchased articles

is so low, that local craftsmen earn little more than a bare subsist­

ence. More and better food is needed and will be consumed if only

the income is made available to the general folk of Pakistan. Thus,

the increase in consumption will force her government to resort to

induced savings with the use of food rationing, taxation and restrict­

ions on imports of luxury goods. If the shortage of food as continued

throughout the last year is not overpowered by increased production

or imports, the position will further deteriorate and dissaving will

take place in the country. Moreover, the productivity in the under­

developed country is not easy to accelerate because of the degree of

disproportion among the factors of productions and adherence to out­ moded techniques.

Table ll*

FOOD GRAINS SITUATION IN PAKISTAN*

Area Yield Per Million Acre in Imports Exports Year Acres Pounds '000' tons '000' tons 191*8 35.3 61*2 125 Nil 191*9 37.3 811* 200 Nil 19*0 37.6 790 Nil 200 19*1 38.1* 773 Nil 150 1952 37.3 699 325 32 1953 37.6 673 718 78 195U SO. 8 773 13U 138 1955 39.2 721* Nil 151 1956 38.3 618 1176 Nil •^Appendix Table 63 Source: "Economic Observer," Karachi, Pakistan, 1956, Vol. 8, No. 2l*j p. 15.

As will be seen from Tables ll* and 15 Pakistan's self sufficiency 68

Table 15

FOOD REQUIREMENTS OF PAKISTAN AT THE PRESENT LEVEL OF CONSUMPTION*

Food deficit 'd' Daily Requirements Surplus 's' Quantity of Pakistan 1956-57 1960-61 Per 1956-57 1960-61 Per cent to food Persbh (million tons) Requirements Cereals (15) 13.58 15.12 8.5 'd' 7.8 'd' Pulses/ (1.75) 1.52 1.68 25.6 1d* 20.0 * d* Vegetables (10) 9.35 9.73 1.9 's' 1.5 's' Fruits (3) 2.85 2.95 0.3 's’ 0.5 's' Milk (10) 2.19 2.27 15.9 'd' 12.0 *d* Sugar and Laggery (l) 1.38 1.1(5 19.0 'd' 16.5 «d» Ghee or vegetable oils (0,5) 0.56 o.58 15.0 »d» 10.2 *d' Fish (1) 0.92 0.96 6.5 's' 8.5 's' Meat (o.75) 0.69 0.72 15.0 'd' 10.6 »d' Egg (o.5) 0 .I16 0 .5.8 10.0 'd* 5.3 «d« 'i'otal (53.5) 33.5 35.8 --- ___

Appendix Table 61+ ( ) Oilnces / Including green pulses

Source: Data from the First Five-Year Plan, Government of Pakistan Press, Karachi, Pakistan, 1956. in food grains is largely a myth and considering the past 9 years together, this country has been a net importer of food-grains. The inability to increase the yield per acre can be accounted for by her primitive methods of cultivation. ,J-‘he problem was further dramaticized by M. N. Mclptosh, the American Agricultural 4dviser to Pakistan,who predicted food-grains imports worth about Rs. 2.25 billion by i960, if the country's food production did not meanwhile record a very sub-

n O stantial increase. The problem of food shortages is the number one obstacle in the ways and means to increase the rate of increased savings in the country. Moreover, its influence upon her foreign trade is

"Economic Observer," Karachi, Pakistan. Vol., X, No. 23 pp. 15-16 paramount. In short, an underdeveloped country’s economy is not

viable if she cannot feed her people.

There is a considerable scope in Pakistan for extending the

area under cultivation and the table reproduced below, explains

this fact.

Table 16

LAND UTILIZATION IN PAKISTAN* IN 1?55-56

Particulars Million Acres Percentage Net Area sown \ 9 . 2 21 Current fallows 11.5 5 Total area under cultivation 60.7 26 Forests 6.1 3 Culturable wastes 27.0 12 Not available for cultivation 5 7 .h 2k Area not classified 82.3 Y35 Total 233.5 100 ^Appendix Table 62 Source: "The First Five-Year PLan," Government of Pakistan Press Karachi, Pakistan, 1956*

Out of the country’s total agricultural area of lk $ million acres, 57 million acres is uncuLtivable and 60.7 million acres are at present under cultivation. Twenty-seven million acres >:V' cultivable waste can be brought under plough if the proposed program of regeneration of agriculture is followed by her because both the limiting factors of water and low yield per acre can be outplaced h j irrigation that can be expanded by tapping subsoil water with the use of electricity especially where other means of irri­ gations are limited in scope and mechanical cultivation of soils.

Moreover, the area of about 5 million acres that is badly affected by "salinization" and water logging can be reclaimed. The view 70 of John Bell, the United States expert in Pakistan under the program of International Cooperation Administration deserves a special men­ tion here in this respects

John Bell said: Of what avail is it to create new industry, if there is not enough food for those who .work in the factories and their families? Is it really possible to create new industries until the food problem has been solved? Is it even possible to support the existing industries with necessary supplies and materials to keep them going? Land is being wasted, not nurtured, he declared.

The reasons he gave for the present plight of Pakistani agri­ culture were; 1, Insufficient incentives for cultivators to grow and market more food, and 2, Insufficient knowledge and application of agricultural practices which would increase productivity and conserve soil.

However, in actual practice, so-called land reforms are not worth the paper on which they are written. Most of the tenants cannot make any improvements on the soil because of illiteracy, subinfeudation and officialism. The position at present is that the landlords are powerful both in the political and social climate of influence. While tenants are uncertain of their future due to the lack of assurance of continued possession of their own property and of the employment of the fruits of labor investment. Neither have they means or organization of their own nor the incentives to make investments. Moreover, credit facilities are too costly because the source of these is their landlord who by financial strings, as well as pride and tinge, enslaves them more and more. 71 Even now the same old conditions prevail in the country that led to

the Ricardo saying that a double gain is obtained through rising rents

and through rising prices for agricultural products as a result of the 19 limited supply of land. To top it all, some of the landlords are too

busy in their own ways primarily in politics of the country and village

rule that they feel insulted if asked about such trivial matters as

land management or if they do not find any leakage in their propensity

to waste. Furthermore, they have a bunch of idle people as body-guards

who are smart enough in the art of tactful cajoling to cheat tenants

and know how to live like a saprophite. This is one of the difficult

problems to be solved so that the country can make the best use of the

known resources in the interest of herpeople.

Table 17

THE ADJUSTMENT OF AREA UNDER POTATO CROP TO MEET THE GIVEN SHORTAGE OF RICE AND WHEAT IN PAKISTAN*

Net Income Given Shortage for Farmers of Cereals Yield Per Acre from an and Area Required (Million Acre of Crop to Meet it Crop Acres)(lbs) Calaries) Under Potato '1 2 3 h 5 6 " Rice 22.7 9 b2i 1 .3 k U7.1 250,000 Tons Wheat 10.58 73U 1.10 13.7 1U0,000 Tons Potato 0.12 7135 2.27 2 9 k .h 103j359 Acres

In order to have some assurance of success over the present food shortage of cereals which is a great hindrance to the ways and means of capital growth in the country, a method of substition

19 Newman, P. C., "Source Readings in Economic Thought," Norton and Company, New York, 195U> p. 191• of potatoes in the diet has been worked out along the lines as shown

in the above table.

With the given population of 82.1+ million 70 per cent of 2021

calories for cereal in the diet and 10 per cent for seed, feed and

wastes of the total cereal production in the country, the above 20 table summarizes the results of major importance. From the column

ht it is easy to estimate the difference in calories to be achieved

by shifting two-thirds of an acre of rice and one-third of an acre

of wheat to one acre under potato production, and that comes to 1.01

million calories. By converting the shortage of 380 thousand tons

of rice and 11+0 thousand tons of wheat first into number of acres

with the use of figures given in column 3 and then into calories,

it has been estimated that at the present rate of yield per acre

of potatoes 1.03 millions of acres (3.1 % of the present area under

rice and wheat) of this crop will be sufficient to offset the existing

shortage of the cereals in the country. However, potato crop can be

successfully grown in the country and easily stored to>use it through­

out the year if homes are electrified. Besides, the country is rich

in hydro power resources and if utilized, the living conditions of

Pakistani people will be greatly improved through the use of electricity.

Moreover, the yield of potato crop which is very low, now in

Pakistan, can be very easily increased at least up to the extent of

5 0 per cent which will further increase the area available for other

20 Black, J. D. "Future Good and Agriculture Policy," McGraw-Hill, New York, 191+8, p. 1+2. 73 cash crops. It may also be pointed out that by the growing of the po­ tato crop, the farmer will receive on an average 26k rupees per acre more than that from the two-third of an acre of rice and one-third of an acre of wheat. However, a minor difficulty will arise in developing a taste of the public for using potato as more than cereals but this problem can be solved very easily. The idea of eating potatoes could be greatly supported after it is practiced. Or its possibility becomes self-evident when it is considered that many countries of the world use potatoes as a major food crop. In addition, the cultivation of this crop takes more labor per acre than these two cereals and this is advantageous to the country in the light of creation of avenues of employment for her genuine­ ly surplus rural population.

Another important aspect in regard to increased agricultural production is the localization of crops in the two units of Pakistan.

The growing of rice, jute, sugar cane, tea and banana in East Paki­ stan and cotton, potato, wheat and oil-seeds in West Pakistan should be her major policy because of climate. If this policy is strictly followed, it can improve her agricultural production to a great extent.

Unfortunately, there is a tendency in many underdeveloped countries to­ day due to a less developed wmarket-systemw to go over-board for other factors such as the idea of regional self-sufficiency at the expense of efficiency of production.

Each country has its special advantages and in this respect Pakistan does stand a suitable chance to improve her economic condition. For instance, Pakistan has an almost world monopoly in jute production

and can make an economic gain by using it as much as possible at heme

and selling it much cheaper to outpace its substitutes that are being

developed abroad. Besides, her climatic and geographical conditions

are such that allow her to maintain her superior position in the field

of agriculture such as fine jute, and more recovery of sugar from cane

in East Pakistan, and better yields and quality of wheat and higher

yield of cotton in West Pakistan than most countries of the world.

Industrial Production

The whole aim of the industrial program is to employ surplus

rural population seeking some means of livelihood. It is only if

mere is produced at the farm level that there will be more to go

round. Some progress has been achieved with the sustained efforts

of her people but a great deal however, remains to be done on

account of the lack of capital in the midst of known resources such

as natural gas, iron ores and coal mines. Moreover, it is essential

to give serious thought to the speed and direction of development.

Above all, the country needs a balance between agricultural and

industrial development. In no case, the latter should be given a preference to the former because a reconstructed agriculture is the basic source for the country to industrialize herself.

The progress of industrialization which has proceeded in Pakistan at a fairly rapid pace can be estimated from the data of the following Table:- 75 Table 13

INDUSTRIAL PRODUCTION OP PAKISTAN:-::- 19)48-56

Index of Per Cent Industrial Contribution Production of Mining and Covering 17 Manufacturing Industries In Total Year 1950-51 = 100 National Product 19U8-U9 71 5.5 19^9-50 89 6.9 1950-51 100 7.1 1951-52 125 7.7 1952-53 171 8.3 1953-5U 21*6 9.2 195U-55 285 9.9 1955-56 350 ll.it 1956-57 382 N.A. -^Appendix Table 65.

Table 19

COST OF LIVING INDEXES OF INDUSTRIAL WORKERS BT SELECTED CENTRES OF PAKISTAN* (Base Year, I9U8-U9 = 100)

Cost of Living Cost of Living Indexes in Karachi, Indexes in Narayanganj Year West Pakistan East Pakistan 19it9-50 98 103 1950-51 95 98 1951-52 100 10U 1952-53 10U 109 1953-5U 112 106 195U-55 109 90 1955-56 106 99 1956-57 110 129 ^Appendix Table 6 6 ,

As revealed in Table 18, the index of industrial production has continuously gone up about 5 times in 1956-57 over the year 19U8-1|9.

This means that acceleration in the tempo of industrialization has been an important aim of government's fiscal policy. The percentage share of mining and manufacturing in the total national product was also, a little more than double in 1955-56 over 191*8-1#* But the cost of living indices in 1956-57 has shown only 10 per cent rise over the base year. Had there been no effect of food shortages on the prices of commodities, there would have been far more increase in the rate of added capital formation in the country than what actually resulted. It is necessary for the government to be very cautious about the conspicuous price rise that takes place due to inflation and population growth. The stability of the unit of currency for the progress of the country is an essential factor and therefore, the importance of agricultural development becomes quite obvious to check the inflation that has been caused by the tempo of industrialization and shortage of food in the country*

It is really impossible to create new industries until the food problem and possible support with necessary supplies and materials come from agriculture. One must remember that the proper balance between agricultural and industrial production is the primary condition for the advancement of an underdeveloped country, other­ wise the increased production in the industrial sector in its initial stage is of little use compared to agriculture* The country will not be able to meet the costs of her food imports through the little increase that she has achieved from industrial­ ization program if the policy of balancing between agricultural and industrial production is net maintained* Moreover, the estab­ lishment of new industries should be determined by their ability to 77 utilize indigenous raw materials and to earn or save foreign exchange.

The correction of the existing imbalance and localization in the industrialization of the various geographical areas of the country should be one of the important considerations.

Small Scale and Cottage Industries

These have made a specific contribution* and serve as a second string to the bow in an underdeveloped country. These are not to be thought of as archaic institutions requiring coddling and production lest they disappear. There is a permanent place for efficient and progressive small scale industries in the modem industrial world of over-populated countries such as Japan, China and India. However, the opportunity for such industries to survive and grow are even greater in Pakistan where large scale units are things of the near future. The role of knowledge and skill required for modernizing them should not be forgotten as it has generally been -the case in highly industrialized and under-populated countries e. g., Australia and the United States. Small industries suffer serious handicaps and therefore the policy of the government must accommodate them even to the extent of some legislation regarding subsidies and tariffs, contrary to the promotion of foreign trade of the countxy.

The Table 20 reproduced below gives a general idea of their con­ tribution in the economy of Pakistan. 78 Table 20

THE PROMOTION OF SMALL SCALE AND COTTAGE INDUSTRIES IN PAKISTAN: 19^1* (million rupees)

Productive Capital Sector Value Invested Agriculture and feed industries 26Jfc.i 83.7 Textiles £2£.o 126.1 Cane, bamboo and wood industries E>3.1 11.1 Leather and rubber industries 130.7 17.3 Glass and ceramics 18.2 U.ii Chemicals U3.J? 9.6 Metal Products 27.7 10.0 Miscellaneous industries 19.li 6.3 Other industries not listed 686.0 # . 0 Total IillS.O 323.8 Source: "The First Five-Year Plan," Government of Pakistan Press, Karachi, Pakistan, 1 9 !?6 .

The total output of small scale and cottage industry as shown in Table 20, was valued in 193>il at Rs. Ijll6 million. In view of the conspicuous shortage of capital and genuinely surplus rural population in the country, any program proposed to develop the country must not lose sight of the important role of these indus­ tries. 'Their returns involve relatively little investment of cap­ ital, and their capacity to provide a moderate type of gainful em­ ployment to the unemployed persons are greatly needed in the process of economic development and capital growth of the country..

Water as a Basic Resource

Pakistan has an average annual rainfall of £ 0 inches (East Paki­ stan 88 and West Pakistan 12 inches) a year but it is not evenly distributed. That too much of it is in East Pakistan and too little

in West Pakistan, is one of the major obstacles of the country. Of

course, its uneven distribution in terms of time, with wet years and

dry years has a tremendous effect on agricultural production in the

country. Floods have stood in many ways in the economic development

of the country since her inception. But it is easier to deal with

floods than with droughts. Her great rivers can be controlled by

dams etcetra, as they are in the Tennessee Valley in the United

States. A deficit in water is harder to supply. The use of water in

increased production are many. Most important ones are irrigation,

hydro-electricity and waterways. Another way is to increase its

quantity by using sea or underground water. But the problem is to get

the cost down to an economic feasible level. Therefore, to step up

the deep underground resources of water at a rate faster than that

of any replacement is a big issue for the nation. If she does net

take pains her descendants may not go thirsty, but they may be

rather poor due to less agricultural production.

In West Pakistan, the waters of her extensive system of rivers have been tapped to bring irrigation to nearly 22 million acres of land, enabling this otherwise arid region to grew rich crops of what,

rice and cotton. Under the First Five-Tear Plan, 2.1* million acres

of new land will be brought under cultivation by i960 and another £ million acres will get better water facilities and drainage. In

short, water gives life to agricultural production and this resource in development programs, should be given topmost priority. The fanning business, however, has by nature certain character­ istics of instability and change in the fast developing economy but the mechanization and modernization of commercial agriculture has made revolutionary progress since 191*0 in the United States. We generally ascribe the persistent increases in national product per capita in the United States to a favorable physical environment, particularly plentiful material resources but in fact, the progress can be largely attributed to her best equipped, most efficient and the most dynamic agriculture in the world. CHAPTER IX

THE PROBLEM OF SURPLUS RURAL POPULATION

In an undeveloped country like Pakistan where the key to capital

formation is held by the reduction in the pressure of population on

land and provision of alternative employment opportunities for the

vast masses of unemployed persons in industries, the study of genuinely

surplus rural population becomes the number one problem. Surplus pop­

ulation, however, is a term which is difficult to define in the con­

tent of Pakistan's agriculture. But it is responsible for the un­

believably low productivity of her agriculture. Theodore W. Schultz

also stresses that the basic economic difficulty confronting the farm

sector is to be found in the fact that too many workers are engaged 21 in farming* Too many farmers, however, is no new idea as to the

cause of agricultural distress. This means that a sizable net trans­

fer of labor from the agricultural to the industrial sector must

occur if any progress is expected in the country. Moreover, social

and cultural barrier to "farm-urban migration" does not pose a serious

problem because the country has a density of population beyond

the employment.capacity of agriculture and unemployment as well as underemployment have become chronic phenomena. If. Pakistan wants to

^forking, E.J., "Economics of Growth and Stabilization," Journal of Farm Economics, The American Farm Economic Association, Vol. XXXtfm No* 5, December 1956, p* 1158. 81 maintain high employment there is little question that the total flew of savings must be large and the bulk of funds for creating

avenues of employment must come from internal sources such as re­ newed agriculture. It is evident that there is a great need to

institutionalize and to mobilize savings but for this purpose the

analysis of the implications of land scarcity and the extent of unemployed persons becomes essential for means of solving the problem of surplus rural population.

Implications of Land Scarcity

A special problem in underdeveloped and over populated areas is the imperfect substitutibility of human labor for land and cap­ ital equipment in production. The possibilities of substitution of labor both in production and consumption among the factors of production differ enormously but in no case the limits of it are infinite. Speaking relatively, the substitutibility of land is far less than labor and capital in those areas. Some of the under­ developed countries already suffer so much from acute overcrowding on the land that one can safely conclude that to a great extent scarcity of land accounts for their low incomes. Thus a ratio of land area to labor force in agriculture is important especially when the ratio drops below an acre or so of net sown area. In such a case when the marginal physical product becomes difficult to raise, the Implications of the land factor supersede to superior technology, and other factors of production. Moreover, the genuine 83

scarcity of land preempt and bar the technological progress or large

investment. Therefore, the following table that shows the ratio of arable land area to labor force in agriculture, is of great help to predict the viability of the economy of the given countries.

Table 21

ACRES OF ARABLE LAND PER CAPITA OF AGRICULTURAL LABOR FORCE IN SELECTED COUNTRIES: 19U8

Per Capita of Agricultural Labor Force Country (Acres of Arable Land) Netherland U.67 Austria U.6 It Bulgaria 3.85 Poland U.03 Australia 72.27 Canada 70.07 United States 58.76 Venezuela 78.89 Egypt l.lp. Turkey 7.62 Japan 0 .8U India 2.57 Pakistan 3.52a East Pakistan 2.06 West Pakistan 5.88 Union of South Africa 1 U 5 Indonesia 1.97 a"Economic Survey and Statistics for 1956," Government of Pakistan Press, Karachi, Pakistan. Source: United Nations: Food & Agriculture Organigation, Yearbook of Food & Agricultural Statistics 1 9k9s Washington 1950: pp. 13-17 & 2U-27.

The land-man ratio in East Pakistan is not so unfavorable in comparison with Japan, Egypt and Indonesia. Pakistan's land pos­ ition, particularly West Pakistan is less scarce than the selected

European countries. However, in relation to Australia and countries of the new world, the implications ef land scarcity can he accounted

for by the increase of the genuinely surplus rural population in

Pakistan,

Indo-PakLstan economists estimate conservatively that a quarter

of the rural population is surplus, in the sense that its removal

from the land would make no difference to agricultural output, W.

E. Moore, "Economic Demography of Eastern and Southeastern Europe"

suggests that perhaps 35 to hO per cent of the population dependent

on agriculture in that region adds little or nothing to output.2^

Doreen Warriner, has drawn similar conclusions with respect to under­

developed areas,2^ According to one estimate, unemployment in Puerto

Bico amounts to 16 per cent of the working force,2^ In order to

realize the effect of unemployment on capital growth, perhaps it will

suit us to give the estimated percentages of unemployed persons of the

United States labor force during the great depression and the last

two years.

Income is a function of employment and the genuinely unemployed

persons are dissavers for a country. By 1956, unemployment had

dropped from 25 per cent in 1932 to 3 per cent, accompanied by an

22 Lewis, V, A,, "Reflections on South-East Asia" District Bank Review, December 1952, p. 11,

l e a g u e of Nations, Geneva, 19kS, pp. 61-75 and appendices,

2^Warriner, Doreen, "Land and Poverty in the Middle East," Royal Institute of International Affairs, London, 19b8,

^"The Freeman", The Foundation for Economic Education, New York, August 1956, p* 28, 85 increase of 56 times total gross private domestic investment per

capita over 1932.

Table 22

DOMESTIC INVESTMENT, DISPOSABLE PERSONAL INCOME AND THE PERCENTS OF UNEMPLOYED PERSONS OF THE UNITED STATES’ LABOR FORCE DURING THE GREAT DEPRESSION AND LAST 2 YEARS

Total dispos­ Total Gross able Personal Private Per Cent of Income Per Domestic Unemployed Capita on Investment of Labor Current Prices Per Capita Year Force (dollar) (dollar) 1930 7.8 81+ 1931 16.3 5iU 10* 1932 2 h.9 389 7 1933 25.1 362+ 11 193U 20.2 2*11 23 1935 18 .U 2*58 50 1936 1U.5 517 66 1937 12.0 551 91 1938 18.8 5o5 52 1955 3.2 1637 36 7 1956 3.0 1705 389 Source: !,The Freeman," The Foundation for Economic Education, New York, August 1956, p. 28. Economic Report of the President, U.S. Government Printing Office, Washington, pp. 131, 137 & lUU.

The Extent of Surplus Rural Population in Pakistan

The estimation of the genuinely surplus rural population in

Paksitan becomes essential in order to have an access to a proposed solution of the problem. Moreover, the extent of this group is directly related to the issue of capital growth and its limits are fluctuating due to the development program of the country. In this analysis, the estimates of "Capital requirements” for creating a new job for an adult in an industry has been based on the estimates 86

used in India. However, these estimates at the same rate of in­

crease have been projected. For example, these estimates for India

ranged from Rs. 2lj25 to Rs. 3765 from 19 U6 to 1950. Working on this

basis, it has been estimated that Rs. 2000 for 19U7 and Rs. !|000 in

1956 would be required to create a job for an adult in Pakistan. The 27 Atwater's scale of adult male units has also been used. ' In order

to illustrate and summarise the procedure of finding out the extent

of surplus rural population in the country the following table is

submitted

Table 23

MANPOWER. IN PAKISTAN IN SELECTED YEARS* (million persons)

Idult Feminity Economically Male Workable ■ Effect Inactive Units Year Population Members (lt-3) (2-1+) _ 1 2 3 It 5 6 19^7 72.01 52.73 55.90 3.17 16.11 1951 75.9C 55.61 58.96 3.3U 16.99 1955 80*38 58.87 62,1.0 3.53 17.98 1956 81.1$ 59.61 63.19 3.58 18.21 1957 82. h2 60.36 63.98 3.62 18. UU * Appendix C. In analyzing the above table, the difference between the column U and column 3 gives us "feminity effect" which constitutes U.U per

^"University Economist," University of the Pjjnjab, Pakistan, Vol. 1, March 195o. p. 23*

^The Atwater's scale of adult male units as given in Chinese Farm Economy tjp Buck on P. 17, is reproduced below:-

Age in Years Equivalent Adult Male Units Male Female Over 16 1.0 0.8 15-16 0.9 0.8 l3-llt 0.8 0.7 12 0.7 0.6 . 10-11 ,0.6 0 . 6 6 - 9 0 . 5 0 . 5 cent and subtracting the column L). from column 2 we get the extent of persons economically inactive -which is 2 2 .U per cent of the total population in each year. This means that the remaining 73*2 per cent of the total population is either fully or partially employed or un­ employed in the country.

Working on the basis of the assumed "capital requirements" for a new job and the given rate of productive investment, the number of

;jobs created can be estimated. According to the findings of the in­ quiry conducted by the board, 20 per cent of the total population was OR unemployed in. the country, and thus, the employed persons in the country constituted 53.2 per cent (one hundred minus b»k% for "femin­ inity effect", 22,k% as economically inactive and 20$ for unemployed in the beginning of the year 1 9 )4-7.) In the table given below, the increase in employment is shown for four selected years, 19bl to 1 9 5 6 .

From the table below first, the amount of productive investment has been worked out with the help of columns 2, 3 and 9>‘ Second, at the given rate in column U for each year onward from 19b7, the number of new jobs has been estimated and finally the increase in employment as shown in column 6 , has been calculated. It may be added here that the per cent of employed workers of total population in early

19U7 was 53.2 per cent. As shown in Table 2lj., the increase in em­ ployment during 1956 was O.U per cent over the previous year.

“Agricultural Labor and Wages” 5 Board of Economic Inquiry, Punjab, Pakistan, Publication No. 106, 195U. 88

Table 2k

INCREASE IN EMPLOYMENT IN PAKISTAN FROM 1?U7 TO 1 9 5 6

The Rate of Productive Capital re­ Percent Investment quirement National of Total Popula­ as Per Cent for one Income Popula­ tion of National new Job Per Capita tion em- ■ Year (million) Income (rupees) (rupees) Ployed

1 2 3 U * 5 6 19it7 72.0 3.0 2 0 0 0 2 2 0 53.65 1951 76.0 3.9 2750 2l;2 5M 9 1955 80.lt 5.1 3750 2U5 56.17 1956 8l.lt __5*5 Uooo 237 56.57 -^Appendix D-I

In order to show the percent of unemployed persons in the country the following table in a summerized form serves a very useful pur­ pose :-

Table 25

THE PER CENTS OF UNEMPLOYED PERSONS OF THE TOTAL POPULATION IN PAKISTAN

Total Feminity Eosomically Population Effect Inactive Employed Unemployed Year (per cent) (per cent) (per cent) (per cent) (per cent) 1 2 3 It 5 ...... 6 19lt7 100 lt.lt 22.1- 53.6 19.lt 1951 100 U.lt 22. k 5U.9 18.3 1955 100 lt.lt 22.k 56.2 17.0 1956 100 U.it 22. h 56.6 16.6

The percentage of unemployed workers in the country can be worked out by subtracting columns 3 to 5 from column 2. It has been found that the decrease in unemployment is O.lt per cent in 1956 over the year 1955* Considering 6.6 per cent unemployment for involuntarily idle and others engaged in non-productive work, the country at this rate of increase in employment would take 25 years from now to attain

the cherished goal of full employment.

For the purpose of estimating the surplus rural population in

the country further assumptions made in this analysis are: that the

extent of unemployed persons in the urban and rural areas is in the

ratio of U as to 7 with respect to total surplus population. Further-

more, by the adoption of mechanization of agriculture 2h per cent of

the total population would be shifted into non-agricultural sections

within the next 2h years^i. e., by 1980 taking 1957 as a base year.

It may be stated here that the assumptions are not only based on the

current rates of increases in employment and urban population but

also equal rate of population growth both in urban and rural popula­

tion as well as one-third of productive investments have been

allocated to agriculture. For this purpose, also productive rate of

investment has been projected by taking two-thirds of gross savings 29 for added investments in the country as a whole. The following

table illustrates the projections made in this report.

29 Appendixes C and D-2 90

Table 26

THE FEE GENTS CF URBAN AND RURAL SURPLUS POPULATION OF THE TOTAL POPULATION IN PAKISTAN

End Population Surplus Population b of Total Urban Rural Urban Rural Tear (Million) (Percent) (Percent) (Percent) (Percent)

1957 82 *U lii 86 5.9 10.3 I960 85*6 17 83 5.5 9.5 1965 91.1 22 78 U.7 8.3 1967 93.U 2h 76 U.i 7*8 1970 97*0 27 73 li*o 7.0 1975 303.3 32 68 3.3 5.7 1977 106.0 31* 66 3.0 5.2 1980 110.1 37 63 2*6 l(.li a At the rate of l£ increase in a year* b At the present rate of O.U£ increase in employment*

In Table 2$, the extent of surplus urban and rural population in

1980, on the assumptions described above and at the present rate of economic development of the country, would be 2.6 per cent and U*U per cent of the total population respectively* While nor the per cent of surplus rural population works out at 10*3 per cent of the total population* In order to emphasize the effect of unemployment on cap­ ital growth in the country, Table 27 will help to explain the fact further*

As shown in the table below, in 1980 about two-thirds of the total population would be fully employed in the country* At present there are nearly U out of 9 fully engaged in their work* On the assumption of the present rate of economic development, during i960 the extent of the fully and partially unemployed workers would be exactly one-fourth of the total population* 91

Table 27

THE PER CENTS OP FULLY EMPLOYED AND UNEMPLOYED PERSONS OF THE TOTAL POPULATION IN PAKISTAN

Feminity Economically Fully Partially* Fully * Effect Inactive Unemployed Bnployed Employed Year (per cent) (per cent) (per cent) (per cent) (per cent) 1 2 3 b 5 6

1957 h.k 22.h 16.2 11.2 ii6.8 I960 b*b 22.k 15.0 10.0 48.2 1967 b*b 22.k 12.2 7.2 53.8 1970 b*b 22.h 11,0 5.0 56.2 1977 b*b 22.b 8.2 3.2 61.8 1980 b.b 22. b 7.0 2.0 6U.2

a The p r cent of the partially employed has been assumed as equal to fully employed minus 5 per cent for the voluntarily idle persons. While the per cent of the fully employed has been estimated by sub­ tracting columns 2 to 6 frcm one hundred.

There are possibilities for establishing industries as well as

exploiting rich mineral deposits, fisheries and hydroelectric poser

in Pakistan. Besides, there is a strong and long standing conviction

that man will always conquer his problems. In the problem of surplus

rural population, the government and her people must share their

doggedness. To be successful, they cai find their ways and means in

realism but even more in technical knowledge. Full employment in

the non-faxm economy and further progress in the decentralization of

non-farm employment will be most helpful in this process. What is

more, is to give up the aristocratic education system which is one of

the most important of all reasons why these areas have remained un­

derdeveloped.30

30 DeQraff, Hbrrell, "Seme Problems Involved in Transferring Technology to Underdeveloped Areas," Journal of Farm Economics, the American Farm Economic Association, Vol. iiklfTT,"TTo. 1*, Part 2, November 1951, P* $98. 92

Thus, the increase in employment situation of the countiy would certainly reduce the disparity and bring out not necessarily increase in the level of consumption but also add to the rate of productive savings in the country. Moreover, the number of dissavers will be reduced, and the over-all situation of the country as a whole would be greatly improved due to increases in production. CHAPTER X

THE MEED FOR SUPERIOR TECHNOLOGY

The decline in rapid increase of living standards is again a

case of guns against butter not through the failure of technology.

In this divided world our masters are less worried about how much we have to eat than the one fear of mistrust and some political con­

siderations. Worth mentioning is the fact that the technological revo­ lution in agriculture has helped to raise levels of living. The momen­ tous shifts from animate to inanimate energy and rural to urban popula­ tion are indeed the net results of technological change. The chief ef­ fects of the fruits of technology are not necessarily the reduction of animal farm population and in the drudgery of labor but are against speed and increases in output. Technology is also constantly adding to our supply of basic resources by discovering new materials and 31 ways to put them to use and new uses for existing materials.

The trend of population raises still further questions and has ap­ peared as a greatest factor affecting net national product per capita in discussions of diminishing returns to scale, in discussions of increasing returns to scale, and in discussions of investment and savings merely because of our inability to discover what is in the nature's store. Investment in human beings, especially in education

^"Dewhurst, J. F., "Technology-Primary Resource," America's Needs and Resources, The Twentieth Century Fund, New York, 19$$, P* 877*

93 9k 32 is obviously necessary to progress. It is a question also how

much of the rise in the standards of education is needed to out­

pace the population growth which is a function of time. Thus the

struggle for making a good living is highly linked with our

achievements in technology. The material well being or increase

in capital growth through increased productivity i. e., income

gains and qualitative changes, are largely the results of human

progress in superior technology. Especially since 1900, the

statistical averages provide an indication and reflect the growth of

dynamic technology.

The importance of technology has probably been accentuated 33 in the minds of people by the exploitation of atomic energy.

It adds to our admiration that productivity and therefore also

net national product per capita will grow more rapid rates in

the future than in the past. Furthermore, no serious impediments

to the utilization of our increased productivity will be created by a dearth of investment outlets. The division of labor that was once scarcely beyond a traditional recognition new has resulted in an astonishing change because of its use and achievements. Pre­ cisely, potential resources of a country cannot be brought into

32 Galbraith, J. K. "Economic Problems of Underdeveloped Areas," Journal of Farm Economics, The American Farm Economic Association, Vol. Xj&IlI No. it, Part 2, November 1951, pp. 689-696. 33 Fabrlcant, Solomon, "The Economics of Growth and Stability in the Uhiteid States," Journal of Farm Economics, The American Farm Econ­ omics Association, Vol. ISxVtl! No. 5, December 1956, p. 1131. economic production unless some sort of technology is used. To top

it all, this is perpetual, unlike capital, and in fact, is an in­

exhaustible primary source.

The technological revolution in agriculture has greatly in­

creased the production of foods, and textile fibers and lessened

labor requirements. It will be seen from the following table that

far less workers engaged in agriculture in the United States have

been able to feed their nation better than a larger number of

workers in Pakistan, mainly on account of the difference in tech­

nology.

Table 28

SHOWING THE DIFFERENCE IN THE NUMBER OF WORKERS ENGAGED IN AGRICULTURE AND THEIR OUTPUT IN TWO SELECTED COUNTRIES: 195k

Agricultural Total Per agri­ Civilian Labor Force Agri­ cultural Labor % of total cultural Worker Force Number labor Products Out­ Country* (million) (million) force (billions) put

U. States 6k.5 7.9 12.2 38.U U861 Pakistan 2luU 15.9 65.2 11.7 736

a The unit of currency in each country has been taken equal in buying power.

Source: Business Statistics 1955} and Economic Report of the Resident, January 1957} U. S. Government Printing Office, Washington, p. 188.

In Table 28, it is clear than 2.01 times of agricultural labor

force in Pakistan is producing 3*28 times less than farm workers of

the U. S. or in other words the productivity of a Pakistani an farm worker is only about 1$ per cent or 6.6 times less than that of an

American farmer. The difference is largely due to the fact that an 96

American farmer applies inanimate instead of animate power. Perhaps, the fact of mechanical revolution in fanning and the substitution of electricity which has opened the way to the development on a tremendous scale may serve a useful lesson for the government of an undeveloped country and she may begin with mechanization and electrif­ ication of farms and make the most of what she possesses in resources, in institutions and from borrowed know-how.

The problems, particularly of cultural capital are deeply rooted in the social and economic life of a nation. They cannot be solved by a simple formula or income spendings and a series of uncoordinated prescriptions for each problem. They can only be solved if all elements of a society including government, recognize and discharge their respective responsibilities. A government must not dissipate her energies in fruitless lip service or superficial criticism or, worse still, in self-serving action which undermines the whole system because time and tide never wait for a man. However, if

Pakistan wants to strengthen herself financially, the gap of the classes of business enterpreneurs, engineers and scientists must be filled by educating her people and through borrowed technology.

In order to threw further light upon the defects of outmoded techniques followed by a Pakistani an farmer in his daily farm work, the table 29 will shew a point of major importance:- Table 29

VALUES OF DIFFERENT SECTORS OF AGRICULTURAL AND INDUSTRIAL PRODUCTION OF PAKISTAN IN SELECTED YEARS* "Prices* Average of 191*9-50 to 1952-53" (Million Rs)

Agricultural Production Industrial Production Crops and Livestock and Year Forestry Fisheries Manufacturing Mining

191*9-50 7513 221*9 3191 23 1951-52 7315 3180 3371* 30 1953-51* 81*09 3251* 1750 36 1955^56 7835 3390 2189 1*3

* Appendix; Table 67.

In Table 29 above, the point worth discussion is that in the case of

manufacturing and mining there has been a considerable and continuous

increase in realized amounts in comparison with crops and forestry.

The main reason that could be built up in its defense is that manu­

facturing and mining are being performed by the use of inanimate power

while crops are being raised through an outmoded technique i. e«, al­

most entirely with the use of animal and man power. Perhaps, the

little variation that results in agricultural production in Pakistan

is either due to changes in acreages under crops and inclements of

seasons or the factor of population growth. Thus in the age of in­

dustrialization, the concern of the nation must be directed to the machine in the field of agriculture as well.

The electric power industry in which Pakistan has a favorable chance to develop her economy, not only has been able to meet a vastly expanded demand, but has greatly Improved its technology since the beginning of the twentieth century in highly industrialized coun­ tries. The average cost in January 1952 was 5*0 cents per kilowatt hour for consumers of 2£ kilowatt hour a month canpared with 6*8

cents in 1931* All this clearly shows that the future of any

«%l nation is vitally linked with this source of power. The higher

productivity and higher earnings of American workers were meas­

ured by Colin Clark who found that the real national product per

man hour in the United States in 19U0 was over 75 per cent higher

than in Great Britain, more than twice as high as in Germany and 35 over $ times that of Japan and the U.S.S.R.

The following table describes the average labor time required

to purchase U items of food, amplifies the point of major issue 1

Table 30

THE TIME REQUIRED TO PURCHASE A FOOD BASKET OF FOUR ITEMS IN SEIECTED COUNTRIES Unit - Minutes

Food Items Each One Pound Country Wheat Flour Butter Eggs Sugar United States U 31 22 It Oiile 13 167 105 13 Canada U 39 29 6 Great Britain 7 37 66 9 U.S.S.R. 36 373 291 122 Indonesia a food basket of these four items

Source i Dewhurst, J. F., Bata from "America Needs and Resources" The Twentieth Century Fund, New York, 1955, p. 897*

These figures are subject to important qualifications but do

3h Statistical Abstracts of the U. S., 1902, p. 13 and 1951, p. 228*

35 Dewhurst, J* F., "America Needs and Resources," The Twentieth Century Fund, New Toxic, 1955, p» 893* 99 reflect the importance of superior technology in the selected countries.

It may hot be more than a half truth that capital formation largely re­ sults from the use of advanced technology. The strength of the economy of a country can not be judged by her rank in superior technology but it is a very important factor. Besides, the comparison of human and animal energy can be well expressed if it is shown in a tabular form:-

Table 31

THE PER CENT SHARE OF ANIMATE AND INANIMATE SOURCES OF ENERGY IN TOTAL WORK OUTPUT IN THE UNITED STATES

Year Human Animal Inanimate 1650 1 3 . 0 5 .3 0 .9 1 9 0 0 52.k 2 1 . 5 0 . 6 195>0 3U.6 - 73-2 9 8 . 5 Source: Dewhurst, J. F., "American Needs & Resources," The Twentieth Century Fund, New York, 1955» p. 908.

In the atomic age the need and rise in the level of use of inanimate energy can hardly be overemphasized. Human and animal sources of energy should be considered far inferior to inanimate power and a thing of the past centuries. J. F. Dewhurst is of the opinion that technological prog­ ress in the forseeable future will be rapid and that we have made so far only a beginning so far in exploiting the developments i.e., application of the discoveries of science to every day life. But Harrison Brown has 36 expressed his thought regarding the distant future of it as follows:

The first and by far the most likely pattern is a reversion to agrarian existence. This is the pattern which will almost cer­ tainly emerge unless man is able to abolish war, unless he is able to make the transition involving the utilization of new energy sources and unless he is able to stablize populations.

•^Harrison Brown, The Challenge of Manfs Future, The Viking Press, New York, 195U, p. 261+* ~ ~ ’ 100

In the world of my imagination man cannot abolish war and

stabilize populations but he can only search for and discover many

a new source of inanimate energy. It is beyond our scope to discuss

here these whims. The point that cannot be over-emphasized is that

capital growth lies and is found in the advancements of superior

technology.

The first lesson of the founder of Economics, Adam Smith, is ■a? the importance of the "division of labor". Perhaps, the idea can

be traced back into the writings of other thinkers but its advan­

tages, origin and the factor influencing it described by him will

ever shine in economic literature. But the long list of forty

thousand different ways whereby Americans can earn a living is the net result of their advances in technology. How much Pakistan

should borrow the technology for her progress cannot be figured

out on account of the fact that one of the major obstacles to her

rapid economicdevelopment is the shortage of enterpreneurial and managerial talent that cannot be separated from the use of cap­ ital. Others are the implications of land scarcity and the need for balance in economic development. The solution of these three major problems and difficulties can be sought out through our primary and inexfaautible resource i. e,, superior technology.

^Smith, Adams, "The Wealth of Nations," The Modern Library, New York, 1937, pp. 3-21. 101

A simple question which is overpowering the old minds of

Pakistan is that the technology in the field of agriculture is out

of course. The reason that they put forward is that land is scarce.

The best thing that can be done in the light of the argument is to

demonstrate the effect of technological change on the physical pro­

ductivity of agriculture. For example, in 1820, one American farm

worker produced enough to provide himself and about 3 other persons

with agricultural products and now he is able to meet the require- *g ments of twenty persons including himself. Moreover, the tech­

nological developments will continue to alter the environment in

which we live. In fact, an important tool of social analysis is

the hypothesis that cultural change is largely the function of

technological advances. Thus, the popular government of an under­

developed country should create such an atmosphere that her land­

lords may begin to think that land reform is a prime requisite

of social stability and of progress in agricultural methods and

technology. In this great struggle which now divides the world,

her foremost duty becomes to facilitate progress by deeds and not 39 words.

Let us look back upon those early times and the facts. It was her industrial advancements which made a small island the Great

Johnson, S. £., Journal of Farm Economics, The American Economic Association, Vol. W C f T T No. "STMay 1^ 6 , p. 229.

^Galbraith, J. K., "Conditions for Economic Changes in Under- Developed Countries," Journal of Farm Economics, The American Econ­ omic Association, Vol. MxlllI,”No. b, Part 2, November 1951, p. 696. 102

Britain* In Old Empires like India and China where mechanization did not occur they became beggar nations with populations limited by starvation* Thus, machines and tools have proved beyond any doubt, to be the greatest single source of man's material welfare, but his fear of them has persisted. One cannot argue long over the reason for it, perhaps if he does so, he will be considered a demographer or a pessimist. The implications of land scarcity should not be regarded as the reason to give up hope for more machines mean more jobs.^

Only science and inventions or in other words the lack of superior technology are to blame for the present unemployment in a country. Even now, the word automation is a strange thing for the most mo d e m mind not to mention the layman's view on it. In short, the only way for the quest for wealth especially in case of a hungry nation which is either diseased epidemically by the lack of technology or has given up hope for mechanization of agriculture due to the implications of land-hunger, is through the widest possible use of new and better machines. The facts show and history is full of examples that the fullest measures of employ­ ment and a higher standard of living^i. e., capital growth is found in the best use and achievements of superior technology or science and innovations. But the road for their fxdctionless

^?Fairless, B, F., "Ideas on Liberty," The Foundation For Economic Education, New York, May 19£5 • 103

march compels one word more and that is the competition for the

right to accumulate property or capital

In order to illustrate the method by which Pakistan can mech­

anize her agriculture, the following table is included:—

Table 32

A METHOD OF ENLARGING THE SIZE OF LAND HOLDINGS FOR THE MECHANIZATION OF AGRICULTURE IN PAKISTAN

Average Average

A Size of Size of Agricul­ Holding Kin-Family Civilian tural Per Agri­ Holdings For Popula­ Labor Labor cultural Mechanical tion Force Force Worker Cultivation Year (Million) (million) (million) (acres) (acres) 1957 82.U 25.3 16.2 3.8 19 I 960 85.6 26.3 15.6 U.o 20 1965 91.1 38.0 1U.3 U.6 23

In 19E>1, Labor Force as a per cent of total population = 30.7: and Agricultural Labor Force = 23.1 .

195!?, Labor Force as per cent of Total Population r 3 0 . 7 s and Agricultural Labor Force a 20.7. a At the above rate, i.e., 0.5 per cent decrease per year. b Net sown area of the previous year and including 0.5 million -acres per year at the present feasible rate of reclaimed land. c The landholding consists of 5 close related families.

Source: "The First Five-Year Plan," Government of Pakistan Press, Karachi, Pakistan.

As shown in Table 32, it is possible to mechanize agriculture on a kin-family basis if some sort of agricultural machinery organ­ ization on a country level is set up. However, the organization in initial stages should be subsidized because at that time the cost of imported machinery and depreciation would be higher for the years. The minimum size of the landholdings as one square per unit (25 acres) for tractor cultivation could easily be maintained by combining the land of 5 or 6 families of close relationships only for joint cultivation* It may be added here for information that in most cases agricultural operations today in Pakistan, are being performed on an unorganized kin-family system. Moreover, a strict supervision over the rates of renting a machine to the ideal family is needed and that should be done by a sponsoring body e. g., the department of agriculture, of the Agricultural Machinery Organ­ ization*

Undoubtedly, the use of machines and inanimate energy instead of muscle and animal power, would bring an increase in production.

The increases in production or the renewed agriculture would certainly add to the rate of capital growth in the country. Thus more jobs in the country as a whole, due to the greater productivity will be created. In short, the increased use of capital created out of mechanized agriculture will not necessarily enable the nation to industrialize herself but also at the same time, regen­ erate agriculture* PART III m i s AND MEANS OF INCREASING THE SUPPLY OF CAPITAL IN PAKISTAN

105 CHAPTER XI

THE ROLE OF FINANCIAL ORGANIZATIONS IN

INCREASING THE SUPPLY OF CAPITAL

From the point of view of the now underdeveloped areas, with their strong desire to lift themselves from economic stagnation into the road of capital formation, it would he helpful to have a clear cut idea about the role of financial organizations, such as govern­ ments, corporations, banks and insurance companies in increasing the supply of capital. We cannot always rely on good will or even on enlightened self-interest because, unless the country quickly acquires economic and military strength, it would either decline because of the effect of population pressure or it would fall under the domination of one or more of the other world powers. However, this does net mean that it should subject itself to a complete planned or welfare economy that does not provide for a rapid rate of capital growth.

Governments

Undoubtedly, the individual worker cannot be held solely re­ sponsible for keeping himself employed at all times under mo d e m economic conditions unless his government preserves and improves competition throughout the economy. Moreover, the join respon­ sibilities of his government have been ill-defined. No clear-cut, 106 107

consistent philosophy has been followed. There is no one economic

system in the real sense of the term in the world today and there­

fore, the rule of "market mechanism" is being held back t>y unnatural

forces such as "planned economy", "capitalism" and "communism". There

are two reasons for saying this.^ One is that the Soviet experts

are quite prepared to admit their perplexity; the other is that the

Vest has abandoned "classical economics" as a best guide to proper

allocation of resources. A fairly widespread view is that the more

advanced world is interested to socialize economic life. While the

two biggest countries with respect to population are satisfied so

long as the "plan" is carried out.

In fact, the duty of the government is to serve rather than to

rule over the "economic system". Her duty is just similar to the dog's toward its master. If a dog begins to bite its master, then the duty of its master is not to let it loose but to control or destroy the dog. Indeed, dogs are more faithful inherently than a government. Therefore, a government in the name of public inte­ rest cannot be equal to an individual's or take care of his self- interest. According to "classical economists," self-interest always operates in the public interest. Some economists argue in ii2 favor of government for public utilities. It is logical only when these cannot be managed efficiently by private management.

^■"Economic Systems", The New York Times, May 12, 1957.

^Keynes, J. M., "The General Theory of Employment Interest and Money," Harcourt Brace, Now York, 19b6, pp. 378-79. Even in the matter of extreme implications of scarcity, she is far

■weaker than an individual because an individual will strive for his

own survival and his incentives bring an increase in output even in

such a situation. Therefore, the duty for the representative govern­

ment is to serve as a good guide and arbitrate justifiably among her

nationals rather than to show her efficiency in the economic problems

that could be solved by themselves without her help. But even though

her interference in the form of some sorts of sponsorships is costly

it should be considered necessary. We may say, a government in need

is a friend indeed; otherwise, if she interferes while she is unwanted

she is a fairweather friend, i.e., destroyer of herself or her nation

due to the neglects of her duties that are to preserve and improve

competition and to maintain *justice and peace."

In England, the state was neither considered the ideal enter-

prenour, nor did it have any "planned economy*1 in the modern meaning

of this phrase. In the main, in early English economic development,

laissez-faire made her able to industrialize more rapidly, while

Russian experience suggests that industrialization is something

which is difficult and at the outset, her economy lacked the enter-

preneurial skills, the capital and labor force. Briefly, it lacked

the industrial system. Therefore, Pakistan which is developing her

economy can profit by others' mistakes and utilize their accomplish­

ments and, more so, by a borrowed technology and the burning desire

of the poor masses to rise. But in the underdeveloped country an­

other obstacle is political instability which can be overpowered by what she can do for herself economically. 109

Since independence, the government of Pakistan has always at­

tached great importance to the need for economic development of the

country. The First Five-Year Plan (1955-60) is ambitious but real­

istic because the public program is confined to fields which are of

very great importance to the national economy and which, due to lack

of capital for private enterprize is not likely to be forthcoming.

In the following table, an effort has been made to relate the public

expenditure an development with some other selected countries:-

Table 33

DISTRIBUTION OF PUBLIC EXPENDITURE ON DEVELOPMENT IN THE FIVE-IEAR PLAN OF THE k SELECTED COUNTRIES

Pakistan’s Ceylon's U.S.S.R's Indian’s Plan PL an Plan Plan 1955-60 1957-53 1938-52 1956-61 . Per Cent Per Cent Per Cent Per Cent Economic ’ of Total of Total of Total of Total Field Expenditure Expenditure Expenditure Expenditure Total 100.0 100.0 100.0 100.0 Industry3 52.9 5i.6b hi .9 37.5 Agriculture 13.2 29.5 1 9.5 11.8 Transportation and Communications 20.2 5.3 I6 .I4 28.9 Housing 9-$ 1.7 8.2 — Social-Cultural Services 8.2 20.2 12.9 19.7 Others — 2.7 1.1 2.1 aIncluding water and power development. ^Irrigation is included in agricultural sector. Source: "Economic Survey and Statistics for 1956," Government of Pakistan Press, Karachi, p. 55 s Kaplan, NQrman M., "Soviet Capital Formation and Industrialization," Rand Corporation, Santa Monica, 1952, Table 7, p. l£: and "The Banker’s Magazine," December, 1906, p. 557-60.

The stress on industry in the Five Year Plan of all the selected countries is apparent from the allocation of public assistance to the major economic fields. Industry accounted for a strikingly high

proportion of investment i. e., an average of 1*1 per cent of the total

expenditure on development, while the commitments to agriculture

were a little less than half of those to industry. But for Pakistan

from the point of view of history of early economic development of

England, it is more logical to bring improvements in agriculture

first because these will enable the people to live out of agriculture.

More important, an over-emphasis on industrialization must not lose

sight of the dependence of industrial expansion on a simultaneous

growth of agriculture. Also, an increase in agricultural production

is needed for machinery and food imports if a growing urban population

is to be fed. The task of the government of Pakistan should be to

attain a balance in economic development. The establishment of new

industries should be determined by their ability to utilize indig­

enous raw materials and to earn or save foreign exchange. Thus, the

correction of the existing imbalance in the localization of industries which is another item of major importance should be given top

priority.

Another important role for the government is the management of

public debt and the expenditure on defense. Both items have a

tremendous effect on the rate of capital formation in the country.

It is noteworthy from Table 3k that the expenditure on defense and

permanent debt services of the two selected countries shows a different trend. Ill

Table 3k

EXPENDITURE ON DEFENSE AND NATIONAL DEBT SERVICES IN THE UNITED STATES AND PAKISTAN: * 1951-53

Per Cent of Total Federal Expenditure The United States Pakistan Year Defense Public Debt Defense Public Debt 1951 59.U 12*7 55.0 ii.5 1 9 # 68*2 8.9 56.7 5.9 1953 65.9 8.8 58.0 7.1 ^Appendix Tables 68 and 8l. Source: "Report on Currency and Finance for 1955-56," State Bank of Pakistan, Karachi, Table 3h, P« 128 and "World Commerce and Governments" The Twentieth Century Fund, New York 1955, Table 253 p. 708.

From the very beginning of both states as independent nations,

national security has been the responsibility of their national

governments. Between 1951 and 1953 expenditure on national defense

and public debt services ranged between 72.1 per cent to 7li.Y per

cent in the United States and 59.5 per cent to 65.1 per cent in Paki­

stan. The effect of defense on the economy of the new nation of

Pakistan is too much to be borne easily as she has only started to

develop her economy and there exists a conspicuous shortage of cap­

ital. The larger expenditure on defense is one of the major ob­

stacles in the way of economic development not only in Pakistan, but throughout the world.

The United States Chamber of Commerce estimated the country's aggregate public and private debt today at close to a trillion dol­ lars but concluded that this load could be carried if prosperity ii3 _ lasted. This represented a debt load of more than sixteen

^"Debt in United States Put Near a Trillion," New York Times, February 15, 1957, p. ill. 112

thousand dollars for every family and 1|650 dollars for every individual.

According to one unofficial estimate the gross public and private

debt of Pakistan is in no way more than one hundred rupees per

capita. If other things being equal the debt position of Pakistan is much better than the United States. It means an asset in the program of her economic development because she can borrow money from abroad for self-supporting projects whije the best protection

against the debt for the United States lies in the exercise of res­ traints on the money and credit supply during boom periods. There­ fore, for the economic use of domestic resources an intelligent leadership^i.e., government must be the basis for sound growth with foreign aid a stimulating supplement at best, is needed in a developing country like Pakistan.

Corporations

In comparison with developed countries such as the United

States, the number and activities of corporations in Pakistan is far from a satisfactory level. Besides, there is a growing need for them to keep pace with the planned program of economic develop­ ment. Government investments have been made in various corporations which hatre been set up to promote the growth of agriculture, indus­ try, commerce and insurance in the country. The share of capital in these corporations and the government's investment therein are shown below:- 113 Table 3£

AUTHORIZED AND PAID-UP CAPITAL, LOANS SANCTIONED AND THE PERCENT OF GOVERNMENT 'S SHARE IN IMPORTANT GOVERNMENT SPONSORED CORPORATIONS {million rupees)

Loans Per Cent Drawn of Up to Govern-. Authorized Paid-Up Dec. ments Corporations Capital Capital 19££ Share Pakistan Refugee Rehabilitation Corporation 30,0 1U.7 i£.£ 100 Pakistan Industrial Finance Corporation 30.0 20.0 76.6 £1 Agricultural Development Finance Corporation 50.0 30.0 £.7 100 House Building Finance Corporation £0.0 30.0 2 £ A 10 0 Pakistan Insurance Corporation 10.0 2.0 N.A. 78 Pakistan International Airlines Corporation £0.0 36.8 M.A. 7£ Small Industries Corporation 10.0 2 .£ N.A. 100 Pakistan Industrial Development Corporations# 10.0 £.0 7 0 .8 a 100 A Up to June 19££ ^Appendix Table 6 9 .

Sources Economic Survey for 195#, Government of Pakistan Press, Karachi, Pakistan, p. 92.

As will be seen from the table above all of these corporations have a large per cent of government funds invested in them. It in­ dicates the shortage of capital in the country. In order to eval­ uate and illustrate their roles, the activities of two important corporations, one in the field of agriculture and the other in in­ dustry, have been cited here. The Pakistan Industrial Finance Cor­ poration has completed 16 projects involving a capital of Rs. 337•! million. While the Agricultural Development Finance Corporation up

to the 31st of December 1955, sanctioned loans of Rs. 5.7 million

largely to big land-owners because the corporation has been handi­

capped in its operations mainly due to the restrictions on the

mortage, sale of agricultural property, and in certain areas the

agriculturists do not possess full propriety rights. The low rate of

investment and handicaps in the way of the corporation in comparison

with the industrial corporation clearly indicate that small farmers

have been at a very disadvantageous position relative to the differ­

ent sectors of the community. Reluctantly effort has been made in

the name of industry to exclude agriculture which claims its super­

iority over the industry. Therefore, such a conception is unecon­

omical for Pakistan and implies negation of the important role of

agriculture in the development of her economy.

In spite of concessions, response from private enterprise is

not coming, and the government as a measure of encouragement to

private investors is making substantial tax concessions. In order

to achieve a rapid progress in the economic development program

with the view of encouraging private investors necessary changes

are needed in institutional laws. Otherwise these obstacles will

continue to lower the rate of capital formation in the country.

Banks

In modern economic life credit serves a useful purpose and for

effective mobilization of capital in an underdeveloped country, Ill5

Nationwide banking facilities are essential. In the developing econ­

omy of Pakistan a well directed credit supply will create a favorable climate for investment and promote capital formation, "-he hard and meager savings of the poor masses must be channelled into productive investment. Banking is still underdeveloped in the country and the possibilities of expanding her credit system have become a challenge for her. The following table gives an idea of the volume of business transacted by these institutions In Pakistan.

Table 36

THE CONSOLIDATED POSITION OF SCHEDULED BANKS IN PAKISTAN IN SELECTED YEARS* (million rupees)

Year Deposits Bank Bank (June) Demand Time Credit Investment 19U9 906.2 185.1 113.6 «... 1951 1111.6 281.2 550.3 1953 1231.2 319.7 655.7 1 955 1356.6 562.5 88U.1 726. a 1956 1509.8 609.0 915.6 820.3 * Appendix Table 70.

Source: "Report on Currency and Finance for 1955-56", State Bank of Pakistan, Karachi, Table 19, pp. 102-103.

As shown in Table 36 above, bank credit recorded a net rise of

Rs. 31.5 million in 1956 over the year 1955. The sizable expansion of bank credit to the private sector was mainly due to increases in the trade sector of the economy. A more permanent factor was the expansion of the industrial sector of the economy needing larger bank loans to industries. Besides, the expansion in the financing and investment operations of the scheduled banks was facilitated by the continuous and rapid growth in their deposit resources. The State Bank of Pakistan which is the central bank of the

country has begun to make effective use of its powers with a view

to provide better credit facilities for productive purposes. It

has offered to give loans to cooperative banks at concessional

rates, provided the benefit of cheaper rates is passed on to the

ultimate borrower. The State Bank is making headway by establishing

its central banking functions on a firm basis but is still less ef­

fective in the stabilization of the value of its currency which

is indispensable to foster orderly economic growth and therefore

savings for the balanced development of the nation's resources.

A little inflation is a healthy sign but beyond that it is a con­

stant danger and unmitigated evil. However, to achieve the best policy for a nation's currency and a relatively stable purchasing power is possible not only in theory but in practice if the State

Bank of the country is made to function effectively.

No doubt, the greatest enemy of the money throughout history has been government which has often debased its value by over-is- suance and which has also reduced its purchasing power by improper management. Moreover, if inflation is allowed to pursue its course, it must evidently lead to unemployment. There are two reasons for saying this, namely, wage-price spiral-a greatest threat to living costs today and the other is that due to the lack of direct inter­ vention there is no short cut to create an awareness in this area of the present anti-inflation policy. Moreover, high interest rates are themselves inflationary because these add to increasing costs; on the other hand these rates exercise their own influence on all other costs by checking expansion of credit and money. Furthermore,

tight money trill never curb inflation but increased production will

because thus far excessive demand exists in Pakistan. To top it all,

there is less possibility of a rise in wages that is greater than the

rise in productivity on account of surplus population. A further

point should be mentioned, that in the market Pakistanian businessmen,

in many cases cannot increase profits to a great extent because of

low purchasing power of the general masses. Therefore, even the

rapid economic development tends to be less associated with sane

degree of inflation. What is required is capital to be poured in­

to productive investments. Such a suggestion is natural in a per­

iod such as the present. Hence, a sougd monetary policy can put

her back on the road to recovery and it would be disastrous for

the Federal Reserve System of the country and the people in gen­

eral to sit on its hands in the midst of its major role and hope

for the best.

Insurance

General insurance as an ancillary service to commerce and in­

dustry is a number one problem to the performance of modern commer­

cial and industrial business. Life insurance is not only a source

of security for families but also is a powerful incentive to thrift.

It mobilises national savings and channels them into productive in­

vestment. After Partition, like banking and other commercial ser­ vices, insurance suffered a serious setback in Pakistan and the following tables reveal the fact to a great extenti- 118 Table 37

MET. PREMIUM INCOME RELATING TO THE BUSINESS OF INSURANCE IN PAKISTAN IN SELECTED YEARS (Million rupees)

Type of Insurance Year Life Marine Fire Motor & Miscellaneous 19l|8 2.1 2.5 1.9 1951 73.7 7.8 9.7 5.1 1953 H i w 9 U.o 7.6 ..JL.7 ...... a Net amount of new life business effected and sums assured.

Source: "The First Five-Year Plan," Volume I, Government of Paki­ stan Press, Karachi, 1956, pp. 185-7.

Table 36

THE TOTAL AMO TNT INSURED IN SELECTED COUNTRIES: 195H-55

Amount Insured Per Head Life Insurance in Force Country (Rupees) (Billion rupees) Pakistan 5 0.003 ' India 26 9.62 U„ K. 173 97.20 U.S.A. 2269 II4I18.86 Source: "The First Five-Year Plan," Government of Pakistan Press, .Darachi, 1956, p. 18U and "Life Insurance Fact Book," 1955, Institute of Life Insurance, New York, p. 92.

We may interpret Tables 37 and 38 as follows: Table 37, shows

that life insurance is making progress and has made an encouraging

recovery. While Table 38, indicates a difference of five times be­

tween India and Pakistan in the total amount insured per head. Thus,

Ah active and imaginative policy on a state level is required to make

it one of the best sources of capital accumulation for further pro­

ductive investment in the country. However, it must be remembered that money is a most essential

comodity and we need it for practically everything. There is no

dearth of plans such as retirement plans, social securities, de­

ferred payments etcetra, for advancement but the real issue before

us is the role of financial organizations in methods of acquiring

capital. The sound methods of increasing the capital can be sum­

marized as "sell it, borrow it and earn it." But for all these,

credit and the machinery of borrowing and lending now forms an In­

tegral part of all the developed countries. To top it all, in ag­

ricultural countries like Pakistan, credit for agriculture should be treated as a special organization and generally special legis­

lation because agriculture is a form of activity which is not com­

parable due to its peculiar characteristics with trade and indus­ tries in many respects. Consequently, the problems of agricultural

credit are different from those involved in other types of credit

and therefore, the case for the government-financed bank dff prob­ ably strongest in agriculture.^ There can be little doubt that

government sponsored corporations can play a vital role in capital accumulation in Pakistan.

A basic requirement for the regeneration of agriculture in Pa­ kistan is the availability of adequate credit facilities. The sal­ vation of millions whose lives are short by the reasons of low in­ comes will not be achieved by a few brilliant insights or miraculous

^Thited Nations, "land Reform-Defects in Agrarian Structures as Ob­ stacles to Economic Development," New York, 19f>l, pp. 37-1+3 and 71+-77* 120

policies and if at all, it will come largely through the domestic i|5 institutions of finance* Institutions are after all, a means;

the end is the human personality* The solution of such a problem

not necessarily depends on mere institutional change but on the

underlying spirit which gives meaning and purposes to changes in

form. Moreover, no point would be served by a lengthy discussion

of these institutions. Therefore, it will suffice if we point out

that Pakistan needs an "economic government" and her banking system

should work on ccnmercial and business lines. Above all, neither

"capitalism" nor "planned economy" but an "economic system" founded

on the quest for wealth and man’s total life is absolutely essential.

Perhaps this system cannot run exactly parallel to the line drawn by 1|6 early Calvinists. Nor can it accommodate the extravagance of the U7 rich in the face of the demand for change. Also, in a world of

scarce goods and unequal men, the industrial societies moving toward

a new term-in-us, may realize in the near future that (under the

powerful stimulus of the deeply rooted but many-sided quest for wealth) they should not tolerate their governments interference but

listen to the call of classical economists to ride out the "Keynesian h8 Tides."

^Buchanan, N.S., "Approaches to Economic Development," The Twen­ tieth Century Fund, New York, 195$, p. 3l|2.

^Newman, P. O., "Source Readings in Economic Thought," V. V. Norton & Company, New York, 19$h, pp. 15-21. Ii7 Heilbruner, R. 1., "The Quest for Wealth,"' Simon and Schuster, New York, 1956, p.252.

^®Keynes, j. m ., "The General Theory of Employment, Interest and Money," Harcourt, Brace and Company, New York, 1936, pp. 335-3l|0. 121

In short, in credit, banking and insurance, though the results

are encouraging, yet they are far from the level of the demands of the comtry. An encouraging step should be taken by these financial

organizations to meet the existing shortage of capital by adopting

suitable policies to mobilize savings of the general masses and

channel them into productive uses. CHAPTER XII

OTHER MEANS OF INCREASING CAPITAL

Foreign Aid

The limited success of the Marshall Plan has shown us what can be accomplished by foreign aid. The truth is that its meanings are complex. To the writers, it is political and economic as well as sociological and humanitarian. In its economic sense, it means bus­ iness for a lender country. There is, however, another side to this, and a very significant one and that is that it serves to promote in a fine manner an underdeveloped country for her self-supporting de- velopment projects. Practically every study of the subject that has recently been made endorses the general principle of continued foreign aid on a large scale as essential to the welfare of both the lender as well as the borrower comtries. Like all other programs, <0 foreign aid deserves a close and careful inspection. For example, in the Ihited States, Congress always has been keen for loans rather than grants; since World War II she has been much more keen for spending for military aid than for economic aid programs. The de­ cisive issue in regard to foreign aid should be to help the under­ developed countries so that they can invest annually about ll* to 16

^"The Role of Foreign Aid in the Development of Other Countries,” Research Centre in Economic Development and Cultural Change at the thiversity of Chicago. £°"The Objectives of Ihited States Economic Assistance Programs,” Centre for International Studies at the Massachusetts Institute of Technology.

122 123 per cent of their national income in capital development. Such an investment -Mould enable them to outpace the rapid rate of increase of population -with a considerable margin. Besides, many business 51 concerns are beginning to realize that they must contribute to 52 countries in which they do business and have plants. Mr. Black said, the Ihited States must overcome the hatred and suspicion in nationalism and convert it to constructive patroitism.

The ultimate importance of foreign aid programs indeed, may be greater in the non-military field as it has a latent propulsion of political and economic Strings in the borrower country. But, it is that part of monetary business that sometimes turns friends into foes. On the other hand, a leader of an underdeveloped country must know that science means development, and development implies a means of maintaining freedom. Therefore, he must not sell his nation for the sake of ’’economic aid” because in such a case there is no net gain, or in other words, he will sell what freedom his country al­ ready has. National leaders must also realize that economic aid with political strings is a transaction, and a transaction which may have no gains, but pains and shear loss for all times to come.

Moreover, it is worse than a gamble for the leader of the nation who accepts such an economic transaction because it gives rise to another kind of economic muddle popularly known as “political

^Smith, F., Vice President of the Prudential Insurance Company, The Bhited States of America. ^HLack, E. R., The President of the International Bank for Recon­ struction and Development. 12k instability," which also has adverse implications for economic de­ velopment activities of the country.

However, the fundamental issue before the world must be to raise the wall of impermeability So that "politics" cannot encrouch on the economic aid and the borrower country should be given freedom of its use on economic grounds. The aids and trade must not be based on political considerations. What is required is to develop internat­ ional borrowing and trade on economic levels if the world as a whole is benefitted economically and favors decency, votes for economic de­ velopment and subjects herself to the ideals of coexistence and human­ ity. For Pakistan foreign aid must be turned into gold if she waits to strengthen her economic position and it could be done if foreign aid and borrowed technology are given proper place in her economic but not foreign policy. There are many economic ways to achieve this objective. These include not only the creation of an "invest­ ment climate" but considerable concessions. Above all there must be assurances of success for the foreign investors and in no case the fear of such as "nationalization," nationalism or communism.

Moreover, some sorts of economic ties and fast developing friendly relationships among free worlders are particularly conspicuous mid must grow more and become a strong force that can place the world on the road of progress.

Table 39, reproduced below shows the foreign aid allocated to Pakistan:- 125 Table 39

FOREIGN AID* ALLOCATED TO PAKISTAN FROM 1950 TO THE END OF SEPTEMBER, 1956 (Millions of United States dollars)

Project and Emergency Credit Commodity Technical and Relief and Country Assistance Assistance Assistance Loans Ihited States 283.97 35.19 129.92 15.00 Canada U7.70 0.83 6.50 -- Australia 2^.53 0.82 U.70 — New Zealand 3.92 0.2b __ Ihited Kingdom 1.68 — 2.800 Ihited Nations and its Specialized Agencies — 5.1*6 2.32 — Ford Foundation 7.23 World Bank -- 77.25 Sweden -- 2.51 Other Countries -- 0.03 -- • m m t Total 360.12 53.99 1113.bb 120.25

* Appendix Table 71.

Source: "Foreign Aid and its Utilization in Pakistan," Government of Pakistan Press, Karachi, Pakistan, 1956, p. 9.

The perusal of the data given in the above Table indicates that the assistance offered to Pakistan from the Ihited States of America

constitutes 68.5 per cent of her total allocated foreign aid. But

continuous efforts are needed more than before to attract foreign investors for self-supporting projects. No stone should be left un­

turned which will enable her to attain a necessary financial momentum within herself. However, stress should be on the maximum attainment

of technical skills that are always needed more for the continuous

growth of a country. There are no words to stress this point suf­

ficiently in view of the economic development of this country. 126

The extent and effect of foreign investment in Pakistan, forms

an important part of her economic development program. But some briefs on the subject such as many persons welcoming the help from

outside in developing the country's economy and some more often viewing with alarm what sometimes had been called selling the nations birth­ right, call a word of explanation. In short, this means another duty for the government of Pakistan to prove publicly in economic actual­ ities rather than words that the inflow of capital is essential to her economic expansion and convince them that the aid is in no way a threat to economic independence. The "poor-capital" country wants more foreign aids to provide the money needed to start her rapid de­ velopment program so that to outstrip the challenge of fast growing population. In fact, the chief economic problem of this country at the moment is a shortage of aapital to meet the vast demands and needs of the ecomomy for new investments, both private and govern­ mental, a worry usually less associated with rich countries. No doubt, Pakistanians are not cautious investors, shunning risk ven­ tures and preferring bonds to common stock but indeed these features; and their willingness to gamble in exploration for oil, minerals and in development projects are of little use because they are unable to help due to the lack of capital. Therefore, not necessarily to ac­ hieve the hidden benefit from foreign aids in the form of technical skills that contribute to economic development and the vast amount of research and exploration but to gain momentum for her rapid econ­ omic progress and to bring into the use the known unexploited resources 127 it is essential for her to create the most favorable climate for for­

eign investors by giving concessions in tax rates and other consid­

erations such as assurance against the risk of expropriation and nec­

essary facilities to make them feel at home.

Foreign Trade.

The importance of foreign trade can be realized from the fact that it is -what turned a small island i.e., Britain into an Imperial ftower. Its advantages, indeed can hardly be over-emphasized. And the keyword in the development of trade would have to be the word

"productivity11 which sprouts and flourishes in a free enterprise system. Given the necessary competitive and innovating conditions, its natural tendency is to increase and as it increases the result is in a rising standard of living for the whole population. Thus a country which cannot produce at a comparative advantage due to out­ moded techniques and largely depends upon imports of necessary goods cannot win foreign Market and would certainly stimulate domestic in­ flation^ i.e., "capital blight". If a country is caught by the dis­ ease, she will never have a viable economy. An efficient producer country must seek to encourage in all feasible ways the continued expansion of beneficial trade throughout the world. It must be con­ sidered as a light that can pass through the "iron curtain". If a

"bad act" imposes a barrier to trade the result is similar to "killing the goose that lays golden eggs." An approach of high protective tar­ iff is not consistent with a sound economic principle save one in one hundred cases of extreme reluctance. Mr. Cuademo, the Chairman of 128

the International Monetary Fund and of the International Bank for

Reconstruction and Development (World Bank) while suggesting a gen­

eral review of economic cooperation in the free world with emphasis Co on the problems of underdeveloped nations, said!

The recent wave of prosperity has been largely confined to the industrial nations of western world* It has not been shared to any great extent by the underdeveloped nations* The problem has not been solved and if a need for the solution is ignored by the western industrial nations it will be at the risk of their own survival.

The combined effect he noted, would be a contraction of trade,

since the underdeveloped nation would earn less from their commod­

ity exports and would buy less of the capital goods they need* The

essential problem of the underdeveloped nation as indicated by him

is that she cannot accumulate any sizable surplus of earnings from exporting a few primary commodities, because it has to spend what

it earns on importing needed finished goods*

Pakistan is predominantly an agricultural country and what is needed for her is a special earmarked fund that she could raise through her agricultural exports* This would then become a renewed source for machinery imports, and for some sort of soil building program in the country such as use of fertilizers and the utilization of water beneath the soil* Side by £ide the "exports more" campaign should be launched a program to give induced payments to small farmers which would better their relationship with their landlords through land

^■Wbrld Economic Review is Urged," The New Terk Times, October 29, 1956, p. 1*0 _ — > 129

reforms. This can be done if top priority to regeneration of agri­

culture over big industrial concerns is given a proper place in the

economic policies of the country. Economic development as shown in

recorded history exemplifies with a clear distinction the role of

agriculture in the underdeveloped areas. In fact, only agriculture

can solve most of thier problems and it is in no way inferior to in- 5U dustry for them. As Jacob Viner saysr

Misallocation of resources as between agriculture and manufactures is probably rarely a major cause of pov­ erty and backwardness, except where government, through tariffs, discriminatory taxation and expenditure pol­ icies, and failure to provide, on a regionally non- dis criminatory pattern, facilities for education, health promotion and technical training, is itself responsible for this misallocation.

However, some economists argue that agriculture is inherently ejcj inferior to industry, e.g., Paul Prebisch and H. W. Singer. Agri­

culture is not inferior to industry and if fact it is too hard to

surpass David Ricardo's law of comparative costs. More recently Louis

Bean went a step further in proving something in this regard.^There

are other supporters of the idea of the inherent inferiority of primary

5U Viner, Jacob, "International Trade and Economic Development,1' The Free frees, Glencoe, Illinois, 1952, p. 71*

55 Singer, H. W., "The Distribution of Gains Between Divesting and Borrowing Countries," American Economic Review, May 1950, pp. 372-9U*

56 Bean, Louis, "International Industrialization and Per Capita Income," Hatlsmal Bureau of Economic Research, New York, 191*6, Vol. VIII, pp. 119-ii*. 130 £n production as compared with industry. Thus their views are be­ coming the cause of a demographer's headache. Best known among these in the list of economists is Colin Clark. He believes that the prospect is for a 70 per cent advance of world food prices relative to industrial products. While W. A. Lewis thinks that nothing prevents an increase of agricultural production by 2 or 3 per cent annually and this would outpace the annual rate of popula-

Items 1955-56 1951-52 19L9-50 Agricultural Exports Hi32.0 1 8 8 0 .I1 1033.7 Other Exports 351.7 208.2 160.3 Total Exports 1783.7 2088.6 119U .0 Machinery Imports 182.0 175.3 82.1 Cotton Piece Goods 63.U 89.2 213.3 Other Imports 999. h 1976.6 1003.0 Total Imports 1 2 Ut.8 22U1.1 1298.U -*Appendix Table 72. Source: "Report on Currency and Finance for 195U-55 and 1955-56," State Bank of Pakistan, Karachi, Pakistan..

£7 • United Nations Economic Coiridssion for Latin America, "The Economic Development of Latin America and its Principal Problems," New York, 1950.

^Clark, Colin, "The Economics of I960," MacMillan, London, 191+2, Second Edition, 1951• 5?Lewis, W. A., "Food and Raw Materials," District Bank Review, Sep­ tember 195lj PP« 1-H. 031

Table 1)1

TOTAL INTERZONAL AND FOREIGN TRADE OF PAKISTAN IN SELECTED TEARS# (million rupees)

Tear Total Foreign Trade Total Interzonal Trade

191*8 2638 1950 2950 309 1952 381*6 321* 1951* 231)0 512 1956* 2931 —— * Appendix Table 73 and 75* a January to November* Sourcet "Economic Survey and Statistics for 1956,” Government of Pakistan Press, Karachi, Pakistan*

Table 1*2

PAKISTAN’S TOTAL FOREIGN TRADE BY VARIOUS ACCOUNTS AND WAYS IN SELECTS) YEARS* (million rupees)

Private Government Tear Account Account Land-borne Trade Sea-borne Trade 191*9 2931* 21*2 683 2393 1951 1*091* 21*9 701 361*2 1953 11)31* 635 193 21*76 1955 21*31* 157 265 2326 * Appendix Table 71) and 75* Sources "Economic Survey and Statistics for 1 9 5 6 , " Governaent of Pakistan Press, Karachi, Pakistan*

In Table 1*0, the point of major importance are that agricul­

tural exports contributed 86*6, 93.6 and 80*9 as per cents to'tdal

exports of the country during the years 191)9-50, 1951052 and 1955-56.

While expenditure on imports of machinery increased, expenditures for cotton piece goods mas cftlgaiously decreasing* For the country to be almost self-sufficient in cloth is very important, because its imports have a great bearing on the added rate of savings in the 132 country. The rise in imports of machinery clearly indicate that the country is developing her non-agricultural sectors of the economy.

The-perusal of the data given in Table )+l shows that the coun­ try has not yet developed her interzonal trade. It is obvious from the above Table 1+2 that most of the foreign trade of the country is on private account. Land-borne trade that can be greatly improved according to the geographical situation of the country is still re­ latively undeveloped. If land-borne trade is improved the country will be much better off compared to its present status.

The balance of payments position of Pakistan given below re­ flects a clear sign of improvement in the country export position from 195>0 -to 19^5 and 1956. Viewed in relation to the balance of payments, receipts from raw jute and raw cotton declined in partic­ ular but earnings from their manufactures went up significantly.

However,, the behavior of secondary exports as a group was distinctly more satisfactory during 1956 than 1955* Agricultural exports is the most important part of Pakistan's foreign trade. Nearly 9 out of 10 per cent of the national product which is sold abroad is difectly contributed by her agriculture. with this heavy dependence on agricultural raw material exports, any changes in the conditions of their marketability have far reaching repercussions on the balance of payments, the central budget and the income from the agricultural sector. Adverse changes in terms of trade sharply affect not only her real income but also the capacity to sustain the rate of capital.

growth. The degree of vulnerability must be reduced by a greater balance imported to the economy through industrial develpment. I'hus, 133 the present problems that arise from lower prices for her agricul­ tural exports stand in need of some measures such as concerted inter­ national action to stabilize the prices of these exports commodities.

But experience gives no warrant for believing that acreage control at home or price stabilization schemes are cure-alls for any area's prob­ lems. Certainly if she wants to develop her economy soundly and rap­ idly she must produce more and cheaply with the greater use of inan­ imate power (that is mechanization of agriculture) which will enable her to devalue the unit of currency in order to launch successfully an export-more campaign.

Table 1+3 PAKISTAN'S BALANCE OF PAYMENTS ON CURRENT ACCOUNT IN SELECTED YEARS (million rupees)

Items 1 9 # 1 9 # 1950 Receipts Jpte 871.9 77U.3 # 1 . 2 Cotton 1+1+2.8 1+31.1+ # 9 . 3 Other Exports 539.5 366.1+ 178.6 Other Receipts 81+2.3 1 9 # 6 113.9 TOTAL 2696.5 1767.7 1363.0 Payments Commercial Imports 887.3 75-6.1+ 975.8 Other Payments 392.2 2&f>. k 202.2' Government Imports & Payments l!+0 6 .1+ 1+98.2 333.U TOTAL 2 6 8 # 9 11+82.0 1511.U Balance 10.6 2 8 # 7 -11+8.1+ Errors & Omissions - 33.8 Net Investment-Disinvestment 10.6 2 8 # 7 -Hit. 6

■^Appendix Table 76,

Source: "Economic Wurvey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan.

A country without foreign exchange reserves finds itself pretty much in a position of a shopkeeper without money in the bank— if sup­ pliers begin tightening up credit. For Pakistan, foreign resources and credit are inseparably tied to her hopes and dreams of agricul­ tural development. Thus the foreign exchange problem for the coun­ try is not a single mountain, but a whole range of them. The plain fact is that the problem can only be solved to a great extent by building a new agriculture and laying stress on foreign trade. Further­ more, necessary changes in institutions to overcome the political dis - organizations and to attract more and more foreign aid and foreign in­ vestors for self-supporting projects can be helpful. But all these mean a domestic intelligent leadership for sound economic growth. CHAPTER XIII

» TAXES AND THE BUDGET AS A FACTOR CONTRIBUTING TO

CAPITAL FORMATION

In tie present chapter, we shall consider the requisites of a

budgetary policy to achieve a tax system for Pakistan that neither

discourages new and independent business nor is a threat to a free /a economy and a free society. thdoubtedly, the amount of taxes and

the kind of taxes affect the whole outlook for jobs, prices and in­

come and even affect the fairness with which the costs of government

are shared among taxpayers. But in a modem Integrated economy, the welfare of us depends upon the use made of the productive capacity

of all of us. If the taxes to be paid by most farmers are so high that they prefer to sit on the porch rather than strive for maximum production, all of us, not merely the farmers, will suffer. Thus, by creating a tax system that will be agreeable to all business we can contribute greatly to the vitality of our free society.

The central budget is an important part of the federal system of finances and it has an important stabilizing role to play. How­ ever, like monetary policy the budget is not an adequate or an ap­ propriate instrument in all cases for promoting stability. The main objective of budgetary policy should be to aid in stabilizing employ­ ment and prices. Moreover, it should serve in a modem society to

^Benton, William, ”The Economics of a Free Society,” The Committee for Economic Development Supplementary Paper, New York, October,

13* restrain government expenditure under conditions of reasonably high

employment and production. Therefore, the development of a tax sys­

tem, to meet the necessary costs of government, including the costs

of national security, with the least impairment of economic growth

is essential. Precisely, the standards of a good tax system in add­

ition to minimum interferences with economic growth in Pakistan would

be seen when it is fair, direct and simple. There should be no con­

fusion as to who pays taxes The tax is paid indirectly by con­

sumers and wage earners who may not own a share of stock, and there­

fore an economist must lay emphasis on the redistribution of income

in such a way that it may effect least the rate of capital formation

in a given society.

Taxation may be used for redistributing income. A good tax sys­

tem in Pakistan can only be achieved if it is easy for the tas col­

lecting machinery to realize it and at the same time less expendi­

ture to administer, and for this reason and particularly for the

good of the general masses of Pakistan, a single tax is necessary

and should be levidd at the rate of say 2.f> per cent per annum of

the current value of all the property of private individuals, cor­

porations and public utilities as well as cash-balances. The rate

of taxation can be easily adjusted to the needs to the minimum needs

of the country* In order to avoid evasion and to make the tax sys­ tem less costly, this tax should be oollected by the local tax mach­ inery i.e., village headman and municipal commissioner instead of

61 "Taxes and the Budget", The Committee for Economic Development, New Tarif, November, 19U7,-pp. 15-19* 137

Central and Provincial Revenue Authorities. Other advantages of the tax are that it -will not only be a more useful to consumer and wage earner but act like a starter-as far as the "productivity" in the country is concerned. Besides, it will bring about an agreeable re­ distribution of income and reasonable parity in the society.

The Pakistan taxes of primary concern to foreign businesses and trade are those levied by the central government. These account for about 80 per cent of the combined revenues of the central and state governments. The income taxes presently levied by Pakistan include a normal rate, a super tax and a business profits tax. These are levied on the incomes of individuals, partnerships, firms, corporations and other associations of persons. An unregistered firm is treated like an individual and tax is levied on the firm itself. Agricultural income-taxes of some sorts are now levied by provincial governments, but their incidence is quite insignificant and it would be a misnomer to call them as taxes on income. Perhaps, a double rule of landlords is still prevalent in this country. Other receipts totally exempt from assessable incom.e include interest from post office deposits, income from certain old age and unemployment funds, income received 62; in trust for certain provident funds and income from scholarships.

The income of religious and charitable institutions applied sclely for religious or charitable purposes, of educational institutions and of certain officials of foreign countries is also exempt from taxation.

"Investment in Pakistan," The United States Government Printing Office, Washington, June 195H* p. 128. 138

From Table 1*1* we can observe that the total revenue receipts of the central and provincial governments in 199U-99 were 90 per cent higher than in 191*8-1*9.

Table UU

TOTAL REVENUES OF THE CENTRAL AND PROVINCIAL GOVERNMENTS OF PAKISTAN (million rupees)

Items 1991*-# 191*8-1*9 Central Govemmeni All Taxes 896.8 938.9 Total Revenues From Public Undertakings 190.9 93.2 Other Revenues 171.6 92.8 Total Revenue Receipts 1219.3 681*. 9 Provincial Governments Taxes Shared 187.2 106.2 Other Taxes 191.6 191.3 r Revenues From Public Undertakings 88.1* 78.9 Other Revenues 298.9 ll*l*.l Annual Statutory Subvention 12.9 10.1 Total Revenue Receipts 738.2 1*90.9

Sources "The First Five-Year Plan,"Government of Pakistan Press, Karachi, Volume I, pp. 199-160.

The Central Government revenue receipts increased by 78 per cent and tax receipts by 67 per cent while the total revenues of the provincial governments represented a rise of SO per cent between

1918-1*9 and 19Sk-SS.

In order to show the capital budget position and further break­ down of revenue and expenditure of the central government, the fol­ lowing tables serve a useful purposes- 139 Table U5

THE CAPITAL BUDGET OF PAKISTAN AND HER UNITS FOR SELECTED -TEARS* (billion rupees)

Central Provincial Provincial Total Capital Capital Capital Capital Budget of Budget of Budget of Year Budget Pakistan East Pakistan West Pakistan 19U8-U9 ■ 2.23 1.31 0.33 0.59 1930-^1 2.56 1.53 0.36 0.68 1953-5U 3.56 2.2U 0.U9 0.83 1955-56 3.05 2.60 0.53 0.92 1957-58 U.66 2.78 0.62 1.2? ...... ^Appendix Table 77. Source: "Economic ^urbeys for 1955 and 1956," Government of Pakistan Press, Karachi, Pakistan.

Table i|6

PAKISTAN'S BUDGETARY POSITION IN SELECTED YEARS* (million rupees)

1936-57 1955-56 19U8-U9 Items Estimates (Actual) Revenue Accounts Revenue 130U.5 1276.8 667.6 Customs U7U.5 U69.0 329.2 Central Excise Duties 137.7 130.3 53.U Income Tax & Corporation Tax 206.6 196.3 65.9 Sales Tax 117.0 116.7 UL.7 Other Taxes 368.7 36U.5 177.U Expenditure 130U.lt 1276.2 6U7.0 Direct Demand on Revenue 33.5 3.18 15.5 Defense Services 793.5 758.9 U61.5 Beneficient Departments 82.5 77.9 19.2 Civil Adminstration 19U.6 199.7 89.8 Debt Services 100.U 9U.9 21.0 Miscellaneous 99.9 112,0 Uo.o Surplus/deficit (-) ■oo.l • 0.6 20.6

^Appendix Table 68. Source:,. "Report on Currency and Finance for 195U-55 and 1955-56." State Bank of Pakistan, Karachi, Pakistan.

A study of Tables reveals two striking facts, namely a surplus budget and constantly rising trend in capital budgets in the countiy. Moreover, from the data in Table 1*5, though not shown for a matter of

brevity but the fact of structural change in the economy is reflected

in the continuous increase of the capital budget since from 191*8-1*9 to

date. In 1957-58, capital budgets of the Federal and State Governments

have shown an increase of 109 per cent altogether over 19U8—U9. Also,

the figures for the year 1956-57 as shown in Table 1*6 above clearly indi­

cate an over-all improvement in revenues over the previous year. In com­

parison with 191*8-1*9 and in light of minor changes in the rates of

taxation the increase during 1956-57 in all kinds of taxes is con­

spicuous and it shows that the economy of the country is constantly

expanding in its activities.

We should not pay too much attention to the mere existence of

a surplus or deficit budget. But the important subject crying for

investigation is the influence of the Federal Budget on the economy

because federal spending on a cost plus basis is bound to have its

own influence on costs. Arthur F. Burns, internationally known econ- omist says that the government is a different kind of buyer. The real problem is that even a balanced budget can have inflationary effects. From the detailed study of Pakistan's economy it has been seen that the government is one of the chief savers. It is evident that when government spending increases taxes too increase to pay for it.*

^"Economic Pioneer Hunts New Trails," The New York Times. February 17, 1957.

61 * . . . Hart, A. C., "Money, Debt and Economic Activity," Prentice-Hall, New York, 1953, pp. 1*53-58. lill

It ia generally believed and is not less than a half truth that people do not cut their consumption by the same amount as their tax

increase* Therefore, they cut their savings so as to maintain their

hardly achieved level consumption reluctantly for one reason or an­

other*

In economic theory, we are told that the desirable objects of

a fiscal policy arei full anployment, increase in real incomes, etc*, but an analysis of the aims of fiscal policy in Pakistan reveals that a substantial portion of the population lies beyond the reach of these measures* Since taxation policy has a close bearing on incentive and productivity, the government of Pakistan should wield its use with due care and caution* If the suggested single tax on property is levied, the big landlords and industrialists will not go scot free as they are no* from cqital gains tax* On the expend­ iture side, the greatest demand on revenue is made by defense re­ quirements which take about 60 percent of the revenue expenditure of the country while civil administration claims absorb about 2£ percent of the total revenues* But we must accept the facts as they exist* Besides, development expenditure is mainly financed from the capital budget of the country*

Pakistan fs internal finance depends largely on the direct tax whose burden falls indiscriminately without any regard to the cap­ acity to apy. This is true in all central taxes of the country, and they affect the common man both as producer or as consumer*

In Pakistan, there is a great need of some sort of agricultural in­ come tpxes and moreover, evasion of taxes which exists in the country i b z

can only be improved through an efficient tax collection machinery.

It is thus quite surprising that these issues have not been given due 6^ attention by the government. ^

In Pakistan, -where evasion of direct taxes is already high due to a comparatively inefficient tax collection machinery coupled with a far more complicated host of special con­ cessions and legal loopholes, the position may be made still worse with the progress of development under our First Five- Xear Plan.

Mr. Hasan also laid a great emphasis on capital gains tax in his article. No doubt, in view of Pakistan's developing economy the tax must receive a fullest consideration by her government. Besides, such a tax would also have its own influence upon the present evasion of taxes by declaring bonus shares and capitalization of profit. More­ over, some provisions must be made so that it will not affect the incentive of general masses.

In view of the present shortages of capital in the country and to create a suitable atmosphere to attract foreign investors, special concessions at the present moment are necessary and must be given with desirable limitations. In short, in order to overcome the present weaknesses of the taxation system such as who pays taxes, evasion etcetra and to renew the source of capital for ecomomic development a fair, direct and simple single tax is necessary and therefore, a comprehensive inquiry into the system of taxation in Pakistan must be conducted immediately'.

(A „ Hasan, K, S nm«««oinic Observer," Karachi, Pakistan, Volume 10, Number 2 3 , p. CHAPTER XIV

EFFECTIVE MOBILIZATION OF PRODUCTIVE SAVING

The underdeveloped countries desperately want more savings to

provide capital needed to start their economic wheels to turn. There

are only three ways to meet that shortage. One is to print more money

I tfiich is unwanted as it is a sure prescription for inflation in many

instances. The other is to get people to save more and it mostly de­

pends upon the element of productivity* Lastly, to increase interest

rateSji.e., the price of money to meet that demand as held be class­

ical economic theory, has yet to be proved in Pakistan. At the moment,

the best hope for her lies in increasing the basic habits of thrift

that can do the trick. But the effective mobilization of little

savings is the big issue which anyhow must be solved because she is

much less able to increase the interest rates that have already be­

come a major obsticle in the program of her rapid economic develop­

ment. Moreover, state and local governments will have trouble in

raising money on their bond issues if these savings are not actively

mobilized for productive investments. To top it all, it is very

difficult to expect that all the Pakistanians would suddenly become

spendthrifts, because it is hard enough to cut too deeply into

spending. What is more, it is too difficult to shake rudely the

low living standards of her people for consumption is relatively

much stable and is influenced when income rises. Therefore, effort must be made to collect and put into economic use What her people 1U3 liili

can save.

Keynes and others made much use of the familiar equation that

investments are equal to savings.^6 Perhaps, it is what one will

argue sales are equal to purchases or a purchase and a sale are two

sides of each transaction. Such truisms are not play-fair axiams but are statements subject to qualifications. The answer is that the equation shows the condition that must be satisfied to reach the equilibrium level of income.^ Precisely, it is a struggle be­ tween inherent desires or propensities of individuals to consume and waste, and to save and invest. By definition savings are the

“excess of current income over current consumption and from that of current investment as that part of current income which is spent for purposes other than consumption." It has often been pointed out by J. M. Keynes that "hoarding" is held responsible for economic trouble but in fact, it is the "prospect of profit," which is the number one influence on real investment and so on employment.68

In short, the private inducement to investment needs to be coupled with the interest rate and opportunity for profit rate.

One paragraph in the President’s annual Economic Report presented to Congress January 23, 1957 which reads as follows has appealed to the writer.

^Lerner, A. P., "Saving Equals Investment," Quarterly Journal of Economics, February, 1938•

67Kurihara, K. K., "Introduction to Keynesian Dynamics,1’ Columbia University, New York 1956, p. 77.

^®Keynes, J. M., "The General Theory of Employment, Interest and Money," Harcourt Brace, New York, 1936. Economic developments in recent years show the basic role that monetary and fiscal restraints must play if the ex­ cesses that often accompany prosperity are to be avoided. At the same time, this experience suggests that fiscal and monetary policies must be supported by appropriate private policies to assure both a high level of economic activity and to a stable dollar.

The purpose of quoting the above words is to emphasize in­ directly the effect of inflation on savings. Garbarino argued in a well documented paper which he read before the National Indus­ trial Conference recently held at San Francisco and concluded that wage costs in the production industries have been increasing by 69 from one-fourth to one-third more than productivity. He predicted

"should this tendency of wages to outrun productivity continue, fu­ ture adjustment would tend increasingly to take the form of prive increases." Thus management and labor have a serious responsibility to cooperate with government in honoring the integrity of the unit of currency. In order to evaluate the effect of price level on savings, let us now analyze carefully the following tables which present the cost of living indices of industrial workers, average retail and wholesale pricesof selected commodities in Pakistan.

Garbarino, Joseph, Associate Professor of Business Administration at the University of California. lL*6 Table 1*7

COST OF FOOD INDEXES OF INDUSTRIAL WORKERS IN TWO SELECTED CENTRES OF PAKISTAN* (Base year; 191*8-1*9 - 100)

Karachi in W. Pakistan Narayanganj in E. Pakistan Year Food Indices Food Indices 191*9-50 98 103 1951-52 100 101* 1953-51* 112 106 1955-56 106 99 1956-57 110 129 * Appendix Table 6 6 . Sources Central Statistical Office, Government of Pakistan, Karachi, Pakistan.

Table 1*8

INDEXES OF AVERAGE RETAIL PRICES OF 20 NECESSARY COMMODITIES IN PAKISTAN IN SELECTED YEARS* (Base year: 191*9-50 - 100)

Y e a r ______Indices of Retail Prices 19!? 0-5>l 8^ 3 1951-52 88.1* 1952-53 90.5 1953-51* 102.5 195U-55 99.0 1956______9 6 .6 a______A April to December

* Appendix Table 78 Source: "Economic aurvey for 1955*" Government of Pakistan Press, Karachi, Pakistan.

From Table 1*7, it is safe to assume that in underdeveloped countries -where the expansion of the market is 7/et to start, the effect of the prices of the major items of the diet of the people e.g., wheat and rice is the decisive force for the limit of pro­ ductive savings. The figures for the 7/ear 1951-51 clearly indicates 1U7 that it was a better year for savings compared to 1956-57. Therefore normal prices for food are essential for the increase in the productive

rate of savings in the country*

Tabie k9

INDEXES OF WHOLESALE PRICES OF FOUR ffiilOR CROPS H PAKISTAN* (Base year: 191$ - 100 )

Indices of Wholesale Prices Year Bice Wheat Jute Cotton 195>0 55.5 71.5 68.6 89.8 195>1 66.it 73.8 116.6 128.1 1952 73.5 121.5 63.0 9iu5 1953 63.9 13ii.7 57.6 69.6 195U 67.3 93.7 6U.7 9 8 .6 1955 68.3 83.1 69.6 95.0 1956 9k Ik 106.2 93.5 110.6

■* Appendix Table 79 Source: "Statistical Bulletins," Central Statistical Office, Govern­ ment of Pakistan, Karachi, Pakistan.

In Table U8, it is interesting to note that the effect of food shortage has adversely affected the prices of finished goods in 1956 as compared to 1953-51-! when this country was more dependent on im­ ports of finished goods other than machinery. It leads to conclusion that industrial development in underdeveloped countries cannot make a headway if there exists a food shortage in those areas because of infrequent visits of potential buyers due to the reduced buying powers of these individuals by high prices for food.

The above Table JLj.9 shows the importance of the prices of the commodities that Pakistan exports in the world market. Another im­ portant point to explain the data of the Table is that the balance between the growing of cash and food crops is essential for the economic development of the country. The degrees of vulnerability

can be greatly reduced by giving priority to the problem of food 70 shortage over industrial expansion. Precisely, to be self-suf­

ficient in food is more important to check price inflation than to

blame this price rise on the tempo of industrialization which is

relatively less effective in raising the general price level in an underdeveloped country. Both in regard to self-sufficiency in food

and an "export more" campaign for industrial development, any neg­ lect in the development of agriculture, means a peril for the coun­ try.

Productivity is largely the result of the combination of the resources and innovations. Similarly, to a great extent, the rate of added savings in a country may be regarded as the result of the condition of progressive economic growth of the country. However, all these are interdependent. In fact, one may say that self-in­ terest or the economic motive is a propelling force of progress but it can be interpreted that desire for improvement is the real force behind economic activities. It becomes essential to know about the rate of income growth to realize the extent of the in­ effectiveness of mobilization of savings in the country.

The Projections of the Rate of Added Savings

By applying the simplest form of Domar Formula, it has been assumed on a broad generalization based on current conditions that

70i»The Perspective," Economic Survey, Government of Pakistan Press, Karachi* Pakistan, 1957, p. 3* 1 k9 in 1955 marginal propensity to save and potential average investment

' 71 productivity were 0*067 and 0.037j in order. It has been worked out that the rate of growth of real income was (0.067 times 0.037 -

0.021*79) about 2.5 per cent.

The following Table gives projections of the productive rate of savings during the years 19U5-1970 in Pakistan.

Table 50

THE ESTIMATED RATE OF PRODUCTIVE SAVINGS IN PAKISTAN

Uational Income The Rate of Added Per Capita at Con­ Savings as Per Cent Year Population stant Prices in rupees of National Income# 191*5 67.1 220 1* 1950 7l*.5 21*2 5 1955 80.1* 2i*5 6 I960 85.6 276a 8 1965 91.1 310a 10 1970 93.U 3li9a 12 a At the average annual rate of increase in national income from 191*5 to 1955 i.e., 2.5 per cent. * Appendix D-2

Considering one-fourth of the increase of national income going into new capital formation, the annual rate of added savings in per cent to national income amounts to 8, 10 and 12 in i 960, 1965 and

1970 respectively.

Making use of the simple Harrods1 growth equation we can write the condition of progressive equilibrium as:^ The formula s GC - S

^Domar, E. D., '’Capital Expansion, Rate of Growth and Employment," Econometrics, p. 137> 191*6. 72 ' Kurihara, K. K., ''Introduction to Keynesian Dynamics," Columbia University Press, New York, 1956, pp. 181-182. 150

Explanation of symbols,

G z the rate of income growth required*

C a marginal ratio betweai capital stock and output and

S z the average propensity to save.

Thus the required conditions for progressive equilibrium will be illustrated in the table reproduced below:

Table 51

REQUIRED CONDITIONS FOR PROGRESSIVE EQUILIBRIUM HI PAKISTAN: 1957

Equilibrium Structural Parameter Required Rate of Growth Condition s c G S C G S = Gc — 2.70 0.025 0.067 G s S 0.067 2.70 0T025 c c ■ s 0.067 — 0.025 2.70 — 75

Appendix D-3*

In explaining Table £l, the required rate of savings is 6.7 per cent of national income during the year 1957 in Pakistan. By taking savings coefficients of 6.7 per cent and income growth rate as 2*5 per cent, the required rate of capital growth amounts to 2.7. Thus, the relationships among these three variables, income, capital and savings are such that we can calculate any one of them when any two of them are known.

Capital required by underdeveloped countries annually in industry and agriculture to raise their national product by two per cent, ±s given in the following table:- 151 Table $2

CAPITAL REQUIREMENTS OF UNDERDEVELOPED AREAS ANNUALLY IN INDUSTRY AND AGRICULTURE TO RAISE THEIR NATIONAL INCOME BY TWO PER CENT: 19k9 (Billion U. S. Dollar)

National Income Per National Capital Domestic Agri­ Area (In dollars) Savings culture Industry Deficit Latin America 152 1.99 1.58 0.96 ' E5 5 ~ Africa exclud­ ing Egypt 7U 0,72 1.78 0.53 1.59 Middle East ex­ cluding Egypt 96 0.5U 0.9U 0.36 0.76 South Central Asia 55 0.20 U.36 0.96 il.12 Far East ex­ cluding Japan ho 0.79 6.61 1.06 6.88 TOTAL k3 5.2U 15.27 3.87 13.90 Source: "Measures for the Economic Development of the Underdeveloped Countries", United Nations Publication, New York 1951* PP. 75-80.

Table 53

THE PRESENT ANNUAL RATE OF GROSS INVESTMENT IN SELECTED COUNTRIES

Productive Investment as Per Country Cent of..National Product India 7 Pakistan 6.5 Indonesia 5 The United States 17 Canada 16 China 15 Western Europe 16 Source: "Economic Development Abroad," Committee for Economic De­ velopment, Library of Congress, Catalog Card Number: 56-9097, Feb­ ruary, 1956, p. 10#

As indicated in Table 52, the capital needs for agriculture was about four times that of industry* The domestic savings con­ stituted 26*8 per cent of the total required capital both for ag- 152

riculture and industry. According to another estimate the percen­

tage of the national product which goes into investment is cited:-

As shown in Table 53* the rate of gross investment in Pakistan

is 30 per cent higher than Indonesia and much lower than all other

selected countries except India. In appearance the figure of pro­

ductive investment in China is almost equal to the Western countries

but it is subject to the difference as it is a percentage of a much

smaller total product than in the Western countries.

One of the causes for lower rate of productive savings other

than productivity is the ineffective mobilization of small savings

in far flunt areas of Pdcistan. These can be channelled into pro­

ductive investment if the following steps are taken into condisera-

tion:-

1. Educational programs for rural masses based on demonstration i.e.,

this much should be shown that these small savings are useful to

them. The change in their outlook and some assurance against pre­

judice and fears are essential.

2. The active role of multipurpose cooperative societies for saving and borrowing would bring about some useful results.

3. The convenient facilities for investing small savings should be provided through a nationwide postal savings and banking system. Thus, an industrial and an agricultural bank with their widespread branches are required. The Table 5H, further amplifies the case for the de­ velopment of postal savings in the country:- 153

Table 5U

POSTAL SAVINGS# IN PAKISTAN FROM 1951-1956

Postal Eavigs End of July (Million Rupees) 1951 I|."55.1|. 1952 U8U.7 1953 508.8 195U 5Hi.o 1955 59U.6 1956 (June) 66U.1 * Appendix Table 80 Source: "Report on Currency and Finance for 1955-56, State Bank of Pakistan, Karachi, Pakistan.

It is obvious from the above table that such a propram of mobiliza­ tion of savings would certainly add to the productive role of savings in the country. The increase of lj.3.6 per cent in 1956 over 1951 clearly indicates that further improvements in the mobilization of productive savings is possible. it. Small savings can also be canalized into small streams of real capital formation. An organized program of development should be carried out by the government and the profits, just after their completion, must be sold to the public in small lots.

5. For those areas where literacy is less than 5 per cent, tithe and religious motives can be made to play an important role and must be carried out in order to over-power the ineffectiveness of mobil­ ization of small savings of those people into useful purposes. Other­ wise it is evident that these savings either make away into some hoards such as jewelry by economic motives or would be consumed in a traditional manner because it has not been shown to them thus far that these small savings are useful for them. 6. A small savings scheme all-over the country in very large num­

ber of groups is one of the means to be followed by the country. For

this purpose and for accommodating those who are against interest

taking, a practical and an effective scheme has been suggested in the

last chapter of the dissertation,

7. In order to boost up the economic development program of the coun­ try which is being held up one way or another due to the lack of cap­ ital "compulsory development fund" through government should receive timely attention and care should be taken that it does not discourage

the general business activity of the people.

•These are some of the ways and means to bring about other ef­ fective methods of mobilization of productive savings which are not making headway so far in the country. CHAPTER XV

OTHER METHODS OF PROVIDING CAPITAL

Pakistan stands in great need of a certain momentum to advance her power of forward propulsion. In her early stages of development, no one theory sufficiently encompasses all of her problems. It is, therefore, useful at the outset to citean example concerning the economic development of a country that was somewhat similar to Paki­ stan's economic conditions a century or so ago, with special refer­ ence to what she had done and how she has developed her economy. For this purpose, the early stage of development of Japan is cited.

Japan's drive toward industrialization indicates that her gov­ ernment used both direct and indirect means of attacking the problems of capital mobilization and allocation.^ The state at times acted as a capital supplier and encouraged and fostered private enterprise and investment. This was not all the government did in the struggle of capital accumulation. It also issued bonds to settle feudal dues and debts and restrained the holders of bonds from spending the in­ come from them. She made the bonds a base for credit creation to as­ sist industrial financing and induce savings from the population at large. A brief history of Pakistan's State Bank shows that the fin­ ancial system is not yet highly organized. Pakistan's State Bank

'^Clement, E. W., "A Short History of Japan," University of Chicago Press, Chicago, 1915, i>. 6 0 .

1 # 156 is much less able, to influence the rate of circulation or to con­ tract the currency in circulation. Besides, there is a heavy drain on hard savings as these are being channelled into hoards of jeweliy owing to old ceremonial customs and conventions. The following Tables throw some light on these points of great importance:-

Table 55

PAKISTAN'S CURRENCY IN CIRCULATION AND MONEY DEPOSIT AND SUPPLY IN SELECTED YEARS* (Billion rupees)

Last Friday Currency Money Money of December in Circulation Deposit Supply 19l|ti 1.7 0.89 2.6 1950 2.0 0.91 2 9 1952 2*1 1.02 3.2 195U 2.6 1.39 3.7 1956 3*5 1.1*6 U.9 *Appendix Table 82.

Source: "Report on Currency and Financy for 1955-56," State Bank of Pakistan, Karachi, Pakistan.

Table 56

THE GENERAL PRICE LEVEL AND THE PRICE OF BULLION IN PAKISTAN IN SELECTED YEARS*

Period General Price Gold Spot Per Silver Handles Per (December Indexes Tola in Rupees3 100 Tola in Rupees 19h9 100 98.62 126.00 1950 95 91.25 135.62 1951 100 92.56 11*8.25 1952 10U 81.91; 121*. 00 1953 112 92.00 11*1;. 50 195U 109 95.75 15U.W; 1955 105 101.31 173.50 1956 (June) 108 107.3L 177.19

*Appendix Table 83•

^ n e Tola = 180 grains or 0.375 ounces (Troy)

Source: "Report on Currency and Finance for 195U-55 and 1955-56," State Bank of Pakistan, Karachi, Pakistan. The rise in currency circulation was far more pronounced than

in deposit money. Further, it clearly indicates that the supply of

money in an underdeveloped economy is rather difficult to relate to

price because some portion of the increase in money supply does not

constitute an effective demand, but only a potential demand. "While

the prices of gold and silver as shown in Table 55 except in the

post devaluation period i.e., last two years, do not indicate any

trend or relationship to the general price level. This shows that

the custom of wearing ornaments has an upper hand in regard to

prices of gold and silver over the minds of people of Pakistan.

Devaluation

Another aspect of paramount importance is that the country can

find her past glory because she can promote her exports is she re­

sorts to the program of regeneration of agriculture first and second,

devalue her unit of currency to a required extent. It is because she possesses cheap sources of unemployed and unorganized as well as re­

liable and willing workers and natural gas for power to run the in­

dustry. Furthermore, there is a market at home and abroad for her products and she has the capacity to increase her agricultural ex­ ports considerably. To top it all, even without a subsidy, she can

supply raw materials to industries for the promotion of her exports at cheaper rates. Moreover, there are known mineral resources in

commercial grades and quantities that have not been yet exploited due to the shortage of capital. Above all, if there be a need to 1 5 8 face competition wit$ Japan, Britian and -*-ndia in foreign markets,

she can further subsidize her industries through cheap labor, cheap raw materials and cheap power in order to force them out of her way to "export more" in the campaign of winning foreign markets. Con­ sumers all over the globe want things cheap and she has this oppor­

tunity of expanding her exports by devaluing her currency. Unfor­ tunately, she has already lost a lot of markets due to her non-de­ valuation policy of 191*9 that was based on some other assumptions.

Besides, this gave momentum to her neighboring country, India, which has the same commodities to export. Since then India has won fame for the higher purchasing power of her unit of currency due to her ability to sell relatively cheap in the world market.

In order to explain this fact, the indexes of terms of trade of

Pakistan are given in the following Table*-

Table 57

INDEXES OF UNIT VALUE OF IMPORTS AND EXPORTS AND THE RATIO OF UNIT VALUE OF EXPORTS TO IMPORTS OF PAKISTAN IN SELECTED YEARS

Index of Unit “ Thas" of Vnir ' ’l£££o“ofUni,Oa l u e of “ Year Value of Imports Value of Exports Exports to Imports W ,M 96*5 0531 .... 166.2...... 1950 75*0 88.6 118.0 1951 9 3 . 3 119.1* 12U.5 1 9 5 2 8 3 . 9 8 7 . 6 1 0 3 . 5 1 9 5 3 8 2 . 5 61.6 7 5 . 0 1951* 8 1 . 8 6 5 . 9 8 1 . 5 1 9 5 5 9 8 . 3 7 2 . 8 7 5 . 6 1 9 5 6 * 9 8 . 5 8 7 . 0 8 8 . 3

* January-September. Sources "The First FLve-^ear-Flanj1 Government of Pakistan Press, Karachi, Pakistan, Volume I, p. 199*

Unfortunately, the data given in the above table do no clarify much the point in question as it would have, had there been no 1$9

Korean War or higher export duties on the unit value of exports.

However, these figures do serve the purpose if we omit the period affected by the war in the interpretation of the data. The difficult balance of payments position and the deteriorated conditions of the terms of trade after the period i.e., since June 1952 can be attri­ buted in part to the nondevaluation policy of the country. More­ over, the adverse effect of nondevaluation policy of diversifica­ tion of her exports and imports in accordance with the direction of trade.

It may be added here that the country can overcome the acute shortage of capital to a great extent if she develops her agricul­ tural and moreover at the same time devalues her currency to a re­ quired level in order to launch exports of both raw material and finished goods. Another not? on it is that her people, whose pat­ terns of society are changing fast due to the intertwining of east­ ern with western cultures, would give up the use of golden and sil­ ver ornaments and sell their previous hoards of jewelry on account of high price for them in the market, primarily because of deval­ uation of currency in the country. In order to further discourage the old custom which is seriously limiting the rate of capital growth, her government should create an agency to compete in the purchase of these ornaments with the upper income brackets of her people.

These modem minds who constitute the upper group in the society can easily be persuaded, and perhaps they would not desire to be 160 held responsible for the increase in the sale prices of the old orna­ ments. Besides, there are less chances for them to be keen enough to compete with the government sponsored agency in the open market, and most probably would be reduced indifference for one reason or another.

Che may point out that the devaluation will result in inflation but its chances in Pakistan are much limited: firstly, the increased ex­ ports is an indication of growing economy and secondly, the devalua­ tion of currency is less effective in underdeveloped areas where the wages already lag much behind the reasonable level due to less aven­ ues of employment for the surplus rural population. Above all, strikes and labor union types of instruments of wage increase are an unknown thing. Moreover, they are always found in the pursuit of jobs and are highly accustomed to great hardships.

. Furthermore, when the obstacles of the hoarding of jewelry is overpowered, the small savings of the general masses will become available for further investment. Thus, the bank credit will rise.

The general public would find favorable chances to utilize product­ ively in required amounts, the supply of which is low now in relation to the demand primarily due to the absence of a nationwide credit system and higher rates of interest on productive loans.

Deficit Financing

In underdeveloped countries, the private sector is unable to use effectively and productively the available private saving, and moreover only a portion of these savings is channelled into produc­ tive investment by the public. Besides, the increasing monetization of the economy and the transaction demand for money forces an in­ crease in the money supply. In addition, an. increase in the money supply in an underdeveloped country, is also caused by a substantial volume of savings in the form of cash, rather than through savings in financial institutions. These are some of the important consid­ erations that make the case for government borrowing from the banking system and the general public.^ Therefore, the floating of loans in small shares so as to channel economic resources becomes a part of the duties of the government of an underdeveloped country. There is another desirable measure generally known as "deficit finance" which fits into the conditions of Pakistan for the mobilization of available resources. However, its use. needs a periodic review of the economy because of the impact of the development program or her pid.ce level. Thus, some measure is needed to link the stability of prices with the available level of development expenditure. Other­ wise, the economy would be subject to great fluctuations which, in turn, will greatly affect the rate of capital accumulation in the country. For this reason, the determination of approximate rate of economic development, and a formula for measuring the limit of "de­ ficit finance" are important and will go a long way to serve as an indicator to the economy of the country.

7li "Resources for Development," Report of West Pakistan Economists Conference, The Superintendent, Government Printing, Lahore, Pakistan, November 195>6, pp. 3k-36. For the determination of the rate of economic development in 7$ Pakistan- Singer formula has been applied:

The formula: D - SP-r

Explanation of Symbols.

D s the rate of economic development

S = the rate of net saving

P = the productivity of new'investment per unit of capital and

r - the compound rate of annual increase of population

While in case of Pakistan the values for these symbolsare:

P = 1/2.7 or 3.70 per cent

r - 1.26 per cent and S - 6.7 per cent now SP 5 O.O67 times 0.037

= 2.i;8 per cent

Therefore D = 2.U8 per cent-i.26 per cent

= 1.22 per cent Thus the rate of economic development in Pakistan is 1.12 per cent while in the United States average rate of growth of real income over the period 1879-19U1 was about 3.3 per cent. Considering the compound rate of population growth equal to 1.3 per cent, the rate of economic development was 2 per cent during the period or, in other words, it was almost twice that of now is in Pakistan’s.

'^Singer, R. W., ’’The. Mechanics of Development," IndianEconomic Re­ view, India, 19^2. p. 18.

"^Appendix D-lu A formula for deficit financing in Pakistan used in this analy- 77 sis is reproduced below

The formulas PI— PS a EF plus S plus DF.

Explanation of symbols

PI = propensity to invest

PS - propensity to save

EF - external finance

S “ substitution of labor for capital

DF a deficit financing

Assumptions: 1. Total population of the country in 1956 and 1957 have been taken as 81.U and 82.[jmillions, 2.National income in

1955 was 19.5 billion rupees, and 3. Average size of a family is

5.23 members. - •

(a) Addition in labor force in a year r 82.lt— 81.k - 0.19 million 5 . 2 3 ’■ persons.

Capital requirements for creation of one nex-i job in industry in the country a k033 rupees.

Capital required to take- care of the population growth

= k033 rupees times 0.29

- 766.3 million rupees.

(b) Capital required for depreciation and replacement by talcing 2.5 per cent of national product; it works out at 2.5 per cent of 19.5 billion rupees z k87.9 million rupees.

^ A p pendix E. 16U

(c) By taking 2.5 per cent annual increase of national income, the 7*8 amount required at the rate of 2.7 rupees per capita, for rupee one increase in national income, the propensity to invest is esti-

‘mated at: 82.!• times 2.7 times 6.1 r 1357.1 rupees. i Therefore, propensity to invest (PI) s (a) plus (b) plus (c) or

766.3 plus U87.9 plus 12)4.9.0 = 2611.3 million rupees. ii 'While the rate of added investment in 1956 in the country was 6.1? per cent of the national product and national' product was 19.5, the propensity to save (PS) amounts to 6.1> per cent of 19.5 billion rup­ ees or 12I49.O million rupees. iii External finance at present in the country is 8I4O million rupees and iv the substitution of labor for capital at the rate of 1 per cent of national product comes to 195.1 million rupees. Hence (i) minus

(ii) = (iii) plus (iv) plus DF or 2611.3— 12^9.0 = 8I4O.O plus 195.1 plus DF or DF s 327.2 million rupees.

Thus, 327.2 million rupees may be used as a "deficit finance" during 1957 in Pakistan. However, the estimate is based on the as­ sumptions made here and should' be treated as passive to future econ­ omic conditions which are subject to great fluctuations. Neverthe­ less, "deficit finance" should be regarded as a legitimate means of mobilizing resources as long as other means of credit expansion are not serving this purpose fully.

^According to the tVN. Document, The capital coefficients in non-ag- ricultural activities ranged from 2.92 in Egypt to U.77 in South Africa while in the fifth census of Indian manufactures (1950) and for the Latin American Countries in ECLA reports were worked out as 2.16 and 2.10 nearly. In a developed country with large dependence on international trade, the effect of devaluation is to raise sharply the prices of imports. The influence leads to labor unrest on a massive scale and to a rise in wages which again brings an increase in the prices of internally produced commodities. Thus, a further rise in the costs of living becomes inevitable. But in Pakistan when almost all food and clothing are indigenously produced, the wage price spiral can be entirely avoided, provided supplies of the basic commodities remain adequate. Moreover, the population in general is accustomed to sudden misfortune such as flood and draught. While in developed countries a boom stimulates consumption imports, in

Pakistan the greater simplicity of her economy makes this effect marginal. All these and already discussed circumstances clearly indicate that she can increase her exports by devaluing her unit of currency. CHAPTER XVI

THE PLACE OF OTHER MEANS FOR CAPITAL FORMATION IN PAKISTAN

From the earliest days of history to date the tremendous battle for making a good living has been our main preoccupation. There is little doubt that civilization will not survive on account of new deadly weapons. We may almost say that in this age of science and techniques, that preservation of freedom is in itself a science and a technique. Let us therefore begin our study of the quest for wealth by plunging directly into the heart of the matter. The problem is that in a money-run society we must make money to make a good living and more­ over unlimited wealth seeking in terms of goods, has become more or less a cultural phenomenon. This is not to say of course, that every occupation is measured in terms of money or that there are not power­ ful stimuli besides the hope of gain. However, "capital1* wrote Karl

Marx, "comes dripping from head to foot, from every pore, with blood 70 and dirt." In order to reduce our discussion to manageable pro­ portions, it is necessary to consolidate a number of related means to capital formation in Pakistan under very broad headings. For the purpose of this problem, this chapter has been divided into the fol­ lowing subheads:-

79 Sweezy, P. M., "The Theory Capitalist Development," Oxford Univ­ ersity Press, New. York, 191*2.

166 Capital Imports on Deferred Payments Basis

Pakistan which is developing her economy without any doubt needs capital for increasing production because the deficient output is re­ tarding her economy. The key to productivity which is the element of the free enterprise system requires further some ways and means for increasing capital. We must be on our guard against those fac­ tors that demonstrably interfere with the functions of increasing our research and education because with their results, i.e., inven­ tions and innovations, and their best combinations with the economic resources, ve can overpower the lack of capital. One of the means for increasing capital in Pakistan can be the imports of capital for development projects on deferred payments basis from some developed countries in order to gain a momentum for the rapid development of her economy. This can be achieved by keeping friendly relationships with them and also on economic principles involved in such trans­ actions. Moreover, political internal instability and institutional shortcomings within the country are the two major limitations which must be solved. Some suitable and economically feasible terms for capital imports with the lender country should not only be consider­ ed as a number one step but must be agreed to beforehand. What is more, initial repayments of the loans should be limited. The balance should be paid after production has started and care must be taken that the installments should not exceed the net saving or earning of foreign exchange which the projects will achieve thereafter. 168

However, much depends on the terms of payments, but the means can be made to work in Pakistan if a sound economic policy such as capital imports for self-supporting projects only from friendly countries, is strictly followed.

Revolving Funds and Reinvestment Schemes

The importance of this method is quite obvious in terms of simple mathematical calculations but some sort of economic arrangements are needed in order to run the system economically. There is a consid­ erable scope for the introduction of this means in Pakistan and needs some sort of effort to show to the general masses that these are use­ ful for them. This can be easily achieved and is worth trial in all the newly progressive corporations and some other financial organiza­ tions in Pakistan. Plowing back the profits or setting a condition of reinvestment at a convenient term over a borrower for productive loans which is one of the most important methods of economic advance­ ment, is not a new idea at all. But the history of newly developed countries is filled with such examples. What is really needed is to work out a suitable procedure before it is introduced.

Economical Use of Capital

The use of capital is rather more important than its real growth because it is our reproducible factor of production. Moreover, it is not an inexhaustive resource, but it wears and is not perpetual.

Therefore, the emphasis on loans for productive purposes is essential 1 6 ?

for the country at this moment. To top it all, the ability of the coun­

try must not necessarily be seen in her ways to create new capital but

also in its reinvestment for its further growth. Thus necessary guidance

to the borrowers in one respect is more helpful than allowing them to

live in debt.

Another important aspect of this is that the country should not

go overboard with the new incentives such as "industrial drive" and

"nationalism" and begin to develop first these projects which require

a heavy capital outlay. But an economy lies in the policy of giving

emphasis on such projects that require less capital and will give a

quick return. In this regard agriculture serves a suitable example

and deserves priority over the industry.

Another special problem for saving capital lies in the reduction

of expenditure incurred on administrative organizations. After de­

fense and development programs, this is the biggest item of capital

expenditure in the country. However, the reorganization in a few words

can be expressed that the country requires an immediate reformation

of its present social and economic system. This cab be achieved not necessarily through helpful legislation but by an appropriate cut in the services of non-productive offices of the provincial and federal govern­ ments without lowering the efficiency of beneficial departments. For ex­ ample the expenditures on defense without any loss can be utilized on the development of communication and education in the country. Both of these items of major importance can be rapidly developed without additional costs in maintaining a heavy staff in the ministries of

communications and education. Similarly, the work of planning and

central revenues boards or economic affairs, development authorities, foreign embassies etcetra, can be reduced to a great extent because these services can be performed by other regular departments which should now be performing more services to justify themselves for their future expansion.

Last but not least the country is a natural victim of less prog­ ress in the developmental activities of financial organization, be­ cause of interest rates that are regarded against the teachings of

Islam. For this, “partnership11 on a loss and profit basis should be encouraged by the government so that the development of the coun­ try, due to this conflict, may not be held back. There are also some other important aspects that affect the rate of capital growth in the country which should be given due consideration such as social se­ curities, floating loans, retirement plans, reduction in the expen­ diture now being incurred on a marriage or burial due to old cus­ toms and conventions through institutional changes, and educational programs. CHAPTER XVII

IMPORTANT FINDINGS AND SUGGESTIONS

This research was instigated to study the feasibility of re­

building agriculture in Pakistan which is being performed by out­

moded techniques with the greater use of capital equipments to make

it the number one source of capital for the development of Pakistan’s

economy as a whole. There is a great need to improve agriculture

and institutionalize it in order to mobilize small savings for pro­

ductive investments. Furthermore, there is an economic case for

occupational redistribution due to the presence of markets at home

and abroad for finished goods and known undeveloped resources in­

substantial quantities. To top it all, she can overpower the acute

shortage of capital and absorb surplus rural population in indus­

tries at the same time with the help of a regenerated agriculture.

Another important observation is that the economy of the country

rests largely on agriculture which can serve best as a means for

quick and better return, with minimum costs, at least in the near

future, if these conditions are taken into active consideration.

Above all, the problem, in spite of being very important to the coun­ try is yet relatively unexplored and uns-olved for one reason or an­

other.

Findings

1. Agriculture can not be reestablished even with the increased use 171 of capital and ability to use it, so long as the excess of rural population is not provided with jobs in non-agricultural sectors

of the economy.

2. In years following partition the main strength of Pakistan's economy was believed to lie in virtual self-sufficiency in food grains but it no longer holds good and is largely a myth. The findings show that she cannot feed her rising population without resorting to mechanisation of agriculture to raise productivity and electrification of farms mainly for the supply of water to the soil, to preserve perishable farm commodities and also to improve living conditions. Putting it in negative terms and seeing it in the light of this research all the grandiose development plans of the country dependent on external finance will have to be cut to the bone if food imports of the order projected remains necessary in the coming years. In short, it is a false dream to expect that small improvements in agriculture are sufficient to make her economy viable not to mention a rapid expansion in Pakistan's economy.

3. The problem of genuinely surplus population and the rate of pop­ ulation growth are the two major limitations in the midst of known resources. Due to the acute shortage of capital, the rate of which despite external assistance is not improving because of increases in public spendings primarily on food and cultural traditions such as hoards of jewelry. 173

According to this research, h3»h per cent of the population was

unemployed in 195>6 . Of the total number unemployed I4..I4 per cent was

accounted for by reason of feminity, 22,k per cent was due to "ebon-

omic instability,” while 16.6 per cent were unemployed. The annual

rate of increase in employment at present is O.U per cent which can

be attributed to her sustained efforts and foreign technical and

financial assistance. In one respect, it mayb e regarded as an

achievement that she is maintaining herself a little above the level

of natural growth of population in the midst of land scarcity and natural hazards such as refugees and floods. k. The present annual rates of productive investment and net econ­

omic development are 6,% as per cent of total national product and

1.22 per cent respectively. Both of these rates are low as compared to some other developing countries.

5. It appears feasible and worth while and will also prove a great means to overcome the tremendous battle of making a good living if she adopts deficit financing to the extent of about 327*2 million rupees this year. However, it might be recognized that in the ab­ sence of other findings with special reference to changing economic conditions of the country, this estimate must be taken with due limitations.

6 . It is wrongly believed that monetary and fiscal policies are un­ important or deficient in the underdeveloped world. But this research reveals that these policies are more essential to these areas than to some developed countries. A rapid economic development is nearly impossible if an undeveloped

and agricultural country fails to regenerate agriculture and is lured

by the tempo of industrial drive and "nationalism”. The author is of

the firm opinion, that planned economy is a long way to develop these

areas and if the country wants to strengthen her economy to weather

any storm of economic disturbance she can find in "classical economics"

which is more applicable in the "Moslem World" than any other minced

economy such as "Planned Economy," because of their beliefs in it and

its natural advantages over all other economic systems at this stage

of development.

Suggestions

It may amply be made clear at the very outset, that there is no

simple solution to economic development. Besides an undue emphasis

on the patient improvement of human institutions or a few brilliant insights and miraculous policies we must have hold economic action to attain economic improvement. Another important point that must be emphasized is that agriculture is in no way inferior to industry for almost all the countries of the. world. Agriculture is neglected by some policy-makers for some unknown reasons of grave concern such as its need for government supports merely because it is exposed to nature. Some of the most important suggestions are given below for the economic betterment of the people of Pakistan.

1. Greater emphasis is necessary now on agriculture, which as before continues to be the foundation of the country's economy. But this 17$

can be achieved only by mechanization of agriculture and electrifi­

cation of farms and there is no need to fear that this -will result

in more unemployment. The findings of this research make abundantly

clear that it is only one of the means for her to follow if she is

really interested in solving the problem of productivity and her in­ dependence*. Some people may think that it is rather difficult to

achieve because of the implications of land scarcity. The truth is

that there is a lull before the storm and mechanization of agricul­ ture means more jobs rather than the other way round. Furthermore, it has been found out in this dissertation that it is feasible on a kin-family farming basis which is already considered as an "ideal” family firm" in Pakistan due to the preoccupations and influence of many centuries-old social impacts upon her rural people. Thus, in order to overpower the problem of deficient output which is holding back her economy, mechanization of agriculture in Pakistan is not a necessary evil bfct a necessity*

2. Ag already pointed out the country needs to be self-sufficient in food in order to gain mcmentun far her program of rapid economic development and this can be achieved easily and economically if she makes her people to grow and use more potatoes in their daily diets instead of increasing areas unde* two major cereals such as rice and wheat. It has been worked out in this study that at the present rate of yield per acre of potatoes 1 * 0 3 million acres of this crop that constitutes 3*1 per cent of the present area under rice and wheat crops, will be sufficient to offset the existing shortages of the 1 7 6

cereals in the country. Moreover, for the procurement of food, a

"food-bank" should be set up which will prove as an incentive for

the people to save more and a good check against creeping inflation

that is the real enemy of the capital formation.

3. Another important source of capital formation in the country

after agriculture is improved is Pakistan's foreign trade. In order

to launch an "export-more" campaign she is in a position to devalue

her unit of currency on account of three reasons. One is that she

is in a position to produce consumer's necessities domistically, the

other is that hfer people are accustomed to sudden misfortune and lastly, there is a wide-spread underemployment in the midst of abun­

dant but unexploited natural resources due to lack of capital. It is also advisable for the under-developed world to set up her own

"currency area" such as sterling and dollar areas because there is always a danger of "frozen funds" due to the superior bargaining power of industrial societies. But this can only be done,say by

Pakistan if she can produce more cheaply than other competing coun­ tries in the foreign markets. Therefore, mechanization of agricul­ ture is more essential and needs priority over her industrial prog­ ram. It must be remembered however, that the burning desire of the people and borrowed technology in this respect should be given first place in her future development programs. The need for research and education is not only essential Uor economic development but also it will bring a political stability, true type of democracy and broaden the general outlook of her teaming millions. 177

U. Finally, the most important suggestions for the country is to overcome, the menace of ineffective mobilization of small savings in the country. These small savings are making their way back to unproductive types of spending which can be channelled into pro­ ductive investment if she sets up a postal savings scheme of indus­ trial and agricultural banks. But what is required is a small savings scheme on a nation-wide scale. In order to help the reader, 80 the scheme is given below in a tabular form:-

Table 58

A SMALL SAVING SCHEME ON A NATION-WIDE SCALE FOR THE EFFECTIVE MOBILIZATION OF SMALL SAVINGS OF THE PEOPLE*

Amount Received (500 member and rupees 5 Period Amount Paid to per month each member) in Months Members in Rupees 2500 First Month 600 2500 Fifty-first 650 2500 Seventy-sixth 700 2500 Hundredth 750

* Appendix Table 90

In interpreting the scheme given in the above table, it is evident that each member will get sufficient reward over his investment. More­ over, this scheme when run by a nationwide and government sponsored

"small savings corporation" can make up loss if any, through incomes earned by its productive investments.

It is hoped that these few, but important suggestions will furn­ ish the much needed program and clear the basis for the steps to be

®^Appendix F taken by her to develop her economy and these will go a long way to better the living standards of her people. In the end, these helpful suggestions will enable her to industrialize and to regenerate ag­ riculture. APPENDICES Table 59

ESTIMATES OF NATIONAL INCOMES OF PAKISTAN AT CONSTANT PRICES BY INDUSTRIAL ORIGIN FROM 1909-50 TO 1955-56 (Million rupees) (Prices: Average of 1909-50 to 1952-53)

Sector 1955-56 1950-55 1953-50 1952-53 1951-52 1950-51 1909-50 Agriculture 11225 11630 11663 10905 10095 1O820 10062 Mining 03 39 36 30 30 26 23 Manufacturing 2189 1923 1750 1500 1370 1279 1191 Government 1130 1009 1052 1032 1O08 858 808 A APPENDIX Banking and Insurance 75 71 69 68 58 51 03 Transport and communication 565 506 536 529 513 500 002 Services 1705 1672 1639 I608 1576 1503 1073 Rental Income 1108 1108 1089 1072 1053 1036 1005 ■Wholesale and retail trade 1851 1871 1851 1717 1637 1 6 6 9 1607 Indirect taxes on exports 287 235 288 292 286 356 182 Factor income payments -26 - 9 ——— -10 - 3 - 9 -10 Terms of trade -637 -278 -526 -301 99 187 12 Total National Income 19516 19859 19007 18082 18161 1 8 3 2 O 17238 Estimated Total Population (In thousands) 82210; 81198 80053 78912 76916 75850 70807 Per Capita income (in rupees) 237 205 203 230 236 202 230

Source: Central Statistical Office, Government of Pakistan Press, Karachi, Pakistan.

H CD O 1 8 1

Table 60

POPULATIONS ESTIMATES AND PROJECTIONS FOR PAKISTAN FROM 1937 TO 2000

Year (February Million Persons 1937 61.9 19U0 6k, 7 19l£ 67,1 I9h7 72.0 19$0 7k.$ 1 9 & 76.0 195>2 77.2 19*3 7 8 .u 19$k 7 9.U 1955 80.U 19$ 6 81.U 19$ 7 82.U . I960 85.6 1965 91.1 1967 93. h 1970 97.0 1975 103.3 1977 106.0 1980 110.1 1985 117.5 1987 120.5 1990 125.2 1995 13U.3 1997 136.7 2000 1^2.0

# The disputed state of '’Kashmir" is excluded. Figures are based on an average of ii different estimates, that is, current rate of annual increase of population, (l.U0$)j -world rate (1,33%)} average of last 7 censuses (1,12$) and average annual rate of 1921 to 1951 (1.20$).

Source: Central Statistical Office, Government of Pakistan Press, Karachi, Pakistan. Table 61

LAND TENURE SITUATION IN PAKISTAN IN 195l*

IMPORTANT REGIONS OF WEST PAKISTAN East Former Former Former North West Former Pakistan Pakistan Punjab Sind Frontier Province Baluchistan Total Population (million) 75.81* 1*2.06 18 *.83 U.62 3.26 0.62 Population per square mile (no) 207 772 299 91 236 12.0 Agricultural population 57.62 35.33 12.0^ 3.U7 2.28 0.50 (million) (76) (810 (610 (75) (70) (8 0 ) Agricultural population 18.22 6.73 6.78 1.15 0.98 0.12 (million) (22*) (16) (36) (25) (30) (20) Agricultural families (000) 11017 6755 230U 663 1*35 96 Average size of holdings (acres) 1*.7 2.2£ 6.2 8.0 5.5 12.5 Tenancies (000) (32) (210 (2*0) (5o) (1*2) (66) Small land owners3 (000) (55) (6 0 ) (1*5) (1*0) (1*5) (27) Big landlords (no) 10000 291* Estate owners (no) —— 12li Agricultural labor*3 (13 )c (155 (10 )c (9)° (12 )c (7)c Agricultural labor force (23) (31) (29) (31*) (17) (30)

* According to census figure of February, 1951. ( ) Percentages over total population of the region, a Small land owners are tenants as well. b Permanent and casual farm labor and including social labor and artisans c Estimates Source: Report of the Economic Appraisal Committee, Ministry of Economic Affairs, Government of Pakistan, Karachi, Pakistan. The First Five-Year Plan, Planning Board, Government of Pakistan, Karachi, Pakistan. 182 Journal of Farm Economics, Volume XXXVIII, May 1956, pp. 1|30-1*75. Table 62

TOTAL AREA. AND AREA TNDER CULTIVATION IN PAKISTAN: 1951 ______(Million acres)______Total Other un­ Not avail­ Province/ All Net® Culti­ culti­ able for Total Area Province/ Country Other Sown vated vated culti­ Area Not Country Area Areas Area Area Land Forest vation 5 to 9 Reported 1 2 3 h 5 6 7 8 9 10 East Pakistan 35.20 O .89 19.75 22.06 U .21 2.97 5.07 3lw31 Negligible (15.1) (25.6) 0ll.2) (36.1) (1 8 .1 ) (55.5) (17.8) (29.1) (...) West Pakistan 1 9 8 .I1O 2.59 28.21 39.03 18.99 2.38 2 3.3k 83.7h 112.07 (81u9) (7U.U) (58.8) (63.9) (81.9) 04w5) (82.2) (70.9) (1 0 0 ) Pakistan 233.60 3 .1|8 U7.96 61.09 23.20 5.35 28.1a 118.05 112.07 (1 0 0 )(1 0 0 ) (1 0 0 ) (1 0 0 ) (1 0 0 ) (1 0 0 ) (1 0 0 )(1 0 0 ) (1 0 0 ) Per cent of all Pakistan 100 1.5 20.5 26.1 9.9 2.3 12.2 50.5 U8.0 Per cent for East Pakistan over countiy area 15.1 0.L« 8.5 9.b 1.8 1.3 . 2.2 ll*.7 Negligible Per cent for West Pakistan over country area 8U.9 1.1 12.0 16.7 8.1 1.0 10.0 35.8 U8.0 a Total cultivated area column 5 minus column H «* current fallow. ( ) Percentages . Source: Ministry of Food and Agriculture, Government of Pakistan, Karachi, Pakistan. Table 63

ARM, PRODUCTION AND YIELD PER ACRE OF PRINCIPAL CROPS FROM 191*8-1*9 TO 1955-56

AREA IN THOUSAND ACRES PRODUCTION IN THOTBA03 TONS PRODUCTION PER ACRE IN POUNDS Crops 1955-56 1950-51 191*7-1*8 1955-56 1950-51 191*7-1*8 1955-56 1950-51 191*7-1*8 Rice 21901*' 22i|00 20960 7209 8195 7381* 737 820 789 Mieat 11289 10893 9856 3315 3950 3321 658 812 755 Millet 2199 2U07 1998 31*8 385 296 35fi 358 332 Sorgham 1297 1255 1056 252 21*3 202 1*35 1*31* 1*28 Maize 1059 9U8 905 14*9 381* 355 95o 907 879 Barley 580 512 1*87 11*8 11*1* 126 572 630 580 Grain 33U5 2957 2388 720 791 517 1*82 599 1*85 Sugar Cane 967 696 690 1201* 881* 899 2789 2806 2918 Rope & Mustard 2008 1626 ll|23 321 281* 251 358 391 395 Sesamum 212 20l* 202 37 35 36 391 388 399 Linseed 75 67 71* 13 11 • 13 388 368 391* Cotton 3537 3072 3103 301* 21*7 196 192 161* 11*1 Jute 163U 1 7 H 2059 999 1073 1222 1369 11*05 1329 Tea 77 75 70 23 17 13 673 508 1*16 Tobacco 195 179 16 0 90 73 60 1031* 911* 81*0

Source: Ministry of Agriculture, Government of Pakistan, Karachi, Pakistan. Table 61

PAKISTAN’S FOOD REQUIREMENTS AT THE PRESENT STANDARDS OF LIVING

Daily Quantity Quantity Produced Quantity Required Shortage/ Constituents of Per Person 1951-55 in Million Tons3 Surplus the Diet in Ounces Calories - (Million tons) 1957 I960 1967 in 1956 Cereals*3 15.00 1250 12.70 13.58 11.12 15.09 8 .1* (c) Pulses 1.75 168 1.10 1.52 1.68 1.83 21.6* (c) Green Leafy Vegetables l.oo 20 Root Vegetables 3.00 60 9.53 9.35 9.73 10.60 1.9* (d) Other Vegetables 3.00 25 Fruits 3.00 10 2.86 2.81 2.95 3.22 0.3* (d) Milke 10.00 180 1.89 2.19 2,21 2.19 15.9* (c) Sugar and Laggery 1.00 110 1.16 (1.38) (1.120 (1.57) 19.0* (c) Ghee or Vegetable Oil 0.50 100 o.lo (0.16) (0,18) (0.52) 15.0* (c) Fish 1.00 30 1.10 0.92 0.96 i.ol 6.1* (d) Meat 0.75 30 0.60 O .69 0.72 0.78 15.0* (c) Egg -0.50 20 0.31 0.16 0.18 0.52 1 0 .0* (c) Total 13.5 o 2033 31.85 33.39 31.83 37.66 Per Cent of Cereal in diet 31.5 61.5 39.9 10.7 10.5 lo.o — a Including 10 per cent for seed, feed, wastes, etcfetra. b Cereals are Rice, Wheat, Millet, Sorgham, Maize and barley, c represents shortage d represents surplus e Milk 75 per cent of its quantity is converted into ghee or curd etcetra. ( ) 50 per cent of these is used in sweet meats etcetra. Source: Pakistan Review of Agriculture, Vol. II, No. 3, January, 1956 and Composition of Foods, "U. S. D. A., Agriculture Handbook No. 3. Table 65

PRODUCTION OF MANUFACTURING AND MINING INDUSTRIES IN PAKISTAN 19U8-1956

Percentage Increase, Items or Commodities______Unit______191+8_____ 1952 1956_____ 1956 over 1952 Manufacturing Industries Food manufactures tea Million lbs* U3-5 5.3 6.2 17 sugar (000) tons 7 6U 103 61 hydrogenated vegetable- oils (000) tons 3 8 17 112 Tobacco Manufactures cigarettes Million Bo. N.A. 3170 5221 65 cigars (000) No. 79 1+95 1019 102 Textile Manufactures cotton surplus yam Million lbs. 6.2 20.0 166.8 731+ cotton cloth Million yds. 88 17U 1+81 176 silk (art) fabric Million yds. N.A. 3.7 7.3 97 woolen worsted yams Million lbs. N.A. 1.5 18.3 1100 jute goods (000) tons N.A. 17.6 H+3.2 711+ Leather Manufactures upper leather Million sq. ft. 1 7.2 21+.0 233 sole leather Million lbs. 1.5 8.3 25.5 207 Rubber Manufactures Tires and tubes No N.A. 776 2163 179 Manufacture of chemical and chemical products safety matches Mill. Gross Boxes 0.3 0.3 1+.9 1533 Petroleum Manufactures Mill. Imp. gal. 10.6 U7-6 61+.3 35 Cement (000) tofts 32U 53.0 726 37 Steel (000) tons 5 3U 109 221 Table 65 (Continued)

Percentage Increase, Items or Commodities Unit 191$ 1952 1956 1956 over 1952 Electric Energy Bill. KWH 0.13 0.30 0.72 11*0 Mining Industries Chromite (000) tons 18 17 23 21* Gypsum (000) tons N.A. 28 35 25 Coal (000) tons 21*1 599 656 10 Lime (000) tons 31*7 672 776 15 Crude Petroleum Mill. I. gal. 17.0 55.1* 73.7 31 Natural gas, iron ore, and coal mines are found in substantial quantities

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan. Table 66

COST OF LI'TOJG INDICES OF INDUSTRIAL TORKERS IN SELECTED CENTRES OF PAKISTAN (Base year: 19U8-1i9)

6 E N T RES Karachi (West Palcistan) Lahore (West Pakistan) Warayanganj (East Pakistan) General Food General Food General Food Period Indices Indices Indices Indices Indices Indices 19U9-50 98 99 93 90 103 103 1950-51 95 93 81 75 98 97 1951-52 100 101 91 86 1 0 U 103 1952-53 1 0 U 105 98 96 109 111 1953-5U 112 111 100 93 106 10U 195U-55 109 107 97 88 90 83 1955-56 106 106 93 86 99 95 1956-57 110 112 97 91 12 9 13U

Source: Central Statistical Office, Government of Pakistan, Karachi, Pakistan. Table 67

VALUES OF CROPS, LIVESTOCK, FISHERIES AND FORESTRY IN PAKISTAN AT CONSTANT PRICES FROM 19U9-SO TO 1955-56 (Prices: Average of 19li9-50 to 1952-53) Unit ~ Million Rupees ______1955-56 195U-55 1953-5U 1952-53 1951-52 1950-51 19U9-50 Agriculture 11225 11630 11663 109U5 101*95 10821* 101*62 Major crops 6377 6782 6951 6379 6122 6581* 6326 Minor crops li|25 1 1£5 1U25 12 71* 1160 1151* 115U Livestock 210-5 210.5 210.5 2ljl5 2369 2323 2273 Fisheries 975 975 839 m 811 730 676 Forestry 33 33 33 33 33 33 33 National Product 19516 19857 191*7 181*82 18161 18321* 17238 Per Cent Contribution of Agriculture in National Product 57.5 58.6 60.0 59.2 57.8 59.1 60.7

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan. Table 68

GOVERNMENT OF PAKISTAN’S OVERALL BUDGETARY POSITION: 19U8-lt9 to 1956-57

Estimates Actuals Actuals Actuals 1956-57 1953-5U______1950-51______19U8-H9 Revenue Accounts Revenue 130U.5 1125.0 1277.3 667.6 Customs itflu5 U08.0 787.3 329.2 Central Excise Duties 137.7 130.8 68.6 53. k Income and corporation taxes 206.6 175.9 133.8 65.9 Sales tax 117.0 86.lt 66.8 itl.7 Others 368.7 331.1 220.8 177.lt Expenditure 130,'uli mil.. 9 12it7.5 6 U7 .O Direct.demand on revenue 33.5 25.3 21.5 15.5 Defense services 793.5 6 U6.9 655.6 :it6l.5 Benefieient departments 82.5 51.6 32.2 19.2 Civil administration 1 9k.6 . 162.3 132.7 89.8 Debt services 100. k 79.5 65.6 21.0 Miscellaneous 99.9 llt9.lt 339.8 U0.0 surplus (s)/deficit 0.1 (s) ,10.1 (s) 29.7 (s) 20.6 (s) Capital Accounts Receipts 3635.5 305lt.2 1937.6 1136.6 Permanent debt 386. it 58it.5 93.0 U18.1 Floating debt 1771.0 1778.7 1212.7 509.1 Unfunded debt 320.9 222.1 170.2 162.6 Depreciation and reserve funds 96.0 80.8 339.8 20.3 ■Foreign aid fund 786.0 2.3 Other funds and deposits 152.5 17.1 13.1 MM Recoveries of loans and advances 93.3 25.U 311.5 26.5 Miscellaneous capital receipts 2 9.h 3U3.3 7h.3 MM Table 68 (Continued)

Estimates Actuals Actuals Actuals 1956-57 1 953-5U 1950-51 19U8-U9 Disbursement (d) 3686.8 3185.9 1661.0 102)4.2 Direct capital outlay 618.9 370.8 3U1.7 331.2 Expenditure from reserve funds 12U .6 3U.8 3.9 Loans and advances to provinces 530.1 38U.li 1U7.0. 135.7 Committment against foreign aid 33k. 8 — — — Redemption of public debt. 15U.U 318.9 — ~ Redemption of the floating debt 162U .1 1902.1 1018.5 360.5 Other deposits, debts, schemes 299.9 17U.9 1U9.9 197.5 Surplus (s)/deficit (d) 51.3 (d) 131.7 (d) 276.6 (s) 111.7 (s)

Source: Report on Currency and Finance for 1 955-56, State Bank of Pakistan, Karachi, Pakistan. Table 69

DETAILS OF ACTIVITIES OF THE PAKISTAN INDUSTRIAL DEVELOPMENT CORPORATION DURING THE PERIOD JANUARY 12, 1953 TO JANUARY 12, 195? (Pillion rupees)

Pakistan East Pakistan West Pakistan Number of projects completed (U3) (19) (2U) Total estimated cost 781.55 387.99 393.56 Value of annual production 397.79 275.^0 . 122.39 Annual earnings of foreign exchange 325*26 238.80 86.1-6 Employment provided (50,621;) (3,982) (10,714.2) Wages and salaries paid to employees annually 66.10 52.25 11.15 Taxes paid to government annually 20.86 13.29 7.57 Estimated cost of projects under construction 365.00 155.00 210.00

( ) represents total number

Source: Ministry of Industry, Government of Pakistan, Karachi, Pakistan. Table 70

CONSOLIDATED POSITION OF SCHEDULED BANKS IN PAKISTAN: 191+9-1956

LIABILITIES ASSETS (Month Bad) (Total State Invest­ Bank3 Statutory Excessive June Demand Time Deposits) Cash Bank ments ^ Credit Reserves Reserves 1 9h9 906.2 185.1 1091.3 36.3 202.5 .. 1+13.6 1+9.0 153.5 1950 1019.3 201.1+ 1220.7 1+7.1 132.2 .. 1+90.5 55.0 77.2 1951 1111.6 281.2 1392.8 53. 1+ 172.8 .. 550.3 61.2 111.6 1952 . 111+7.0 21$ .6 1395.6 57.1+ 102.6 -- 780.1 52.3 1+0.2 1953 1211.2 319.9 1531.1 1+9.2 132.5 — . 655.7 67.0 65.5 195U 1262.2 U59.2 1721.$ l+l+.o li+2.8 671.0 788.9 72.3 70.5 1955 1356.6 562.5 1919.1 1+7.7 187.8 726.2 81+1.1 79.2 108.6 1956 1509.8 609.0 2118.8 1+9.5 261+.3 823.3 915.6 87.7 176.6 Per cent Increase in 1956 over 19k9 67 229 91+ 36 31 121 79 15 Per cent of time deposits in 1 9h9 St 1956 over Total Deposits: 191+9 ... 17 — . .. __ 1956 29 — - — — - a It includes advances and bills discounted and purchased.

b It includes securities with provincial and central governments and others.

Source: Reports on Currency and Finance, State Bank of Pakistan, Karachi, Pakistan. Table 71

FOREIGN* AID TO PAKISTAN SINCE INCEPTION DP TO THE EI'ID OF SEPTEMBER 19$k (Figures in millions of United States dollars)

Project Commodity Technical Emergency & Credit & Country Assistance Assistance Assistance Relief Assistance Loans IJhited States 75.UJ4 208.53 35*19 129.92 15.00 Canada U6.70 1.00 0.83 6.50 — Australia 2U.31 0.22 0.82 It. 70 —- New Zealand 3.92 0.2k m m .... IJhited Kingdom -- 1.68 28.00 Thited Nations and its specialized agencies ---- 5.1*6 2.32 ....' Ford Foundation -- 7.23 — World Bank — — - - — — 77.25 Sweden —- 2.51 «... Other Countries -- 0.03 TOTAL 150.37 209.75 51.71+ 11+3.1+1+ 120.25 United States aid to total 50.2 99.k 68 90.6 12.5

Grand total up to the end of June 1955— rupees I4I 8 .I million dollars. While up to the end of Sept. 19^6--rupees 675*6 million dollars; or rupees 3.2 billion; allocated— rupees 675*6 million dollars: obligated rupees 579*6 million dollars and utilized rupees U02.3 million dollars.

Source: Foreign Aid and'Its Utilization in Pakistan, Ministry of Economic Affairs, Government of Pakistan, Karachi, Pakistan. Table 72

EXPORTS AND IMPORTS OF PAKISTAN: 1989-50, 1951-52 and 1955-56 AND YEAR: JULY TO JtME (Value in million rupees)

Exports Imports Commodities 1955-56 1951-52 1989-50 Commodities 1955-56 1951-52 1989-50 Jute 828.7 996.1 525.8 Chemical, drugs and Cotton 1(62.1 777.5 397.6 medicine 75.8 68.0 39.9 Wool 68.3 31.2 35.1 Instruments, appli­ Hides 10.9 13.8 13.2 ances and apparatus N.A. 82.1 18.3 Skins 27.7 19.3 16.8 Metals and ores 131.8 183.2 57.8 Tea 38.3 1(2.5 85.6 Mineral oils H8.2 97.7 35.3 Total Agricultural Cotton twist & y a m 15.1 257.7 156.2 exports 1832.0 1880.8 1033.7 Cotton piece goods . 63.8 89.2 213.3 Other exports 351.7 208.2 160.3 Vehicles 58.8 93.0 58.o Total exports 1783.7 2088.6 1198.0 Machinery and mill Per cent share of work 182.0 175.3 82.1 agricultural exports Other imports N.A. 1238.9 637.9 to total exports 80.3 93.6 86.6 Total imports 1288.8 22Lil.l 1298.8 Per cent of mach- ■ inery and mill work to total imports 18.6 7.8 6.3 Per cent of cotton piece goods to total imports 5.1 8.0 1 6 . 8 Source: Reports on Currency and Finance.for 1958-55 and 1955-56, State Bank of Pakistan, Karachi, Pakistan. Table 73

IMPORTS OF COMMODITIES INTO EAST PAKISTAN FROM WEST PAKISTAN AND INTO WEST PAKISTAN FROM EAST PAKISTAN FROM 1 9k9 to 1955 (Million rupees)

Commoditiesinto Commodities into Per Cent of Pakistan East Pakistan West Pakistan Total Merchandise over : Pakistan Foreign Pakistan Foreign Pakistan Pakistan Total Pakistan Merch­ Merch­ Merch­ Merch­ Foreign Merch­ Foreign Year Total andise andise Total andise andise Trade andise Trade 1 9k9 191.2 187.5 3.7 U7.2 U0.2 7.2 2551.7 227.7 8.9 1950 251.5 2Ul.it 10.1 57.7 139.0 18.7 287U.U 380.U 13.2 1951 280.0 16U.8 116.0 57.3 35.0 22.3 5231.6 199.8 3.8 1952 226.8 176.7 50.1 97.0 61.8 35.2 3682.6 238.5 6.5 1953 326.7 290.6 36.1 175.2 13U.3 Uo.9 2979.U U2U.9 1U.2 195k 329.3 315.5 13.8 183.1 16U.0 19.1 2766.8 U79.5 17.3 1955 320.7 305.5 15.2 215.7 200.1 15.6 32U9.7 505.6 15.6

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan.

H M3 O n Table 7h

TOTAL PAKISTAN FOREIGN TRADE BX VARIOUS ACCOUNTS: 19k9, 1951, 1953 and 193? (Million rupees)

1955 1953 1951 19H9 Imports On private account 937.8 628. U 1568.6 11*66.3 On government account 1U7.6 588.U 21*8.1* 230.8 Air b ome for West Pakistan from East Pakistan - - - - . — Land borne. 60.1 81.6 183.9 11*8.7 Sea b o m e 1025.2 1135.2 1633.1 11*1*8.1* Total imports 1085.h 1216.8 1817.0 1697.0 East Pakistan as per cent to total imports 2? 26 32 30 . West Pakistan as per cent to t’otal imports 73 7h 68 70 Exports On private account 11*95.8 ll*05.5 2525.2 11*6 ?. 7 On government account 9.1 1*7.0 0.2 11. u Air bome for East Pakistan from West Pakistan ——— Land b o m e 20U.5 111.7 517.0 531*. 2 Sea b o m e 1300.5 13i*0.9 2008.h 914*. 9 Total exports 1505.0 11*52.6 2525.U 11*79.1 East Pakistan as per cent to total exports 58 1*5 51 56 West Pakistan as per cent to total exports ■ Li2 55 1*9 1*1* Balance Positive i)19.6 235.8

Negative — — 7 0 8 . u 217.9

Source: Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan. Table 75

TOTAL FOREIGN TRADE OF PAKISTAN (Million rupees)

Imports Exports East West East West Period Total Pakistan Pakistan Total Pakistan Pakistan

19U7 (Aug.-Dee.) 88.2 8.1 80.1 185.7 83.3 102.14 19U8 1030.9 168.3 862.6 1633.6 101*8.9 581*. 7 19U9 1697.0 516.U 1180.6 1U79.1 831.U 6U7.7 1950 1333.0 337.1 995.9 1617.0 850.1 766.9 1951 1817.0 578.6 1238.U 2 5 2 5 .I1 128U.6 12I4O .8 1952 2083.2 662.8 Il4.2 0 .l4. 1762.3 769.1* 992.9 1953 1216.8 317.6 899.2 11*52.5 655.1 797.1* 195U 1152.0 32li.3 827.7 1187.5 659.5 528.0 1955 1085.U 291.8 793.6 1505.0 866.0 639.0 1956 (Jan.-Nov.) 1 U 0..6 iilO.l 1031.5 1I189.8 885.9 603.9

Sources Economic Survey and Statistics for 1956, Government of Pakistan Press, Karachi, Pakistan. Table 76

PAKISTAN'S BALANCE OF PAYMENTS CN CURRENT ACCOUNT: 1950-1956 (Million rupees)

1956 1 955 1951* 1953 1952 1951 1950 Receipts Jobe 871.9 77U.3 555.6 579.lt 729.2 1226.1 521.2 Cotton 1*1*2.8 1*31.1* 369.8 638.2 807.1 1092.5 51*9.3 Other exports 539.5 3 6 6 .1+ 223.8 186.7 165.7 377.8 173.6 Other receipts 8U2-3 195.6 1I+2.0 11*6.9 213.6 182.2 113.9 Total 2696.5 1767.7 1291.2 1551.2 1916.0 2870.5 1363.0 Payments Commercial import 887.3 7l6.lt 807.7 779.1 1859.8 1521.1 975.8 Other payments 392.2 2 6 7 .it 209.9 219.0 311*. 9 276.9 202.1* Government imports and payments 11*0 6 .1* U98.2 1*58.0 1*30.1 591.9 563.2 333.it Total 2685.9 11*82.0 11*75.6 11*28.2 2766.6 2361.1 I5ll.lt Balance (10.6) (285.7) -I81t.lt (123.0) -850.6 (5l7.lt) -11*8. !i Errors and omissions • «! • • • * - 1.8 - 1U.2 (2.U) (33.3) Net investment/disinvestments (10.6) (285.7) -I81t.it (121.2) -8 61*.8 (519.8) -lUt.6 Per cent contribution of jute and cotton over total receipts 1*8.8 68.2 71.7 78.5 80.2 80.3 78.5 Government imports and payments over total payments 52. 1* 33.6 31.0 30.1 21. )* 23.9 22.1

( ) represents positive investment.

Source: Economic Survey and Statistics for 1956, Government of Pakistan, Karachi, Pakistan. Table 77

BUDGET POSITION OF PAKISTAN AND HER UNITS FROM 191*8-1*9 to 1957-58 (Million rupees)

PAKISTAN EAST PAKISTAN WEST PAKISTAN Expen- Deficit (d) Expen­ Deficit (d) Expen­ Deficit (d) Year Revenue diture Surplus (s) Revenue diture Surplus (sO Revenue diture Surplus (s) 191*8-1*9 667.6 61*7.0 20.6 (s) 168.6 160.0 0.6 (s) 280.3 310.9 30.6 (d) 191*9-50 885.1* 856.0 29.1* (s) 11*1*. 2' 171.0 26.8 (d) 300.0 301.6 1.6 , (d) 1950-51 1277.3 121*7.5 29.7 (s) 176.0 182.1* 6.1* (d) 31*6.8 332.6 ll*.2 (s) 1951-52 11*1*9.7 11*1*1.6 8.1 (s) 201.1 22a 6 21.5 (d) 1402.1 381*. 8 17.3 (s) 1952-53 1285.8 1280.2 5.6 (s) 196.1* 21*7.2 5o.8 (d) 370.1 1*18.1 1*8.0 (d) 1953-51* 1125.0 llll*. 9 10.1 (s) 221*.2 261.5 37.3 (d) 1*25.3 l*ol*.6 20.7 (s) 195U-55 1157.0 1150.1 6.9 (s) 2l*6.i|? 28U.5 38.1 (d) 1*32.5® 1*18.8 13.7 (s) 1955-56 1299.2 1297.1 2.1 (s) 2 5 3 . ? 280.8 27.7 (d) 1*60.3 1*55.3 5.0 (s) 1956-57 (Revised estimates) 1302.8 1327.7 21*.9 (d) ——— 573.lb 572.1 1.0 (s) 1957-58 (Budget estimates) 1392.1* 1392.1 0.3 (s) —— — ——— Per cent increase in 1955- 56 over 191*8-1*9 9U.6 —— 1*6.1 ~ — 51.7 ——

a Revised estimates. b. Budget estimates.

Source: Economic Survey for 1955 and 1956, Government of Pakistan Press, Karachi, Pakistan. 200 Table 78

AVERAGE# RETAIL PRICES OF SELECTED COMMODITIES IN PAKISTAN (Year March-April and prices in annas)##

Selected thit of 1956 Commodities Quantity (Apr.-Dec.) 195U-55 1953-51* 1952-53 1951-52 1 ' 1950-51 191*9-50 Wheat flour Seer3 5.95 5.39 6.50 6.96 6 . 01* U. 71 6 .0l* Rice medium Seer 6.^5 5.96 8.39 9.H* 6.96 7.00 7.75 Gram split Seer 7.Uo 6.86 9.61 8.89 6.25 6.1*3 6.96 Fish Pound 17.92; 15.37 1U.56 13.37 15.19 13.75 1U.31 Mutton Seer 3U.25 32.61 32.18 32.93 31.07 30.07 29.68 Beef Seer 19i33 16.62 16.87 16.91* 16.19 16.1*1* 17.50 Milk , Seer 9.85 9.68 9.39 9.25 9.61 9.1*6 9.57 Ghee pure Seer 88.00 107.39 103.11 98.36 85.57 82.68 9U.82 Potatoes Seer 8.70 6.86 7.29 7.61* 6.57 6.57 7.86 Onion dry Seer U.90 6.00 7.71 5.51* 6.50 3.79 8.39 Salt Seer 2.95 2.93 3.00 2.96 3.07 3.01* 2.89 Chillies dry Seer 30.31 37.50 38.36 26.96 28.86 29.71 1*5.H* Raw sugar Seer 11.75 8.61 9.93 11.61* 11*. 86 10.07 8.11 Tea Two ounce 7.35 6.29 1*.86 U.75 U.96 5.1*6 5.79 Firwood Maund 39.90 39.11 38.18 36.82 35.82 35.50 35.57 Kerosene Oil Pint U.25 U.18 U.61 1* .1*6 1*. 36 U.75 U.75 Shirting Yard 28.30 2U.25 27.1*2 20.50 21.75 17.10* 20.31 Long cloth Yard 21.85 25.01* 31*. 25 23.58 22.85 25.70 26.30 Soap washing Seer 23.35 23.11 22.01* 20.00 22.75 23.39 23. oU Hair oil Seer 51.70 51.17 52.12 36.87 1*1.12 38.92 36.66 TOTAL U2U.56 1*31*. 96 1*50.38 397.36 388.35 37U.88 U39.UU •Indexes 96.6 99.0 102.5 90.5 88.1* 85.3 100 # Average of important markets in Pakistan from 19U 8-U 9 to 1955-56. ## Sixteen ’’Annas" are equal to one "Rupee" and one is equal to 21 United States cents on official level 201 a Forty "seers" are equal to one."maund" and one maund is equal to 82.27 pounds.

Source: Economic Survey for 1955, Government of Pakistan Press, Karachi, Pakistan. Table 79

INDICES OF WHOLESALE PRICES OF SELECTED COMMODITIES (Base year: April 19l*8-March 19U9 * 100)

IS.ce Wheat Grain Jute Cotton MdoI Hides Skins Period (Medium) (Fair) (Black) (raw) (raw) (raw) (raw) (raw) 1 9h9 107.1* 83.3 N.A. 88.3 91.9 N.A. N.A. N.A. 1950 55.5 71.5 N.A. 68.6 89.8 N.A. N.A. N.A. 1951 66.1* 73.8 N.A. 116.6 128.1 N.A. N.A.N.A. 1952 73.5 121.5 N.A. 63.0 9k. k N.A. N.A. N.A. 1953 63.9 13l*.7 N.A.a 57.6 69.6 N.A. N.A. N.A. 195it 67.3 93.7 69.7 61*.7 98.6 153.1 122.1 89.8 1955 68.3 83.1 59.7 69.6 95.0 190.7 153.9 98.8 1956 9h»h 106.2 103.1 93.5 110.6 220.0 li|2.2 113.6 Average 7U.6 96.0 77.5 77.7 97.3 187.6 139.U 100.7 a Not available

Source: The Central Statistical Office, Government of Pakistan, Karachi, Pakistai.

ro O PO Table 80

POSTAL SAVINGS IN PAKISTAN FROM 1951 to 1956 (Million rupees)

National Savings Defense Savings Certif­ Defense Certificates & Pakistan ' Cash icates and Pakistan de­ Savings End of July Saving Bank Savings Certificates Certificates fense Savings Certificates Bank 1951 273.6 112 .1 57.3 n .7 0.66 1952 291.5 122.0 55.6 ll*.9 0.65 1953 303.6 133.0 51*. 7 16.9 0.61* 195U 319.1 11*7.5 5i*.o 19.8 0.61* 1955 352.3 169.7 53.3 18.7 0.61* 1956 (June) 1*01.7 193.0 52.9 15.9 0.63 Per Cent In­ crease in 1955over 1951 28.8 72.2 59.1* Per Cent de­ crease in 1955 over 1951 — — 7.7 — 3.2

Source: Report on Currency and Finance for 1951*-55 and 1955-56, State Bank of Pakistan, Karachi, Pakistan,

ro O VjO Table 81

THE POSITION OF PROVINCIAL AMD CENTRAL GOVERNMENT OF PAKISTAN’S PERMANENT DEBT: 191(8-1956 (Million rupees)

As on the The Debt as The Debt as The Debt as Last Day of Central Per Cent of East Per Cent of West Per Cent of The Month Pakistan Government Pakistan Government Pakistan Government (December) Government Receipts Government Receipts Government Receipts 19U8 679.99 101.9 Nil. 182.88 62.2 19h9 729.09 82.7 Nil. — 1 6 0 .Uo 23.2 i & o 922.00 7U.2 Nil. -- 129.90 1(6.1 1921 1101.60 82.7 Nil. 199.79 1(9.7 1922 1102.02 98.0 Nil. 218.92 29.2 1 953 1202.86 108.1 32.92 11+.7 21(2.91 27.8 192U 1 2 0 6 .1-8 130.2 33.1*1 13.6 21(2.12 26.6 1922 1660.89 127.8 33.1(1 13.2 227.26 26.0 19$6 (June) 1663.60 127.7 33.1(1 •— 226.13 ldt.7 Per cent increase in 1922 over 191(8 1(0.9 _ —— 7 1 .U —

Source: Reports on Currency and Finance for 192U-22 and 1922-26, State Bank of Pakistan, Karachi, Pakistan. Table 82

PAKISTAN CURRENCY IN CIRCULATION AMD MONEY SUPPLY: 191*8-1956 (Million rupees)

Last Fri­ Deposit Money day and Coins Held By Demand Other Deposits Month arid Banking Deposit ■With State In Tills of Currency in Money December Notes Department General Bank Scheduled Banks Circulation Supply ' 191*8 1763.7 23.7 891.7 32.1 1707.9 2^99.7 1 9k9 1810.7 31.9 886.3 - 39.3 1739.lt 2625.7 19$0 2099.9 57.U 907.2 - 50.6 1991.9 2899.0 - 1951 2601.3 62.3 1190.3 71.6 2lt67.lt 3657.71 • i 1952 1*8.0 1022.7 — 60.8 2259.7 2150.8 3173.5 1953 2U53.9 1|2.5 ll5l.lt 39.6 2371.8 3523.2 -- 1951* 2718.1* 89.0 H 7 0 . U 5U.8 2571*. 6 371*5.0 1955 3122.5. a 83*?a 1326.3 58.3 1*9.5 2989.5 1*315.8 1956 3226.6* 12U.83 11*29.7 31.7 lt9.5a 31*65.9 Per Cent 1*927.3 Increase in 1955 over I 9I18 77.0 25.2 — 1*8.7 5U.2 102.9 89.5

a. June 1956 b Pro-visional

Source: Reports on Currency and Finance, State Bank of Pakistan, Karachi, Pakistan.

ro O vn Table 83

GENERAL PRICE INDICES* AND PRICES OF BULLION AND GOVERNMENT SECURITIES OF PAKISTAN FROM 19U9 to 1956 (Rupees)

East West Pakistan Pakistan Gold Silver Government Government Spot Handles 2.75 3 3 Securities Securities General Per Per 100 Per Cent Per Cent Per Cent I 9 6 0 , 3.5 I9 6 0 , 3 Period Indices Tola8 Tolas (1955-56) (I960) (1969-70) Per Cent Per Cent January 19li9 1 0 6 . 2 5 H i . 7 5 December 19U9 ---- 98.62 126.00 — «• — December 1950 95 91.25 135.62 101.12 101.25 100.12 98.14l December 1951 100 92.56 118.25 101.06 101.25 100.19 —— 98.50 December 1952 lo l 81.91 121.00 101.06 101.25 100.06 «... 98.50 December 1953 112 92.00 H 1 . 5 0 101.75 100.00 100.25 99.31 97.50 December 1951 109 95.75 151.11 100.50 100.06 100. hh 100.19 97.25 December 1955 105 101.31 173.50 100.00 100.00 98.50 99.00 97.31 June 1956 108 107.31 177.19 ’ 100.00 100.06 ' 98.75 99.00 97.62 Per Cent In­ crease (i) Decrease (d) in 1955 over 1950 11 i 31 i 31 i 1.1 d 1.1 d l.ll d 0.8 d

* General indices for industrial ■workers at Karachi talcing 1 9h&-h9 equal to 100. a One tola is equal to 180 grains or 0.375 ounce (Troy)

Source: Reports on Currency and Finance for 1951i-55 and 1955-56, State Bank of Pakistan, Karachi, Pakistan. APPENDIX B

SUBSTITUTION OF POTATOES IN DIET TO MEET THE DEFICIENCY

OF RICE AMD WHEAT IN PAKISTAN

Considerations For Judging the Method.

1. Present population, 82.1* million.

2. Requirements®"1* of cereals and potatoes in the diet of 2021 calories:

70 per cent.

3. For seed, feed and wastes: 10 per cent

1*. Estimated shortage of these two cereals: rice 280 thousand tens

and wheat ll*0 thousand tons.

In order to emphasize the importance ofpotato crop and to simplify

the method, income received by the farmer ftom an acre of rice, wheat

and potato is given in the following table:-

Table 81*

NET INCOME RECEIVED BY A PAKISTANI FARMER FROM 191*8-1*9 TO 1955-56

Cost Net Cal­ of Income Yield ories Price Pro­ Received Area Per Per (Rupees duction by far­ (Million Acre Acre Per (Rupees mers Crops Acres) (Pound) (Million) Pound) Per Acre) (Rupees) Rice 22.79 821 1.31* 0.182 72.5 1*7.1 Wheat 10,^8 731* 1.10 0.097 67.5 13.7 Potato 0.12 7135 2.27 0.085 312.1 29)4-1*

The Potato as a major food crop of which yield can be increased easily

Rl Buchanan, N. S. "Approaches to Economic Development," The Twentieth Century Fund, New York, 1951** P* 1*57. 207 208

by the given state of knowledge, can be substituted and grown econ­

omically in Pakistan. In order to meet the present shortage of

280,000 tons of rice and 11)0,000 tons of wheat, the problem in this method is how many acres from rice and wheat can be shifted to pot­

ato production and it has been worked out in two ways as follows

1. By increasing the‘yield of potato crop: $0 per cent.

2.. Putting more acreages under the potato crop by shifting areas

from rice and wheat in the ratio of two to one in order to have more' potato production.

Annual Requirements of the Present Population for the Cereals and

Potatoes

1. Cereals and potatoes in a daily diet in calories 2021 times 70 per cent is equal to llpL!?

2. Annual requirements of the total population 82.1). times lljl5> times

365.2£ or ij.2386.7 billion calories

3. Addition for seed, feed and wastes: Ij.286»7 plus 10 per cent of

1|23>86.7 billion calories.

Therefore, annual requirement is equal to 1)631)3.1) billion calories.

Wow the shortage of the 2 cereals which is in calories 102.1)8 plus 1)6.98 or ll)7#U6 billion (calories for the shortages of 280,000 tons of rice and ll)0,000 tons of wheat) can be met as under:- ' a Taking into consideration $0 per cent increase in the yield of potato crop over the present rate of production per acre in Pakistan 209 it has been calculated asj

3 (2*27 plus 1.13) - 2(1.3b times 2) plus 1(1.10) or the increase of 6.U2 million calories from 3 acres can be achieved if we shift this much area from rice and wheat to potato production*

Number of acres to be brought under potato crop to meet the existing shortage of these two areas: lll7.U6 '~>*'hr2 times 3 or 68906.£ acres.

In other words, rice I46l67.l1 acres

wheat 21379,1 acres or 2 per cent of the area now under rice and wheat crops, b Working on the basis of the present yield of potato in the country, the area required to be shifted for growing it instead of the cereals, comes to 3*1 per cent.

Thus by shifting 3.1 per cent area now rice and wheat to potato production, Pakistan can become self-sufficient in food as far as the shortage of the cereals is concerned. APPENDIX C

MEASURE®?! OF THE GENUINELY SURPLUS RURAL POPULATION IN

PAKISTAN FROM 19kl TO 19^6

Assumptions

1. The phrase "genuinely surplus population" has been defined here as voluntarily fully unemployed persons. The equivalents of partially employed have been worked out by taking 2 partially employed persons equal to one fully unemployed person. Besides, a person partially 'em­ ployed during the busy seasons less than 2 months in a year has also been counted as fully unemployed.

Op 2. The Atwater's Scale has been applied for the adult male units.

3. A H above five and below sixty years of age have been considered as workable members of a family and economic units.

U. The economically active males of 12 and above but below sixty years of age have been taken as adult male workers.

E>. The number of members in a family has been taken as 5>«23»

Working on the basis, results obtained are reproduced below in tables 8^-87.

Op The Atwater's Scale of adult male units, as given in Chinese Farm Economy by Buck on p. 17, is reproduced below

Equivalent adult male units Age in Years Male Female over 16 1.0 0.8 l£-l6 0.9 0.8 13-12 0.8 0.7 12 0.7 0.6 10-11 0.6 0.6 6-9 0.5 ...... 0.5 210 21 1 Table 85

MANPOWER IN PAKISTAN PROM 19l*7 TO 1957

■■'HEK' ’ Aduli Number of Male a Workable Male Year Population8 Families Units Members Workers 1 ± 3 1* 3 6 191*7 72.0 13.8 52.7 55.9 23.5 1950 7U.9 lii.3 51i.8 58.1 2U.5 1951 75.9 ll*.5 55.6 59.0 21*. 8 1952 77.2 Hi.7 56.5 60.0 25.2 1953 78.1* 15.0 57.1* 60.9 25.6 195ii 79.U 15.2 58.1 61.6 26.0 1955 80.1* 15.1* 58.9 62.1* 26.3 1956 81.1* 15.6 59.6 63.2 26.6 1957 82.1* 15.8 60.1* 61*.0 , , ?7,.G .. a The difference between column 1* and 5 gives feminity effect on man­ power which is in this case lull per cent of total population. "While subtracting column 5 from column 2, we get the number of persons econ­ omically inactive in the country and they constitute 22. If. per cent of the total population.

Table 86 NUMBER OF PERSONS FULLY EMPLOYED IN PAKISTAN# PROM 19ll7 to 1956

the rate of National Capital re­ Per Cent of added savings Income quirement Total Pop­ End as per cent Per for one ulation of Popula­ of national Capita new job Fully Year tion product (Rupees) (Rupees) Enroloved 19l*7 72.0 3.0 220 2000 53.85 1950 7l*.9 3.5 230 2500 51*. 55 1951 76.0 3.9 21*2 2750 51*. 89 1952 77.2 2*.0 236 3000 55.20 1953 78.1* U.2 231* 3250 55.51 1951* 79.1i 1**8 21*3 3500 55.86 1955 80.1* 5.1 2li5 3750 56.17 1956 81.2* 5.5 237 1*000 56.57 * According to the findings of the inquiry conducted by the Board of Economic Inquiry, Punjab, Pakistan, 20 per cent has been fully unem­ ployed in addition to l*.l* per cent for "feminity effect" and 22.1* per cent as economically inactive. Tlf§B the rest of 53.2 per cent of the total population was fully employed in the beginning of the year 19i*7. 212

Table 87

EMPLOYMENT SITUATION OF POPULATION IN PAKISTAN FROM 19U7 to 1956

Econom- - Fully Fully Feminity ically unem­ em- b Population Effect inactive ployed3 ployed Year (Million) (Per Cent) (Per Cent) (Per Cent) (Per Cent) 1 2 3 k 5 6 19U7 72.0 U-U 22.1i 19.U 53.8 1950 711.9 U.l; 22. b. 18.7 5U.5 1951 15.9 U.li 22.1; 18.3 511.9 19^2 77.2 h»k 22.1i 18.0 55.2 1953 78.1* k»h 22. U 17.7 55.5 19$k 79.1; k.h 22.li. 17.3 55.9 1955 80 .U U.li 22.li 17.0 56.2. 1956 81.1; 22. k 16.6 56.6

a Column 5 is equal to -(10Q»(3 plus U plus 6) ■b Working on the basis of assumptions and given rate of investment, as explained in Appendix D-I.

In interpretating above tables, one may conclude that the employ­

ment situation of the country is improving at an annual average rate

of 0.3 per cent from 19U7 to 1956. APPENDIX D

Appendix D-I: Capital requirements for creating a_ job for an adult

in Pakistan.

Assumptions

1. The per cent of agricultural income of the total national income: 60

2. The per cent of -working population of the total population: 6JU

3» The rate of population growth: lit per cent per decade.

It. The rate of added savings: 6 per cent of total national income

5. The per cent of agricultural population of the total population: 76

The estimates of United Nations experts and Singer for the “cap­ ital required'for creating a job for an adult in the industries are: •

2*, 750 rupees and 7,600 rupees in order. While these estimates for 83 India were:

Year 19U6 19k7 19l|6 19h9 1950

Capital (rupees) 2l|2£ 2lt70 2829 302lt 3765

In view of the fact that the trend of increase in India and being her conditions similar to those in Pakistan, the same average rate of annual increase (Rs. 268) has been applied in this analysis. It works out that the investment of lt033 rupees in the industries can create a job for an adult in 1957 in Pakistan.

QO 'Abbas, S. A., "Capital Requirements," University Economist, Vol. IV, No. I, University of the Punjab, Lahore, Pakistan, March 23, 1956, p. 23* 21k

Appendix D-2: The projection of the rate of productive investment

in Pakistan,

The following table summarizes the procedure of the method and SU is thus .given here.

Table 88

THE PROJECTION OF THE RATE OF PRODUCTIVE INVESTMENT IN PAKISTAN

National Income The Rate of Per Capita at Added Savings Population Constant Prices as Per cent of Year (Millions) (rupees) National Income 1?U5 67.1 220 l(.0 1950 7U.5 21(2 5.0 1955 8 0 .u 21(5 6.0 I 960 85.6 27 6 a 8.0 1965 91*1 3 1 0 a 10.0 1970 93. h 3U9a 12.0 a At the average annual rate of increase in national income from 1 9U5 to 12^5 which is 2.5 per cent.

Source: Economic Survey and Statistics for 1256, Government of Paki­ stan Press, Karachi, Pakistan.

By applying the simplest form of Domar formula in this method, it has been estimated (iff’ 1255, marginal propensity to save: 0.067 and potential average investment productivity: 0 .0 3 7 ) that the equilibrium rate of growth is 6 per cent times 1(1 .7 per cent or

2.1(8 per cent of the country. Considering one-fourth of the in­ crease in national income going into new capital formation, the annual rate of added savings as per cent of national income works out at 8 , 10 and 12 in 1 2 6 0 , 1265 and 1270 respectively.

®^Doraar, E. D., "Capital Expansion, Rate of Growth and Employment", Econometrics, 19U6, p. 137. 215 Appendix D-3 s The rate of capital growth in Pakistan.

Making use of the growth equation we may write the condition of progressive equilibrium as:

The equation: GC » S

Where G » the rate of income growth required.

C = marginal ratio between capital stock and output.

S r the average propensity to save.

Thus, the required conditions for progressive equilibrium can well be illustrated in tabular form:

Table 89

REQUIRED CONDITIONS FOR PROGRESSIVE EQUILIBRIUM IN PAKISTAN IN 1957

Equilibrium Structural Parameter Required Rate of Growth Condition S C G S C G S ■ GC 2.70 0.025 0.067 G = S 0.067 2.70 0.025 C c : s 0.067 0.025 2.70 G

In explaining table 88, we find that (capital coefficient:2.7, and income coefficient: 0 .0 2 5 ) the required rate of savings is 6.7 per . 85 cent in 1957 in the country. ^ By talcing saving coefficient of 6.7 per cent and income growth rate 2.5 per cent, the required rate of capital in Pakistan works out to 2.7 per cent.

85 Kurihara, K, K., "Introduction to Keynesian Dynamics," Columbia University Press, New York, 1956. 216 Appendix D-U: Determination of the rate of economic development in

Pakistan,

The Formula: D z Sp-r

Explanation of symbols,

D s the rate of economic development

S - the rate of net savings

P = the productivity of new investment per unit of capital and r = the compound rate of annual increase of population.

Here p = 1/2.7 or 3.70 per cent r - 1.26 per cent per annum

S * 6.7 per cent

Now Sp = 0.067 times 0.037 = 2.U8

Therefore D z Sp-r = 2.US-1.26

= 1.22 per cent

Thus, the rate of economic development in Pakistan is 1.22 per cent.

Singer, H. W., “The Mechanics of Development,11 Indian Economic Re' view, August 1952* APPENDIX E

A formula for "deficit financing" in Pakistan.

The formula: PI - PS : EF plus S plus DF

Explanation of symbols

PI = propensity to invest

PS = propensity to save

EE s external finance

S - substitution of cheap labor for capital

DF s deficit financing

1. Total population in 1906 and 1937 is 81.k and 82.A million in order.

2. National income per capita in 1933 : Rs, 2l;3.

3. Average size of a family— 3.23 members.

(a) Addition In labor force a-year = 8 2 = 0.19 million persons.

Capital requirements for the creation of one new job r [iQ33 rupees.

Capital required to meet the needs of the annual rate of increase of population - ij.033 times 0.19 = 766.3 million rupees.

(b) For depreciation and replacement capital requirements: 2.3 per cent of total national product or, 2.3 per cent of 19.3 billion rupees which is equal to 1).87«9 million rupees.

(c) The rate of added investment in Pakistan is 6.U per cent of the national product and'national product is 19.3 billion rupees.

The propensity to save (PS) : 6.1* per cent of 19.3 billion rupees =

I 2 I4.9 .O million rupees.

217 218

By taking 2.5 per cent annual increase in national income of

Pakistan, the amount required at the rate of Rs. 2.7 per capita for 87 rupee one increase in national income:

82.lt times 2.7 times 6.1 = 1357*1 million rupees.

Therefore, propensity to invest (PI) - (a) plus (b) plus (c) that is,

766.3 plus 14-87.9 plus 1357.1 s 2611.3 million rupees.

Now, the external finance (EF) at the current rate = 8l|0 million

rupees, labor substitution for capital (.S) by assuming one per cent

of the national product.

Working on the basis S ■ 1 per cent of 1901 billion rupees or 195*1

million rupees.

Because PI-PS 2 EF plus S plus DF

or 26ll.3-l2lt9»0 « 8ItO.O plus 195*1 plus DF.

or 1362.3 = 1035.1 plus DF

or DF z 327*2 million rupees.

Therefore, according to this study, 327.2 million rupees can be used

in the development programs as deficit financing in 1957 in Pakistan.

According to the United Nation's document, the capital coefficients in non-agricultural activities range from 2.92 in Egypt to U.77 in South Africa while in the fifth census of Indian Manufactures (1950) and for the Latin American countries in "ECLA Reports" were worked out as 2.16 and 2.1 in order. APPENDIX F

A SMALL SAVING SCHEME FOR THE EFFECTIVE MOBILIZATION OF

SMALL SAVINGS OF THE PEOPLE OF PAKISTAN

This small saving scheme will have its branches all over the country and is suggested to be run by a government sponsored "Small

Savings Corporation." This corporation will realize rupees five a month from its each member and will have innumerable number of groups each consists of £00 members. In order to help the reader and sum­ marize all the details the following table is cited:-

Table 90

A SMALL SAVINGS SCHEME FOR THE EFFECTIVE MOBILIZATION OF SMALL SAVINGS IN PAKISTAN

Amount Received (Five rupees per Period Amount Paid member a month) in Months to the Member 2f>00 First 600 2£00 Fifty-first 6£o 2£00 Seventy-sixth 700 25>00 Hundredth 750

In analyzing the above table, it is evident that each member will get sufficient reward over his investment and the scheme can make up its loss if any, through incomes earned by its productive investments. BIBLIOGRAPHY-

Black, J. D., Future Food and Agricultural Policy, Hew York: McGraw- Hill, 19U8.

Buchanan, N. S,, Approaches to Economic Development, New York: The Twentieth Century Fund, 195>5>.

Clark, Colin, The Economics of i 9 6 0 , London: Macmillan, 195>1.

Clement, E. ¥., A Short Histoiy of Japan, Chicago: University of Chicago Press, 1915•

Dewhurst, J. F., America's Heeds and Resources, Hew York: The Twen­ tieth Century Fund, 1955*

Ellis, H. S., "Economic Growth and Development," Journal of Farm Economics, Volume XXXVII, December, 19E>5>.

Feroldi, Franco, Capital Formation and Credit Policy in Economic Development, Milano: A. Giuffne, 195>i|»

Frank, Peter, "Economic Nationalism in the Middle East," Middle East Journal, Autumn, 1952.

Galbraith, J. K, "Conditions for Economic Changes in Underdeveloped Countries," Journal of Farm. Economics, Volume XXXIII, November, 1951. Hart, A, G., Money, Debt and Economic Activity, Hew York: Prentice- Hall, 1953.

Heilbroner, R. L*, The Quest for Wealth, New York: Simon and Schuster, 1956. Hews, Lawrence, Boxcar in the Sand, New York: Alfred A, Knopf, 1956.

Holzman, F. D., Soviet Taxation— The Fiscal and Monetary Problems of a Planned Economy, Cambridge: Harvard University Press",' 1955*

Keynes, J. M., The General Theory of Employment, Interest and Money, New York: Harcourt Brace and Company, 193o.

Kurihara, K. K., Introduction to Keynesian Dynamics, New York: Columbia Ihiversity Press, 1956.

2 2 0 221

Kuznets, Simon, Economic Growth: Brazil, India, Japan. Durham, North Carolina: Duke diversity Press, 19'?%•

Lemer, A. P., "Saving Equals Investment," Quarterly Journal of Economics, February, 1938.

Lewis, W. A., The Theory of Economic Growth, Homewood, Illinois: Richard D. Irwin, 1955. r"

Nevin, Edward A Study of British Monetary Policy. 1931-1939, Cardiff, University of Wales Press, 1955.

Newman, P. C., Source Readings in Economic Thought. New York, Norton & Company, 19%k.

Smith, Adam, The Wealth of Nations. New York: The Modem Library, 1937.

Viner, Jacob, International Trade and Economic Development, Glencoe, Illinois: Illinois Free Press., 1952.

Wolf, Charles, Jr., Capital Formation and Foreign Investment in Underdeveloped Areas. Syracuse University Press, 19%%,

Woytinsky, W. S., World Population and Production. New York: The Twentieth Century Fund, 1955* AUTOBIOGRAPHY

I, Umar Khan Niazi, was b o m on April 1, 192H in the village of

Bilandwala, District of Mianwali, West Pakistan. I'received my elem­ entary and high school education in that district. My undergraduate study was in the Punjab Agricultural College & Research Institute,

Lyallpur from which I received the B. S. Degree in 19U6. I continued the postgraduate work and in 19U8 was awarded the M. S. Degree from the University of the Punjab, Pakistan.

I joined the Department of Agriculture in Punjab, Pakistan, as a

Research Assistant in February, 19U9, and after about six months was as­ signed to the Thai Development Authority as an Assistant Agricultural

Adviser. From December, 19U9, to May, 1950, I served as a lecturer in

Agricultural Economics in the above-mentioned college. During July

1950, I joined the Board of Economic Inquiry, Punjab, Pakistan, as an Economic Investigator and worked there. In April, 1952, I was selected by the Pakistan Public Service Commission to serve in the office of the then Economic Adviser to the Government of Pakistan at Karachi, where I served until the end of 195U. By the end of 195U,

I got a travel grant for further study in the subject of Agricultural

Economics from the U. S. Education Foundation in Pakistan. Since

January, 1955, to date, I have been on study leave, continuing graduate study leading to the Doctor of Philosophy degree in agricultural econ­ omics at the Ohio State University.

222 last, this study, more than most, has strengthened ray belief in my ability to fulfill a long-standing desire to write a book on

"True Economics." My wish is always to remain a student of Econ­ omics.