Aiou Solved Assignments code M.Sc 4660 Autumn & Spring 2021 assignments 1 and 2 Course: Economic Development of Pakistan-I (4660) spring 2021. aiou past papers
AIOU Solved Assignments 1 & 2 Code 4660 Autumn & Spring 2021
Course: Economic Development of Pakistan-I (4660)
Semester: Autumn & Spring 2021
ASSIGNMENT No. 1
Note: Answers should be based upon the prescribed study material. Consult study guide for guidance.
Q.1 During 1970’s, the agricultural sector faced the problem of low productivity. The main causes were the inadequate supply of vital agricultural input. Discuss all other factors responsible for low productivity.
ANS Many researchers have explored the roles of research and extension in promoting agricultural growth. Rosegrant and Evenson (1992) found that in South Asia, public research accounted for 30 percent of the output growth, and extension for about 25 percent, with corresponding rates of return being 63 percent and 52 percent, respectively. Pray and Evenson’s (1991) survey of Asia found the rates of return to national research investment ranged from 19 to 218 percent, returns to national extension investment from 15 to 215 percent, and returns to international research investment from 68 to 108 percent.
Evenson and McKinsey (1991) found that public investment in research accounted for over half of the output growth in India and extension contributed about one-third. The calculated internal rates of return were 218 percent for public research and 177 percent for extension. However, they found that little output growth was attributable to infrastructure. Jamison and Lau (1982) also found that physical capital had little impact on production or profits, as compared to farmer’s education and extension services.
Fan (1996) found that public research expenditures accounted for about 20 percent of total production growth in Chinese agriculture during the period 1965 to 1994. The annual rates of return to agricultural research investment in China ranged from 44 percent to 83 percent. Fan (1996) concluded that the rapid growth in agricultural output in China during the 1980s and 1990s was the result of public investments in R&D as well as the institutional and market reforms that began in 1979. He concluded that increases in agricultural research were justifiable; not only did they stimulate additional output growth, but the rate of return to agricultural research was much higher than commercial interest rates.
Despite the high rates of returns from public research investments, agricultural research intensity (ARI), measured as a percentage of Chinese agricultural GDP, was found to have declined from 0.56 percent for the period 1958-1965 to 0.43, 0.44, 0.39 and 0.40 percent, respectively, for 1966-1976, 1977-1985, 1986-1990 and 1991-1993 (Fan, 1996). Lin (1998) reported that, as part of the overall market reform, the Chinese Government had reduced its fiscal appropriation for agricultural research, shifting funding from institutional supports to competitive grants and cost recovery. As such, it can be expected that an increasing proportion of research activities will move from the public to the private domain.
Other studies on output growth have also shown a high payoff from agricultural research and extension (Table 5.6). The results indicate that the rate of return on research, in most cases, ranged from 15 to 50 percent for both developed and developing countries, but some estimates were as high as 218 percent. The wide disparity among the estimates raises questions regarding the sensitivity of these estimates to the commodity of interest and the use of different time periods and methodologies. Estimates for Asian countries appear to be higher and show a much wider variation than those of studies in the United States. This could be due to the diverse nature of Asian agriculture, which differs from country to country in economic, social and agronomic-ecological conditions. Because of inconsistency in the data and methodology used, it is not possible to make direct comparisons across countries or over time. Nevertheless, the general conclusion that R&D yields relatively high returns seems indisputable.
Internal Rate of Return to Public and Private Investments to Raise Agricultural Productivity
|Time period||Country studied||Public R&D
|Makki, Tweeten and Thraen (1996)||1930-1990||USA||27||6||—|
|Huffman and Evenson (1993)||1950-1982||USA||41||46||—|
|Chavas and Cox (1992)||1950-1982||USA||28||17||—|
|Mullen and Cox (1995)||1953-1988||Australia||15-40||—||—|
|Mullen and Strappazzon (1996)||1953-1994||Australia||18-39||—||—|
|Maredia and Byerlee (1996)||1965-1990||37 LDCs||5-34||—||—|
|Rosegrant and Evenson (1992)||Various||S. Asia||63||—||52|
|Pray and Evenson (1991)||Various||Asia||19-218||—||15-215|
|Evenson and McKinsey (1991)||1966-1986||India||218||95||—|
Source: Adapted from Makki, Tweeten and Thraen (1996).
Human capital refers to knowledge, experience and skills possessed by people involved in the production process. It is influenced directly by education, training and extension. Its importance lies in the fact that it has a significant impact on the adoption and the utilization of technology, which in turn, affect the allocation of resources and productivity. A well-trained and well-educated labour force is said to be in a better position to assess changing conditions and make necessary adjustments. This ability is becoming ever more important in an increasingly deregulated and global economy where changes in the commodity markets are frequent and quick responses are required.
The concept of investment in human capital covers not only investments in formal schooling and post-school and on-the-job training, but also investment in the form of improved health and family care. Social capital, on the other hand, refers to one’s ability to utilize social networks and institutions. Social status, education and the range of social institutions available can influence one’s social capital. Social capital is important in that it affects access to physical capital, land title, credit and cooperatives, all of which have implications for resource allocation and, hence, productivity.
Women appear to suffer most severely from having limited access to human and social capital in some developing countries, although a larger proportion of women than men are engaged in agriculture (Quisumbing et al., 1995). For example, women account for 70 to 80 percent of household food production in sub-Saharan Africa, 65 percent in Asia, and 45 percent in Latin America and the Caribbean. As such, it has been suggested that empowerment of women and gender equality are important factors for raising productivity and promoting food security in developing countries. Jahnke, Kirschke and Lagemann (1987) also found that low adoption of high yield varieties (HYV) in Africa is attributable to lack of appropriate technology development and few extension services directed to women. These findings suggest that acknowledging the critical role of rural women in Asia and providing them with greater access to resources and human capital are crucial in promoting sustainable agriculture and food security.
Policy Reform and Prices
The importance of policy reform is increasingly viewed as fundamental for agricultural productivity gains, especially for countries where government intervention in agriculture has been strong. Removing market distortions and allowing market signals to be transmitted to producers is the main objective of structural adjustment programmes by international organizations for economies in transition and countries in debt. Land reform and most land policies, which assign property rights to users so that efficient and responsible use of resources can take place, are other cases where changes in policy can have a significant impact on productivity.
A good example of policy reform is the implementation of China’s responsibility system (RS) in the late 1970s, which linked productivity with material rewards. The policy reform was found to have resulted in increased incentives to produce and hence there were increases in crop yields for every major crop (Wiens, 1983). McMillan, Whalley and Zhu (1989) also reported that in response to the RS and price reforms, output in the Chinese agricultural sector increased by over 61 percent and productivity by 32 percent between 1978 and 1984. Moreover, 78 percent of the output growth was attributed to the RS and 22 percent to higher prices for crops. Lin (1992) also found that 47 percent of the growth in agricultural output was attributable to the RS during the same period.
However, Lin (1992) acknowledged that benefits from the RS reform had disappeared by 1984-1987. Similar results were found by Huang, Rosegrant and Rozelle (1996), who indicated that the growth rate of rice production was much higher during the reform period (4.5 percent) than afterwards, during 1984-1992 (1.3 percent). Moreover, while the reform was the most significant source of output growth during the reform period, technology was the most significant source of growth later during 1984-1992. Based on these results, Kalirajan, Obwona and Zhao (1996) concluded that despite the substantial impacts of policy reform on output and productivity growth, they provide only a one-shot boost to agricultural productivity. As such, long-term productivity gains depend more on technical change, investments in agricultural research and human capital and, to a lesser extent, on infrastructure.
By contrast, some government policies have been found to have detrimental effects on productivity. Lachaal (1994) found that direct input subsidies to agriculture reduce productivity growth and were a source of technical inefficiency. In this case, the subsidies encouraged using subsidized materials at the expense of other inputs. It was found that with each 10 percent increase in subsidy, the cost of production increased by 1.8 percent. Similarly, Makki, Tweeten and Thraen (1996) found that government commodity programmes had had little effect on improving agricultural productivity in the United States. They concluded that the interest of United States’ agriculture in international competitiveness and low food costs would be better served by focusing on research, extension and education than by commodity programmes. They also cautioned that the debate to reduce public spending on agricultural research and extension should carefully consider the potential long-term implications of such a policy.
Facilitated by improvements in transportation and communication technology, trade has also been important in diffusing new products and new technologies. It is also clear that opening of economies is strongly associated with rapid economic growth. A case in point is the rapid post-war growth of the most dynamic Asian countries, such as Japan, South Korea and Taiwan, and the low growth of inward-looking economies such as China (before the open-door policy) and India. Statistics have shown that during 1950-1973, the annual average compound growth rate in export volume were relatively high in Japan, South Korea and Taiwan as compared to China, Indonesia and India (Table 5.7). During 1973-1986, export growth declined relative to the previous period in Japan, South Korea, Taiwan and Indonesia, was unchanged in India, and climbed dramatically in China.
Average Compound Growth Rate
in Export Volume (percent)
Source: Maddison (1989).
However, the opening of an economy does not come without risks, particularly where macro-economic, financial and lending policies are not well in place. The recent Asian financial crises underscore how weak financial policies can undermine much of the gains from trade.
Natural resources are critical determinants of food supply. Degradation of natural resources, such as land and water, undermines production capacity and threatens the sustainability of the natural ecosystem (Pinstrup-Andersen and Pandya-Lorch, 1998). Land degradation has been severe in the past few decades. It was found that since 1945, about two thousand million of the world’s 8.7 thousand million hectares of agricultural land, permanent pastures, forest and woodland have been degraded through inappropriate agricultural practices, overgrazing and deforestation (Oldeman, 1992).
One major contributing factor to land degradation is the overuse and misuse of irrigation water (Anderson, 1994). Asia contains the majority of the world’s irrigated land. Water for irrigation is essentially free, however. Research into various water allocation mechanisms such as attempts to structure economic incentives for water use must be undertaken. To a large extent, these problems can be alleviated by assigning property rights. Poverty reduction as well as government policies to provide access to markets and credit for land improvements and technology would also reduce misuse of water resources. Therefore, agricultural research is a critical input into sustainable agricultural development, particularly as related to land and water management issues.
5.4 The Role of Investment
Investments in agricultural research and development (R&D) from both the public and private sectors can lead to technology generation and productivity improvements. The impact of investment on agricultural research can be seen most clearly from Rosegrant, Agcaoili-Sombilla, and Perez (1995). In their global food projections to 2021, they assumed a baseline scenario of US$10 thousand million public investment in national agricultural research and extension services. The low-investment scenario, which assumed an annual cut of US$1.5 billion to the current level of public investment, resulted in a fall of 15 percent in crop and livestock yield growth rates by 2021. In contrast, if funding of national and international research were to rise by US$750 million per year, crop yield growth would be six percent higher in 2021 than under the baseline scenario. Although these figures are projections and their accuracy is subject to underlying assumptions, they indicate strongly the negative effects of reduced public investment in research and extension, and the crucial role of investment in increasing agricultural productivity.
Private Versus Public Investments
Table 5.6 indicated that the rate of return is, in most cases, greater from public research than private research (Chavas and Cox, 1992; Evenson and McKinsey, 1991; Huffman and Evenson, 1993; Makki, Tweeten, Thraen, 1996). The higher rate of return from public research is, in part, attributed to economies of scale in the production of new agricultural technology and the spill-over and externalities associated with such research (Schultz, 1964). One example of such externalities is the international flow of germplasm. In this case, research benefits from breeding programmes of one country or research institute are appropriated by users who do not incur the full research costs. Public funding is therefore justified by the public nature of knowledge and the high rates of return to public investments in agricultural research.
Traditionally, most agricultural research is publicly funded. However, in recent years, the costs of agricultural technology generation and transfer are shared increasingly with the private sector, particularly in more advanced countries (FAO, 1996b). The proportion of privately funded research is on the order of 30 to 40 percent of all research expenditures in developed countries (nearly two-thirds in the United States) and about five percent in the less-developed countries (FAO, 1996b). This increase in private research has to do with protection of markets for research results via patents and intellectual property rights (IPR) as well as recent changes in funding policies (Alston, Norton and Pardey, 1995; Lin, 1998).
Private research is attracted to sectors of the market where research results exist and benefits can be privately appropriated (Alston, Norton and Pardey, 1995). This is typically the case in more developed countries where intellectual property rights are well established and protected for inputs such as agrichemicals, agricultural machinery and seeds (FAO, 1996b). Private investments also include on-farm irrigation systems, land improvements, new tractors and combines, livestock breeds and plant varieties, as well as processing, transport and storage facilities for post-production marketing.
Government, therefore, can provide an environment conducive to investment, through guarantee of rights and law as well as policies encouraging investment, as recognized in the World Food Summit Plan of Action items 2 and 3 (FAO, 1996a). In addition, investments in basic infrastructure, human capital, basic research and resource management will still fall more upon the public sector because of the public goods nature of these investments.
Our farmer is poor and they can not use the latest machines and better seeds. He always remains under debt. So due to lack of capital. production remains low.
2. Lack of Credit Facilities :-
Credit is important for the small and big farmers to improve the production. But in Pakistan credit facilities are insufficient to meet the requirements. Second problem is that credit is misused by the farmers.
3. Leasing System :-
Our leasing system also discourages farmer. The landlord and the tenant both can not take interest in the improvement of land. So it affects the production badly.
4. Water Logging and Salinity :-
It is the main problem of the agriculture, in Pakistan a large area is affected by it which has reduced our production particularly in the province of Sindh.
5. Smuggling :-
It is estimated that 25% food grains of Pakistan is smuggled to India and Afghanistan, so it creates shortage of food in Pakistan.
6. Old Methods of Cultivation :-
Our farmer is uneducated and they uses the old methods of cultivation which causes the low production. They are unable to use the modern technology due to non-availability of credit and skill.
7. Natural Circumstances :-
In Pakistan, our agriculture products also remains low due to the unfavorable circumstances. For example ,in 1973 and 1980, flood destroy our crops.
8. Inadequate Supply of Water :-
In Pakistan irrigation facilities are limited and due to this we can not cultivate our barren lands so production remains low.
9. Increase in Population :-
In Pakistan rate of population growth is faster than the food production. It creates the food shortage problem, and also problem of unemployment. Afghan refuges has also increased the size of population.
10. Small Holdings :-
In Pakistan land is divided into small units due to law of inheritance. Small units can not be cultivated properly and per acre yield remains low.
11. Single Cropping :-
There is low level of cropping intensity in the farm sector. The area under double cropping is limited and production remains low.
12. Under Utilization of Land :-
In Pakistan there is only 25% cultivable land out of 80 million hectares and there is a huge waste of natural resources. Due to this our production is low.
Measures to Improve the Agriculture Sector or Measures to Remove the Food Shortage Problem
1. Extension in Cultivation :-
The agriculture product can be increased by increasing the cultivable area. It can be increased by using the barren lands and including the water logging.
2. Intensive Cultivation :-
It means to cultivate the same areas which is already under cultivation by using better seeds and modern techniques of production. It increases the production.
3. Supply of Inputs :-
The productivity can be increased by using the modern inputs like improved seeds and fertilizer. The government should provide the adequate supply of these inputs to the farmers at the lower rates.
4. Use of Machinery :-
There is a need of modern technology for the improvement of agricultural product. The government of Pakistan has also realized the importance of machinery. So agricultural development bank and agricultural development corporation is providing the machinery on low rates.
5. Establishment of Credit Institutions :-
The government should establish the various financial institutions which may provide the credit to the small farmers on low rate of interest. In Pakistan the government has established the specialized credit institutions to provide the loan to the farmers.
6. Control on Waterlogged :-
The productivity of agriculture sector can increase by reclaiming the areas affected by water logging. Tube wells should be installed in those areas.
7 Incentive to the Farmers :-
The prices of the agriculture product should be at such level that it may encourage the farmers. In Pakistan rural development programme has been started to improve the economic condition of the rural areas. The government also fixes reasonable prices of wheat, rice, cotton and sugar to encourage the farmers every year.
8. Consolidation of Land :-
Small holdings in different areas can not be cultivated by one owner properly. So it is better to consolidate all the pieces of land at one place. Keeping in view this problem the government of Pakistan issued the act 1960 consolidation of land.
9. Market Facilities :-
The government should improve the agricultural market. The rural area should be linked with the urban markets by the roads. The farmers may be able to get the fair return of their product.
Q.2 Critically evaluate the process of Land Reforms during 1958-1977.
ANS LAND reforms in Pakistan have a long and somewhat chequered history. The British had less of an interest in the matter as they relied on the support of several influential landlords. Although there had been some limited reforms in the years leading up to 1947, all major reforms date from the years after independence. Almost immediately the various provincial legislatures passed several statutes whereby the jagirdari systems were abolished and tenants protected. The major reforms, however, came in three stages: the first during Ayub Khan’s martial law in 1959; the second and third during Zulfiqar Ali Bhutto’s rule in the 1970s.
Ayub Khan’s government passed the first major piece of legislation concerning land reforms in Pakistan. This legislation was the West Pakistan Land Reforms Regulation 1959 (Regulation 64 of 1959). The salient features of this regulation included a ceiling on individual holdings. No one individual could own more than 500 acres of irrigated and 1,000 acres of unirrigated land or a maximum of 36,000 Produce Index Units (PIU), whichever was greater. It further allowed that land be redistributed amongst tenants and others. In addition, the regulation contained provisions which provided for security of tenants as well as for preventing the subdivision of land holdings.
These land reforms stayed in force until 1972 and the next great wave of land reforms.
Bhutto, despite being a major landowner himself, was determined to institute reforms, having been a minister under Ayub Khan. Bhutto, seeing the former’s land reforms as inadequate, was responsible for two major land reform regimes. The first was by way of a martial law regulation, the Land Reform Regulation 1972 by which the West Pakistan Land Reforms Regulation 1959 was repealed through paragraph 32.
As per paragraph 8(1) no individual holdings were to be in excess of 150 acres of irrigated land or 300 of unirrigated land, or irrigated and unirrigated land the aggregate area of which exceeded 150 acres of irrigated land (one acre of irrigated land being reckoned as the equivalent of two acres of unirrigated land), or an area equivalent to 15,000 PIU of land, whichever was greater. Paragraph 18(1) of the regulations also provided for excess land to be surrendered and utilised for the benefit of tenants shown to be in the process of cultivating it.
By 1977, the country had an elected parliament. It would be this body which passed the last major piece of legislation dealing with land reforms; the Law Reforms Act 1977 (Act II of 1977) and the only one ironically which came the way of a democratically elected legislature as opposed to a military junta. It did not repeal the 1972 regulations, but was designed to operate concurrently with the same.
The most important and relevant change it made was that individual holdings, including shares in shamilat , if any, in excess of 100 acres of irrigated land or 200 acres of unirrigated land, or irrigated and unirrigated land the aggregate of which exceeded 100 acres of irrigated land (again, one acre of irrigated land being reckoned as equivalent to two acres of unirrigated land). Furthermore, notwithstanding the above, no land holding could (per section 3) be greater than an area equivalent to 8,000 PIU of land calculated on the basis of classification of soil as entered in the revenue records for kharif.
The end of the Bhutto era also signalled the end of the era of statutory land reform in Pakistan.
During Ziaul Haq’s reign only major new laws were passed. Only two amending ordinances came into being. The first in 1979 declared that where the provincial government had decided to lease out surrendered land, the person who surrendered it would have first priority, and the second allowed the federal government to exempt any educational institution or cooperative farming society from the operation of the 1977 act.
Land reforms were always controversial. It was alleged by opponents that they were un-Islamic and that they infringed on the right to own, use and enjoy property as protected by the constitution. Matters finally came to a head before the Supreme Court in the case of Qazalbash Waqf v Chief Land Commissioner in which both the 1972 regulations were attacked as being against Islamic injunctions and unconstitutional. The Supreme Court agreed.
Of the 1972 regulations, the Supreme Court declared that paragraphs 7, 8, 9, 10, 13 and 14 and thus consequently 18 were unconstitutional as being against Islamic injunctions. The striking down of paragraphs 8 and 18 overturned the main reforms achieved.
Similarly in the same case the Supreme Court overturned the entire sections — 3, 4, 5, 6, 7(5), 8, 9, 10 — and consequently sections 11-17 of the act as being unconstitutional and against Islamic injunctions. The striking down of sections 3 and 17 undid the main reforms promulgated in the act. The laws stated to be unconstitutional ceased to have effect on March 23, 1990 (the day the judgement was handed down).
The net result of the Qazalbash Waqf v Chief Land Commissioner is that land reforms in Pakistan are now at the same level as they were in 1947, as the 1972 regulations and the 1977 act have seen their main provisions being struck down and the 1959 regulations have been repealed.
To commence land reforms and to ensure they contain at least the same measure of reforms as the 1972 regulations and the 1977 act did will at the very least require a constitutional amendment which allows parliament to enact legislation regarding land reform notwithstanding the relevant constitutional provisions.
Failing the above, any proposed reforms would have to be more limited in their ambit than the previous reforms to avoid unconstitutionality or their lordships would have to overrule the judgment in the Qazalbash Waqf v Chief Land Commissioner in another case.
Q.3 Discuss in detail the issues that agricultural policy has to face, i.e. (20)
– Price policy
- Agricultural taxation
- Agricultural marketing
- Farm mechanization
- Agricultural extension
ANS Meaning of Pricing Policy:
A pricing policy is a standing answer to recurring question. A systematic approach to pricing requires the decision that an individual pricing situation be generalised and codified into a policy coverage of all the principal pricing problems. Policies can and should be tailored to various competitive situations. A policy approach which is becoming normal for sales activities is comparatively rare in pricing.
Most well managed manufacturing enterprises have a clear cut advertising policy, product customer policy and distribution-channel policy. But pricing decision remains a patchwork of ad hoc decisions. In many, otherwise well managed firms, price policy has been dealt with on a crisis basis. This kind of price management by catastrophe discourages the kind of systematic analysis needed for clear cut pricing policies.
Considerations Involved in Formulating the Pricing Policy:
The following considerations involve in formulating the pricing policy:
(i) Competitive Situation:
Pricing policy is to be set in the light of competitive situation in the market. We have to know whether the firm is facing perfect competition or imperfect competition. In perfect competition, the producers have no control over the price. Pricing policy has special significance only under imperfect competition.
(ii) Goal of Profit and Sales:
The businessmen use the pricing device for the purpose of maximising profits. They should also stimulate profitable combination sales. In any case, the sales should bring more profit to the firm.
(iii) Long Range Welfare of the Firm:
Generally, businessmen are reluctant to charge a high price for the product because this might result in bringing more producers into the industry. In real life, firms want to prevent the entry of rivals. Pricing should take care of the long run welfare of the company.
Pricing policies should be flexible enough to meet changes in economic conditions of various customer industries. If a firm is selling its product in a highly competitive market, it will have little scope for pricing discretion. Prices should also be flexible to take care of cyclical variations.
Agricultural Taxes: The Basics
If you’re a farmer, you’re no doubt familiar with the complicated tax landscape for farmers in this country and you may even use a tax accountant to help you get as many tax breaks as you’re eligible for. If you can prove that you farm as a business and not just for recreation, you can get both property tax breaks and income tax breaks.
But you don’t have to be a full-time farmer to take advantage of agricultural tax breaks that will help you with your property taxes. In some cases, all you need is a piece of land that’s not currently being used. You can say that the land is preserved wilderness, or put it to some kind of agricultural use to save on property taxes.
The size of agricultural property tax exemptions varies from state to state because property taxes aren’t administered at the federal level. Qualifications for agricultural tax exemptions vary from state to state, too. Some states base eligibility on the size of the property, while others set a minimum dollar amount for agricultural sales of goods produced on the property. Many use a combination of gross sales and acreage requirements. Grazing a single cow on your property can be enough to trigger series tax breaks in some places.
If you qualify, an agricultural tax exemption could knock thousands off your property tax bill. Depending on your state’s rules, one way to execute this tax strategy is to offer use of your land to a local farmer. For example, you could allow a nearby farmer to harvest hay on acres you’re not using or rent your land to a farmer. You don’t necessarily have to do the work yourself to claim the exemption for your property. You may, however, have to renew your application for a farm assessment each year, depending on your local tax assessor’s rules and on state requirements.
Agricultural marketing techniques are used in every corner of “agribusiness,” including small farms, corporate farms, and collectives; distributors; manufacturers of farm equipment, pesticides, and genetic enhancements for crops and livestock; feed and seed sellers; and more. Additionally, there are also government agencies which monitor and direct agribusiness practices.
- Agricultural products are perishable; therefore, a failure to sell on time results in wasted harvest. All wasted harvest represents a cost of land, water, labor, storage—and no income to show for it.
- Agricultural prices can be quite variable, impacted by changes in weather and harvests in far corners of the world.
- Different production methods mean that not all food is the same—but this information is meaningful only if the consumer knows about it.
- Farmers seek higher prices for their produce, and protection from price fluctuations. They try to reduce the amount of post-harvest waste, and secure guarantees for the sale of their produce. They may also work to open up new markets or channels, such as selling directly to consumers instead of through producers.
- Agrichemical companies promote solutions to farm problems, offering farmers higher yields and protection from pests. However, many solutions would be more strongly resisted by consumers, if it weren’t for effective public relations.
- Government agencies at both the federal and state level campaign for farm production. The USDA Agricultural Marketing Service runs a number of different programs to promote farm sales (and prices). The agriculture-rich state of California produces some $30 billion dollars’ worth of agricultural products annually, and is one of the largest food exporters in the world. To protect this investment, the state has government-mandated programs covering about 66 percent of its agricultural production.
Agricultural extension is the application of scientific research and new knowledge to agricultural practices through farmer education. The field of ‘extension’ now encompasses a wider range of communication and learning activities organized for rural people by educators from different disciplines, including agriculture, agricultural marketing, health, and business studies.
Extension practitioners can be found throughout the world, usually working for government agencies. They are represented by several professional organizations, networks and extension journals.
Agricultural extension agencies in developing countries receive large amounts of support from international development organizations such as the World Bank and the Food and Agriculture Organization of the United Nations.
Q.4 Discuss the role and importance of agricultural sector in the economic development in Pakistan.
ANS Agriculture is the process of cultivation of the soil and the land for economic and production purposes. Pakistan is an agriculture based country meaning that Pakistan’s economy heavily depends on the agriculture yields. About 48% of the country’s labour force is engaged in the agriculture sector and about 70% is related to it both directly and indirectly. It is considered to be the main source of food for the citizens of this country. The agriculture sector also provides a large amount of raw material to the industrial sector.
The sector contributes about 25% towards GDP which is the highest of any other economic sector. The points stated below explain in detail the role of agriculture in the economic development of Pakistan
Major source of employment
The agriculture industry provides employment to a large portion of the labour force of the country. More than 45% of the labour force is thought to be directly associated with this industry while more than 66.7% of the rural population is dependent on agriculture. Agriculture has played an important role in the reduction of unemployment and disguised employment.
Increasing the GDP of the economy
Agriculture abundantly contributes to the GDP of Pakistan. A country prospers and develops economically when its GDP increases. At the time of independence agriculture was the largest contributor to the GDP of Pakistan but as time passed the service industry took over. Now agriculture has the third largest contribution in the GDP of the country. Livestock and fisheries is a huge part of this sector and it not only provides employment to the people of Pakistan but also is exported to several countries. Livestock accounts for 40% of this economic sector and 9% of the GDP. Pakistan is considered to be at the fifth position in the Muslim world and ranked at the twelfth position World Wide for farm output. It is the world’s fifth largest milk producer. All this implies that agriculture is the backbone of the economy of Pakistan.
Foreign exchange earner
The agriculture sector the major source of foreign exchange earning in this country. Products such as cotton, rice and wheat are exported to various countries. It brings about 65% of the total earnings.
Reduction in poverty:
The agriculture sector has a huge role in the development of the rural areas. The productivity helps to reduce poverty and also stimulates non-farming employment too. The people are able to get the basic necessities of life such as a good sanitary system, clean water, electricity, provision of health and educational facilities etc. About 21% of the population of Pakistan is below the poverty line.
The population of Pakistan is increasing rapidly. According to the UNDP population growth report, the population growth rate of Pakistan is 2% per year. So in order to protect the country from dying of starvation, the food production has also increased manifold. In this case the agriculture sector is the only economic sector that is meeting the demand of the people. And in comparison the agriculture sector has also reduced the imports from other economies. So it can be said that agriculture is playing a vital role in sustaining the economy of Pakistan by providing food for the country’s citizens.
Increasing Tax revenue for the government:
The more money the government can make using tax schemes the more money it will have, to spend on the development of Pakistan. As agriculture contributes a lot to the per capita income so the government tax revenues increase as their tax revenues are directly proportional to the increase in the GDP. In this way agriculture helps in generating more tax revenue for the government.
Q.5 Critically evaluate the performance of industrial sector in the pace of development during the early stages of independence.
Industrialization is regarded essential for rapid development of the country since industrial revolution. The countries which merely rely on agriculture have remained under developed, whereas nations which developed industries achieved high rates of development. The advanced countries encourage industrialization on large scale and transferred advantages to agriculture. They achieved balance of growth in various sectors of economy. Pakistan at the time of partition in 1947 has negligible industrial base. The government has been utilizing all available resources for rapid development of the manufacturing sector. We examine the industrial performance as follows:
From 1947 to 1950
In 1947, in the West Pakistan the major product was cotton but there was no big factory to process and manufacture the cotton whereas East Pakistan was the main producer and supplier of jute. Out of 921 Pakistan only got 34 industries. Government of Pakistan being aware of the importance of industrialization called an industrial conference in dec. 1947. The conference recommended the establishment of industries which used locally produced raw material like jute, cotton and skin. The private sector was encouraged to establish industries. For the implementation of above a development board and Pakistan industrial and Credit Corporation were established in 1948. The contribution of industrial sector to GDP was 6.9% in 1950.
From 1950 to 1960
The private sector did not invest in heavy industries due to lack of capital, technical knowhow and absence of entrepreneurship. The government took initiative and established PIDC in 1952. The major investment of PIDC was in paper and paperboard, cement, fertilizer, jute mills and suigas pipelines. The contribution of industrial sector to GDP rose from 9.7% to 11.9%.
From 1960 to 1970
This year covers 2nd five and 3rd five year plan. In 2nd five year plan 22.2% of the total outlay was for the growth of industrial sector. The country achieved self sufficiency in essential consumer goods. The contribution of industrial sector to GNP went up to 11.8% from 1960-65. The 3rd five year plan could achieve a partial success due to war with India in 1965. The growth rate was 7.8% against the target plan of 10%.
Growth in 1970s
The industrial performance of production, growth and exports was disappointing from 1971 to 1977. The main reason were separation of east Pakistan, suspension of foreign aid, fall in exports due to loss of market ( east Pakistan), devaluation of rupee up to 131%, nationalization of industries, labor unrest, recession in world markets and reduction in investment incentives. The annual growth rate fell up to 2.8%.
Growth from 1977 onward
The government took number of initiatives to revise the economy. Some industries were denationalized and private sector was encouraged to invest. The growth rate was 5.7% in 1989-90.
According to the economic survey of Pakistan, 2009-2010, manufacturing accounts 18.5% 0f GDP and 13% of total employment. Large scale manufacturing and small scale manufacturing accounts 12.2% and 4.9% of total GDP respectively.
Manufacturing Sector in Regional Countries
Role of industrialization in economic development
The role of industrial sector is summarized as follows:
In industrialization there is optimum utilization of scarce resources. The quality and quantity of manufacturing sector increase. It increases the national income of the country.
It increases the production of goods and services. The labor receives higher wages. The income of workers increase and there living standard also improves
When industrial production increase that increase exports and revenues of the government.
It generates new employment opportunities.
Industrialization provides machinery like tractors, threshers, harvesters and spray machines to increase the production of agriculture sector.
As the industrial sector expands, its production increases and cost of production decreases. The quality of products improved due to technology
Industrialization increases the supply of goods for internal and external markets. The government receives revenue in the form of custom and excise duties, sales and income taxes from the industrialists due to which government revenue increases.
Causes of industrial backwardness in Pakistan
The main causes of industrial backwardness are divided as follows:
The British collected raw material for their industries from subcontinent on the one hand, on the oilier; they captured this area for final products. So no industry in this area.
The areas with Muslim majority were kept backward to favor Hindus.
The few industries, which were setup in India, were in coastal cities of Calcutta, madras and Bombay.
Raw material and skilled labor were not available in the area that is now in Pakistan.
The infrastructure required for the growth of industries is inadequate. For the foster mobility of labor, capital, transport and communication facilities are in sufficient. It is obstructing expansion of industries in Pakistan.
The amount if capital required in the capital intensive industries like steel, iron, chemical and automobiles quite high. Huge capital is also required to establish and expand industries like textile, carpet, sugar and paper etc.
Most of exports are comprised of raw material, while our main imports are machinery, petrol which requires heavy foreign exchange. Due to shortage of foreign exchange, less imports of machinery, this leads to less development of industries.
Now days due to inflation people have low level of income that’s why they demand less industrial goods, it obstructs industrial development.
There is also shortage of power like electricity and gas due to which many industries are shutting down.
There is less foreign investment in the country due to terrorism which is also the main hurdle in industrial development.
Due to recent flood, the economy of the country is going worst. Therefore people do not take risk to invest in Pakistan.
There have been frequent changes in government since 1947 in Pakistan due to which local and foreign investors hesitate to invest in long term projects.
Kashmir issue has been a bone of contention between Pakistan and India since independence. People remain frightened about the war between both countries. This situation leads low investment.
The government of Pakistan nationalized industrial sector in 1970s. People still fear that the government may once again nationalize the economy. Therefore they invest less.
Social and Geographical Causes
On the one hand there is less awareness to invest in large scale industries due to lack of education and information. On the other hand the capital intensive industries require highly qualified professionals which are in lack of Pakistan. So low industrial development.
Pakistan has extreme climate. Sometimes we have drought and other time heavy rain and flood. Moreover most of the land is covered with mountains and deserts.
PRINCIPAL INDUSTREIS OF PAKISTAN
The principal industries of Pakistan are as follows:
It is the most important and largest industry of the economy of Pakistan. Pakistan received 17 textile units in 1947. The industry is facing problem like shortage of raw material, tough competition in international market due to domestic high prices.
In 1947, Pakistan received two sugar mills. Now we have 78 sugar industries across the country. The industry is producing 2.4mn tones of sugar against 2.9mn tines of demand. Pakistan is importing sugar since last few years. The production of sugar can be increased by giving incentives to farmers.
There was hardly any chemical industry in 1947. Now Pakistan has 12 units but this industry is not meeting domestic requirement of chemicals.
Fertilizer plays an important role in increasing agriculture production. At present 10 units are producing different types of fertilizers which meets 70% of the domestic requirement. 30% is imported from Germany, UK, USA and Norway.
There are 25 cement plants in Pakistan. The installed capacity of these plants is 13mn tones per annum. This industry is based on local raw material.
At the time of independence there was not a single unit of jute in Pakistan. At present 12 units are working in Pakistan but they are not meeting domestic requirements. Large quantity is imported from china and Bangladesh.
Engineering Goods Industry
This industry got importance in 3rd five year plan. Now there are four industries like HMC Taxila, Heavy Foundry Taxila, Pakistan Machine Tool Factory Landhi, and Pakistan Steel Mills Karachi.
Pakistan Steel Mills Corporation
The mill was set with the total cost of 25.550mn with the help of Russia. Its productive capacity is 1.1mn tones of raw steel per annum. Now a day it is going down due to corruption and mismanagement.
At present Pakistan has 22 factories producing cigarette at Jhelum, Akora Khattak. The raw tobacco used in manufacturing is produced domestically.
PERFORMANCE OF PUBLIC INDUSTRIAL SECTOR
The performance of public industrial sector is the role of PIDC, so we review the role of PIDC.
Role of PIDC:
Pakistan industrial development corporation (PIDC) was established in 1952. It was the only public sector involved in manufacturing. It established industries in backward areas, created employment opportunities and reduced regional disparities. By June 1972, it had established 60 industrial projects. The nationalization of industries under the economic reforms order affected the performance of PIDC. A number of important and profit yielding projects were transferred to other corporations under the Presidential Ordinance No. v of 1974. PIDC was left with only 8 projects out of 60, which were not profit making.
NATIONALIZATION OF INDUSTRIES
The government of Pakistan under the economic reforms order, 1972 nationalized 32 private industries. The 52 projects already under taken by PIDC and the 32 nationalized units were regrouped on functional basis and laced under 12 corporations. The corporations were:
Federal chemical and ceramic corporation (FCCP)
Federal light engineering corporation (FLEC)
National design and industrial services corporation (NDISC)
State heavy engineering and machine tools corporation (SHEMTC)
Pak tractor corporation (PTC)
Pak automobile corporation (PAC)
National fertilizer corporation of Pakistan (NFCP)
State electrical corporation (SEC)
Pakistan industrial development corporation (PIDC)
Pak steel mills corporation (PSMC)
State cement corporation of Pakistan (SCCP)
State petroleum refinery and petrochemical corporation (SPRPC)
In 1974, PTC and SEC were merged in PACO and the number of corporations was decreased from 12 to 10. Later on FLEC, NDISC and SHEMTC were merged into state engineering corporation (SEC). The number of corporation was decreased from 10 to 8.
Reasons of Nationalization failure
The public manufacturing sector was burdened with a number of conflicting tasks and objectives which reduced its efficiency.
The corporations were over staffed and were mostly managed by non-professionals persons.
The labor unrest reduced performance.
The skilled personnel migrated to Gulf States and caused shortage of skilled persons.
The prices of raw material increased due to decline in production of the corporations on account of flood and untimely rains.
The price of petroleum products increased and raised the cost of production.
PRIVATIZATION OF SOEs IN PAKISTAN
In the first four decades the government policy about the private and public sector has not clear. In 1988, the government issued disinvestment ordinance to adopt the policy of privatization. The government’s privatization policy is to off-load the public sector; the process would e carried out in three phases. Different institutions will be sold to private sector and the revenue generated will generally be used for debt retirement.
Meaning of Privatization
“A process of transferring state owned enterprises to the private sector.”
Objectives of Privatization
Minimizing budgetary support/deficit
Sale of shares of enterprises to fill budgetary gap
Incentives for the workers for efficient work
Developing share market
Provision of share ownership to workers or employees
Insulating the economy from political interference
Achieving rapid industrialization
Methodology of Privatization
The privatization can be undertaken in the following ways:
Sale of individual SOEs by inviting bids from the private sector
Sale of shares of SOEs through stock exchange
Encouraging employees to make management groups and purchase enterprises
Encouraging prospective investors to form modaraba companies to purchase the shares of SOEs
Entering into lease management contracts with employees for a specific period to enable them to buy out units
Privatization of SOEs in Pakistan
The government of Gen. Zia-Ul-Haq on 16th July 1988 issued Disinvestment Ordinance and a National Disinvestment Authority was created under the chairmanship of
Aziz Zulfiqar. A privatization commission was formed on July 22, 1991 to formulate recommendations for privatization and deregulation. In the initial phase MCB, ABL had been privatized.
IMPORTANCE OF FOREIGN INVESTMENT IN INDUSTRIAL DEVELOPMENT
The policy of privatization, deregulation and liberalization has greatly widened the foreign investment in the country. The government has taken several measures to increase the flow of foreign private investment. The foreigners can now avail monetary and fiscal concessions equally with the local investors. They can invest in the fields of their choice like power generation, petro-chemical petroleum gas fertilizers, hi tech industries, agro based industries and export oriented industries.
Incentives to Foreign Investors
Foreign exchange controls have been relaxed for foreign investors.
Foreign investors can participate in local projects on equality basis.
Ceiling on payment of royalties abolished.
No requirement of obtaining NOC from provincial government or locating the projects anywhere in the country except notified negative areas.
SOURCES OF INDUSTRIAL FINANCE
The main sources of industrial finance are:
Industrial Development Bank of Pakistan
Investment Corporation of Pakistan
National Investment Trust
Equity Participation Fund
Bankers Equity Fund
Modarabas, Leasing Companies
COTTAGE AND SMALL SCALE INDUSTRY
The cottage and small scale industry has a great significance for a developing country. It forms as important part of the manufacturing sector. It contributes 5% to GDP and employees 80% of the labor force. Its share in manufacturing sector export is about 30% in Pakistan.
The industry which is carried on in the home of the artisan is known as cottage industry. He is usually assisted in his work by the members of his family and the job may be whole time or part time. E.g. wood work, handmade carpets, toys etc.
Small Scale Industry
The firms employing less than 10 persons are classified as small scale industries in the national accounts and its fixed assets do not exceed Rs. 2mn in Pakistan.
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