Chapter 7 - Economic Progress of Pakistan
B-com part 1 Pakistan Studies Notes
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Chapter 7 - Economic Progress of Pakistan
* History of Economic Planning in Pakistan
* Importance of Economic Planning in Pakistan
* Effective Planning in Pakistan
* Colombo Plan (1951-57)
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Q.1 Give a brief account on history of Economic Planning in Pakistan.
History of Economic Planning in Pakistan
National economic planning is a technical job and requires trained personnel to carry it out. The various types of decisions involved in planning are partly political but mainly they are technical. A plan when it is prepared requires a section or an authority to implement it as a legally enforceable document. On the other hand, it requires administrative machinery for implementation, supervision and evaluation of its results. The function of planning is usually entrusted to a specialized body like planning board or a planning committee or a planning commission. It is usually attached 10 one of the national ministry, or it may have a separate ministry of its own.
After independence in 1947, the economy of Pakistan was very poor. The neighbour country India did not want Pakistan to be economically stable and strong. But the Government of Pakistan took up the job of establishing the institution of planning in the country. A development board was set up in 1948 to coordinate the growth and development among different run by the government. Meanwhile, a planning advisory board was established. The purpose of setting up this board was to advise and assist the development board in the process of planning.
Pakistan's economic development planning began in 1948. The development board and planning advisory board jointly started the process of planning in Pakistan. A six year development plan (1951-57) was prepared on the recommendations of Colombo Consultation Committee. The plan envisaged a total expenditure of Rs. 2600 million. But the initial effort was unsystematic, partly because of inadequate staffing. In 1953, the government replaced the development board with a new autonomous body called the planning board. The first five year plan (1955-60) was prepared by this board and was released in 1957. It was the beginning of systematic planning in Pakistan. In practice, this plan was not implemented, however, mainly because political instability led to a neglect of economic policy, but in 1958 the government renewed its commitment to planning by establishing the Planning Commission.
The Second Five Year Plan (1960-65) surpassed its major goals when all sectors showed substantial growth. The plan encouraged private entrepreneurs to participate in those activities in which a great deal of profit could be made, while the government acted in those sectors of the economy where private business was reluctant to operate. This mix of private enterprise and social responsibility was hailed as a model that other developing countries could follow. Pakistan's success, however, partially depended on generous infusions of foreign aid, particularly from the United States. After the 1965 Indo-Pakistani War over Kashmir, the level of foreign assistance declined. More resources than had been intended also were diverted to defense. As a result, the Third Five-Year Plan (1965-70), designed along the lines of its immediate predecessor, produced only modest growth.
When the government of Zulfiqar Ali Bhutto came to power in 1971, planning was virtually bypassed. The Fourth Five-Year Plan (1970-75) was abandoned as East Pakistan became independent Bangladesh. Under Bhutto, only annual plans were prepared, and they were largely ignored.
The Zia government accorded more importance to planning. The fifth Five-Year Plan (1978-83) was an attempt to stabilize the economy and improve the standard of living of the poorest segment of the population. Increased defence expenditures and a flood of refugees to Pakistan after the Soviet invasion of Afghanistan in December 1979, as well as the sharp increase in International oil prices in 1979-80, drew resources away from planned investments. Never the less, some of the plan's goals were attained. Many of the controls on industry were liberalized or abolished, the balance of payments deficit was kept under control, and Pakistan became self-sufficient in all basic foodstuffs with the exception of edible oils. Yet the plan failed to stimulate substantial private industrial investment and to raise significantly the expenditure on rural infrastructure development.
The Sixth Five-Year Plan (1983-88) represented a significant shift toward the private sector. It was designed to tackle some of the major problems of the economy; low investment and savings ratios; low agricultural productivity; heavy reliance on imported energy; and low spending on health and education. The economy grew at the targeted average of 6.5 percent during the plan period and would have exceeded the target if it had not been for severe droughts in 1986 and 1987.
The Seventh Five-Year Plan (1988-93) provided for total public-sector spending of Rs. 350 billion. Of this total, 38 percent was designated for energy, 18 percent for transportation and communications, 9 percent for water, 8 percent for physical infrastructure and housing, 7 percent for education, 5 percent industry and minerals, 4 percent for health, and 11 percent for other sectors. The plan gave much greater emphasis than before to private investment in all sector of the economy. Total planned private investment was Rs. 292 billion, and the private to public ratio of investment was expected to rise from 42:58 in fiscal year 1988 to 48:52 in fiscal year 1993. It was also intended that public-sector corporations finance most of their own investment programs through profits and borrowing.
In August 1991, the government established a working group on private investment for the Eight Five-Year Plan (1993-98). This group, which included leading industrialists, Presidents of chambers of commerce and senior civil servants, submitted its report in late 1992. However, in early 1994, the eighth plan had not yet been announced, mainly because the successive changes of government in 1993 forced ministers to focus on short terms issues. Instead, economic policy for fiscal year 1994 was being guided by an annual plan.
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Q.2. Discuss the importance of Economic Planning in Pakistan.
Introduction
There is no precise definition of economic planning which is acceptable to all economists and political thinkers. The idea under-lying planning is a conscious and deliberate use of resources of a community with a view to achieve certain targets of production for the overall development of the economy. As the targets of production and development are different in different economies, so the definition of economic planning is different for all economists.
Prof. H.D. Dickinson defines economic planning as
The making of major economic decisions, what and how mush is to be produced and to whom it is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole.
In developing countries, planning is considered an essential mean of guiding and accelerating their development. The need for planning arises because the market mechanism does not function well and efficiently in underdeveloped nations. The problems of what to produce, how to produce, for whom to produce and how to produce are not properly solved by price mechanism. There is generally inefficient allocation of resources among its many alternative uses. In addition to this, the spill over benefits and costs (benefits obtained or cost imposed without compensation by third parties from the production of other parties) are not taken into consideration. There is also lack of information and rapid changes in the economy. This leads to excessive uncertainties about the economic events in the future. Considering all these conditions, it is increasingly felt that price mechanism cannot be fully relied upon to maximize growth in the economy. The developing nations must adopt development planning to overcome poverty. In developing countries of the world like Pakistan, there is a strong and powerful swing towards planning. The importance of economic planning can be looked from these perspective.
1. Decisions of the Planning Authority are Superior
The planning authority has a better insight into the economic problems of the country. It can mobilize and utilize the available resources in the best interest of its citizens.
2. Coordinated Programme
In a country there are millions of persons who are engaged in economic activities for earning profit. The decisions taken by some of most of them may be short sighted, irrational, self frustrating and socially disastrous. If machinery is created to coordinate the working of the businessmen, the economy can be set on the right lines and the country can progress at the maximum possible rate of growth.
3. Eliminating Business Fluctuations
All the market economies of the world have faced and are passing through various phases of trade cycle. The period of prosperity is followed by a period of low activity. Planning has proved to be a powerful instrument in eliminating business fluctuations.
4. Reducing Economic Inequalities
In the capitalist countries, the gap between the rich and the poor is widening. This has created social bitterness and heart burning among the have not. Planning has proved to be an effective weapon in reducing the shocking inequalities in income.
5. Provision of Job Opportunities
With the aid of planning, the resources of country are utilized to the maximum. All the able bodied persons are gainfully employed. There is also security of income, tenure and employment.
6. Elimination of Wasteful Competition
Planning is also advocated on the ground that it eliminates wasteful competition among the produces on advertisment, salesmanship etc. There is also no duplication of staff and machinery as it is the market economy.
7. Proper Distribution of Resources
In the market economy, the resources of the country are utilized for the production of only those commodities which yield more profits. The items may be cream, powder, lipstick, fridge, car, cloth etc. In a planned economy, however, will be proper distribution of resources, between the production of essential and non-essential goods.
8. Prevents Artificial Shortages
In an unplanned economy, the industrialists and businessmen withhold the supply of goods and create artificial scarcity with a view to making profits. Planning discourages such malpractices and through planned production and proper supply of goods, the prices of the commodities are not allowed to fluctuate. The formation of trusts, cartels, patents, price agreement, market sharing etc is completely banned.
9. Keeping down the Social Costs
In a market economy, the social costs which normally take the form of industrial diseases, industrial accidents, smoke atmosphere, overcrowding, cyclical unemployment etc. are passed on to the society as a whole by the capitalists. By planning, it is possible to eliminate or keep down these social costs by taking over the industries and extending the range of public ownership into various sectors of economy.
10. Creating Favourable Terms of Trade
If the terms of trade are persistently unfavourable, it adversely affects the rate of economic growth of the country. The state, through planning can control the volume and direction of foreign trade, so that the terms of trade remain favourable and the country moves rapidly on the path of economic development.
11. Making Major Economic Changes
In a free enterprise economy the market mechanism fails to create major economic changes such as industrial revolution, rationalization movement in the country. The government measures facilitate, stimulate, guide and control the means of production through planning.
12. High Rate of Capital Accumulation
As planning makes optimum allocation of a country's resources, it can, therefore, secure for greater rate of capital accumulation than is possible in a market economy.
However, Pakistan is an under developed country and economic planning is necessary to boosts its resources. This economic planning should be long-term because annual economic development plans cannot offer satisfactory results. That's the period of development plans is usually kept five years. All developments plans of Pakistan are of five years. Except that twenty and fifteen years perspective plans were also made.
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Q.3. Discuss the factors hindering Effective Planning in Pakistan
Introduction
Pakistan, like other less developed countries, is caught up in the vicious circle of poverty. Since Partition, the Government of Pakistan is anxious to raise the standard of living of the people hut it has not yet been able to come out of the boggy of poverty. On the other side, the developed countries are growing at a fast speed as they have a set of favourable conditions for growth. The gap between the developed and the developing countries is widening instead of narrowing. In order to overcome the shortcomings of market mechanism and to push up the tempo of development, the Government of Pakistan has drawn up eight five years plans. Some of the plans did succeed in raising industrial and agriculture production but the overall performance of the plans is discouraging. The main factors which have inhibited partially or wholly effective planning in Pakistan are as follows:
1. Lack of Basic Data
In order to draw a comprehensive and realistic plan, the accurate statistical information about the existing conditions of the economy should be available to the planners. In Pakistan, the date on natural, human and financial resources provided to the planning machinery are mostly inaccurate and unreliable. If the date are obsolete or continue wide margins or error, the objectives of the plans would not be achieved and the plan ends in failure.
2. Appointment of Non-Technical Persons
Another important factor standing in the way of effective planning in Pakistan is the appointment of non-technical persons in drawing up and execution of the plans. In the entire history of the Planning Commission, (except for ten years) of Pakistan, the Planning Commission has been headed by a senior member of the civil service, rather than by a professional economist.
3. Lack of Public Co-operation
Lack of co-operation and mistrust of the Government has remained an important hurdle to effective planning in Pakistan. The Planning Machinery has not been able to enlist the co-operation, support and enthusiasm of the people for the implementation of the plans.
4. Political Instability
Another major bottleneck to effective planning is the political instability in Pakistan. The rapid change over of the government set up, has led to unplanned, haphazard economic growth. The uncertainties of the election results have hindered, and slowed down the rate of economic development in the country and have made the plans mostly ineffective.
5. Role of Foreign Assistance
Pakistan has been relying on foreign aid for quickening the tempo of economic development since the first day of economic planning in Pakistan. The loan giving countries do not finance the project of the developing countries for philantrophic motive. They have their political and economic interests. So long the interest between the aid giving countries and the aid receiving countries do not conflict, the aid is given. As and when the interests of the two clashes, the aid is immediately stopped or reduced Pakistan aid has been curtailed many a times in the past and the achievement of the plans fell short of expectations.
6. Natural Calamities
Agriculture is the backbone of our country. It now contributes 25% of GDP accounts for 45% of foreign exchange earning and engages 50% of the labour force. If in any year or years, the rain is untimely, weather unfavourable or locust storm attacks the standing crop, the agricultural productions falls short of the target. Export of raw material and manufactured goods decline. Expenditure on the import of food-grain increases. The sectorial allocations in the plan then have to be revised which upsets the whole programme of planning.
7. Dualism
Dualism is another important constraint on the effective planning in Pakistan. The difference in social customs, difference of technology and a gap in the level of per capital income between the four provinces of the country, have stood in the way of effective planning in Pakistan.
8. Ambitious Plan
If we look at the objectives of all the Eight Five Year Plans, we will find them too ambitious but they are not properly fetched in time. When the objectives of plans are partially achieved , it create discontentment among the people and reduce the usefulness of the development plans.
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Q.4. Write a brief note on Colombo Plan (1951-1957)
Colombo Plan (1951-1957)
In January, 1950 a meeting of the common wealth ministers was held at Colombo. In this meeting a common wealth consultative committee was set up and it was decided that common wealth countries would formulate their development plan for six years. In response to the decision, national plans were prepared by Pakistan, Ceylon, Malaysia, India, Singapore, North Boronoes and Saranak. These plans were integrated in Colombo Plan. This plan covered a period of six years from 1st July 1951 to 30th June 1957. It was estimated that Rs. 2,600 million would be spent on development programmes of Pakistan during this plan period, 32% of this was to be incurred on agriculture, 20% on transport and communication, 13% on industry, 18% on fuel and energy and remaining 11% on social welfare. It was also estimated that Rs. 1,700 million would be provided from internal resources and Rs. 900 million from external resources.
To implement the plan, machinery was set up in the form of economic council a planning commission and various sub-commissions. In April, 1951 a two year priority programme was formulated. The main objective of this plan was to increase the rate of development in various sectors. Rs. 50.5 crore were sent under this programme. In August 1953 the programmed of this plan were evaluated and total expenditure was increased from Rs. 2,600 million to Rs. 3,800 million. By the beginning of the year 1956, the cost had increased to Rs. 564 crore. The expenditure increased due to the introduction of village aid programme, establishment of P.I.D.C., rapid development of hydro electric power, transport and communication.
Inspite of the short comings of the Colombo Plan, development occured during this plan period. According to the statistics collected by the planning board, industry made remarkable progress, though agriculture remained relatively neglected. The index of industrial production rose from 100 in 1950 to 285 in 1954. P.I.D.C. was established in 1952 and various projects were started by this corporation. The total power generating capacity rose to 1,02,000 kilowatts in 1954-55. So we may come to the conclusion that Colombo Plan has great importance in the earlier efforts of development planning in Pakistan.
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