CAUSES -OR- REASONS OF LOW PER CAPITA INCOMEA Lecture

ByMr.Allah Dad Khan

Pakistan is one of the poorest countries in the world as of 2015, and as such has a very low average wage. Data taken from a Pakistani government survey in the 2011 to 2012 period indicates that the average per capita income is $1,256.80 per year.

Average Income of Pakistan

Pakistan's per capita income grew by a tenth to $1,513 but targets to increase investment and savings – the two most critical economic indicators – were missed again during the outgoing fiscal year.May 20, 2015

Per Capita income of Pakistan 2015

Vicious circle of poverty is the largest reason of low per capita income. Developing countries including Pakistan are trapped into VCP. A poor country is poor forever due to the VCP. 21.0 % population is very poor population in Pakistan

1. Vicious Circle of Poverty

Unemployment is the major cause of low per capita income. Unemployment means no source of income and result is low per capita income. Rate of unemployment is 5.5 %, 16 % is underemployed and 20% is disguised unemployed in Pakistan.

2.Unemployment

Due to backwardness, political instabilities and improper availability of infrastructure the attraction for foreign investment is not suitable. Foreign investment (Jul-Mar) is $ 1.8 billion in Pakistan. Foreign investment is reduced by 45%. Lack of foreign investment means less employment opportunities and low per capita income

3. Lack of Foreign Investment

Low per capita income in Pakistan is also the result of low level of national income. Low level of national income means low level of saving and low level of investment. All these factors contribute toward poverty.

4. Low National Income

Techniques of productions used by developing countries are backward. Due to out-dated methods of production, productivity level is low. Low level of productivity means narrowness of market and reduction in exports and increase in imports.

5.      Use of Backward Technology

Utility charges like water, gas, electricity, telephone bills etc. are increasing day by day in Pakistan. More utility charges lead to reduction in the saving of population and its result is low per capita income. At present growth rate of electricity and gas sector is 0.4 %

6. Increase in Utility Charges

Poverty in Pakistan is very common, 21.0 % population is treated as poor population. Poverty is also a cause of low per capita income. Low per capita income means low level of saving and low level of investment. Its result is poverty.

7.      Poverty

People have adopted just subsistence farming styles in agriculture sector. They are not farming according to the commercial patterns. Sometimes, due to natural calamities and use of backward techniques of production, there is reduction in production and it decreases the income of poor farmers. Its share in GDP is only 21.5 %.

8. Backward Agricultural Sector

Poor population is needed credit facilities to take an active part in economic activities to remove low per capita income. But in Pakistan, availability of credit is not desirable. Poor people has no access to credit it is only for rich landlords. Conditions for credit issuing are so tights and credit is not given in time.

9. Absence of Credit Facilities

Imbalanced distribution of resources is an additional cause of low per capita income in Pakistan. This situation leads to increase the gap between rich and poor. Due to undesirable distribution of income and wealth, poor population is unable to take part in economic activities to remove poverty. 20 % rich population has complete control over the 50 % national resources in Pakistan.

10. Improper Income Distribution

Due to use of backward technologies and inefficiencies of labour & entrepreneur, productivity level in Pakistan is very low as compare to developed countries. Value of annual productivity of Pakistani labour is much lower than the value of labour of rich nations. Annual value of productivity of labour is only $ 100 against $ 2500 in advanced countries in Pakistan

11. Low level of Productivity

Low level of saving is mainly due to low income. It leads to less investment and less return. Due to less return people remains poor forever. Domestic savings are 9.9 % of GDP. Low level of saving means low per capita income in Pakistan.

12. Low level of Saving

High rate of inflation is an extra reason for low per capita income. Due to inflation much amount of money is not enough to purchase much quantity of goods and services. Inflation decreases the savings and investments of poor people. Rate of inflation (CPI) is 13.3 % in Pakistan.

13. Inflation

Government has to impose taxes to raise its revenue. Imposition of taxes reduces the disposable income of people. Lack of disposable income means low saving and low investment, poverty and low per capita income. Amount of FBR tax collected is Rs.1380 billions.

14. Imposition of Taxes

Government has to make a lot of unproductive expenditures on social heads and to make strong defence. These high expenditures are also a reason of low per capita income.

15. Non-Productive Expenditures

Rate of capital formation in Pakistan is very low. Low rate of capital formation means low opportunities of employment, low level of productivity and deficit in balance of payment that leads to low per capita income. Rate of capital formation is just 5 % in Pakistan.

16. Low Rate of Capital Formation

Social Causes

Rapidly rising population is also a cause of poverty. Existing population is already not provided basic necessities of life. Therefore, increase in population will lead to decrease the per capita income. Now population of Pakistan is 169.94 million with growth rate of 2.05 %.(2015)

1.Population Pressure

Low per capita income is also due to dishonesty and corruption in management. Officers receive a huge amount of illegal money for the legal and illegal job. These unnecessary payments reduce the savings of poor and result is low per capita income

2.Dishonesty & Corruption

Lack of education and training is also a cause of low per capita income. It reduces the abilities to work. Sometimes a worker due to illiteracy remains unemployed or underemployed. Similarly, lack of skill in entrepreneur also reduces his profit and its result is low per capita income. Literacy rate in Pakistan is 57 %.

3.Illiteracy

Non-availability or availability of backward infrastructure is also an additional reason of low per capita income and poverty. Low level of education, backward state of technology, poor health, inefficiency of labour and poor system of transportation & communication are cause low per capita income and poverty. Backward infrastructure causes low attraction for foreign investment.

4.Backward Infrastructure

Pressure of foreign counties in our economic activities, backward standard of productivities and improper basic facilities to population reduces the living standard of population. Low living standard is a symbol of low per capita income. Expenditure on health sector is only 0.55 % of GDP.

5.Low Living Standard

Political Causes

Law and order conditions are at their poor stage. A huge portion of saving of population is wasted in costly and lengthy legal process that leads to low per capita income. Chief Justices Iftikhar Muhammad Chohdery himself has to wait for a very long time.

1.Law and Order

Instable government and instability in the policies of government are another cause of low per capita income and poverty. Every government remains failed to establish such policy that leads to reduce the poverty.

2.Poor Governance

Ignorant but big landlords control our whole economy. They have no sense of social welfare. In government they take those actions that are in their personal interest. Their actions badly affect the encouragement of per capita income

3. Landlordism

Nepotism means the murder of talent and abilities. It refers to the employment opportunities according to relation not according to worth. If population is poor but is talented it remains poor due to nepotism. 16 % employed labour force is performing their services below their capabilities.

5.Nepotism