Deficit Balance of Payment of Pakistan, Causes and ControlPosted by : Ahsan KhanMonday, 23 April 2012

DIFFERENTIATE BETWEEN BALANCE OF TRADE AND BALANCE OF PAYMENT. GIVE THE CAUSES OF ADVERSE BALANCE OF PAYMENT. ALSO SUGGEST MEASURES TO IMPROVE IT?Introduction:Balance of payments (BOP) is a record of economic transitions between the residents of one country and the rest of the world during one year. The balance of payment like all balance sheets must balance. The items, which lead to, an inflow of foreign earnings are placed on the credit side of the balance sheet, whereas the items, which give, rise to an outflow of foreign currency are placed on the debit side.Definition:Balance of payment is a systematic record of a nations total payments to foreign countries, including the price of imports, the outflow of capital and gold, and the total receipts from abroad, including the price of exports and the inflow of capital and gold.According to Pas Taylor:

Balance of payment refers to the difference between the total payments out of a country during a given period of time. These payments are of visible and invisible items.

DIFFERENCE BETWEEN BOT & BOP1- DefinitionBalance of Trade (BOT)Balance of Payment (BOP)

BOT is the difference between the values of exports and imports ofonly physical items(goods) of a country during a given period of time (usually one year).BOP is the difference between the values of exports and imports ofboth visible and invisible items(goods and services) of a country during a given period of time (usually one year).

2- Surplus or DeficitBalance of TradeBalance of Payment

If thevalue of visibleexports is greater than value of visible imports, the balance of trade is said to be favourable and vice versa.If thevalue of the totalreceipts is greater than the total payments, the BOP is termed as favourable and vice versa.

3- Goods and ServicesBalance of TradeBalance of Payment

It includes only (visible)goods.It includes both (visible and invisible)goods and services.

4- Revenue and CapitalBalance of TradeBalance of Payment

It includes allrevenue receiptsand payments on account of imports and exports.The BOP includes allrevenue and capitalitems.

5- RelationshipBalance of TradeBalance of Payment

The BOT does not include the BOP. It is thepart of BOP.TheBOP includes BOTalso. Accordingly, it is equal to the BOT plus import & export of services.

6- Economic PositionBalance of TradeBalance of Payment

It does not show the actual economic position of a country.Balance of payment shows the real economic position of a country.

Situation in Pakistan:Pakistan, since independence, has been experiencing deficit (un-favourable) in its balance of payment except the following five years i. e., 1950-51, 1954-55, 1955-56, 1958-59, and 1959-60. In 1965-66, the balance of payment was highly deficit due to war against India.Explanation:Balance of payments of a country has three types of account:a)Current Accountb)Capital Accountc)Official Reserve Account

a)Current AccountIt includes export and import of all goods and services and transfer payments on receipts and payments sides respectively.b)Capital AccountIn capital account, on receipts side, short term and long-term capital inflow receipts of foreign direct investment and foreign debts are posted. Same items are written in payment side while making payment.c)Reserve AccountsIt shows the foreign exchange position of a country. Official reserve account has the records of foreign official holding and increase reserves of gold and foreign currencies.

REPRESENTATION BY SCHEDULEFiscal YearSituationReason

1950-51FavourableDue to the Korean War (Rs. 578.0 Crore)

1954-55FavourableDue to Devaluation and restrictions on imports (Rs. 09.9 Crore)

1955-56FavourableDue to 20% increase in exports

1958-59FavourableBonus Vouchers Scheme and Restrictions on Imports

1959-60FavourableBonus Vouchers Scheme and Restrictions on Imports

1965-66UnfavourableDeficit due to war against India

2007-08UnfavourableDeficit ($ 16.8 billion)

2008-09UnfavourableDeficit ($ 12.72 billion)

2009-10UnfavourableDeficit ($ 10.945 billion)

2010-11UnfavourableDeficit ($ 8.3 billion)

Up to date Situation:According to the Economic Survey of Pakistan 2010-11, imports of Pakistan are $ 32.3 billion and its exports are $ 24 billion. It is showing a deficit of $ 8.3 billion. Above situation is showing that Pakistan faces a continuous deficit in its balance of paymentCAUSES OF UNFAVOURABLE BOP -OR- BOT:These are the permanent problem of deficit in BOP:A-LIMITED EXPORT CAPACITY1. Narrow Export BasePakistan basically is an agricultural country. Its major exports are rice, cotton, raw wool, leather, fish etc. Our exports, during the last five years, are remaining around $ 15 billion to $ 20 billion. The reason is that our export base is narrow. It is concentrated in relatively low value added products. Value of exports during 2010-11 is $ 24 billion.2. Consumption Oriented SocietyPeople of Pakistan are mostly consumption oriented. Due to rapid rise in population and increased consumption habits, the domesticmanufactured goods are mostly consumed in the country. The exportable surplus is going on decline. Govt. has to import 4.0 million tones of wheat and heavy amounts of sugar, pulses and tea in 2005-06, being an agrarian country.3. Less Modernization of MachinerySince 1970s, there have been less modernization, balancing and replacement of machinery in the private industrial sector. The fall in production and decline in the quality of products has adversely affected exports.4. Increase in the Sick Industrial UnitsThe number of sick industrial units, mainly due to nationalization of industries, has borne up. It is on record that the performance of most of the industries in the public sector is not satisfactory. The decline in production of semi-manufactured and manufactured goods reduces the exportable surplus and adversely affects the volume of trade.5. Less Production of Value Added GoodsThe share of industry in the GDP is 25.8 %. The share of value added goods must increase to earn over many years. The share of value added goods must increase to earn foreign exchange and turn the trend of adverse balance of payment. The production of value added goods is at basic stage in Pakistan that leads to adverse BOP.6. DevaluationThe repeated devaluation of rupee against US dollar has not helped in the increase of exports. It has made the imported inputs more costly. The demand for our goods in the international market is elastic. As such, due to devaluation, as tool for boosting, exports are not effective.7. Tough CompetitionStiff competition in the foreign market particularly of our value added goods has reduced the volume of foreign trade in Pakistan. There is availability of higher standard goods at lower prices in international market. It causes reduction in exports, which result in deficit in BOP.8. Increase in Prices of InputsThe increase in the prices of fuel, electricity, high capital costs of imported machinery, exchange rates etc. have inflated. The costs of both imported capital goods and industrial raw material, on which domestic industry is heavily dependent the inflationary impact of the rise in the prices of inputs are not helping in achieving the export targets set in each financial year.9. Anti-dumping DutiesJapan, Hong Kong and some other nations imposed antidumping duties on our cotton yarn, fabric and bed linen. Such types of duties on our exportable goods are also a big hurdle in the way of our exports.10. Technical BarriersImposition of non-tariff, barriers like child labour, ISO 14000 etc., has adversely affected our exports for the last years. The advancedcountries of the world have imposed technical barriers such as patents, copyrights, trade-marks and designs etc. on their imports. Pakistan will have to upgrade the standard of purity and quality to compete for its products in the international market.11. Political UncertaintyThe political uncertainties in the industrial units have considerably affected the efficiency of the industries. The fall in the volume of production, particularly in the manufacturing value added sector has reduced export earnings. Due to reduction in export earning, our BOP is unfavourable.12. Fall in Terms of TradeThe import unit values are higher than the export unit values for the last over three decades in Pakistan. A decline in terms of trade causes imbalance in the balance of payment.TOT = [(Export Price IndexImport Price Index)100]TOT = (296.10446.01)100] = 66.39 indicesAbove computation is showing that we lost about 33.61 % of our export earnings in 2005-06. According to Economic Survey of Pakistan 2010-11, terms of trade are 59.3 indices.13. Foreign Debts ServicingPakistan has obtained about $ 59.5 billion from different countries and it pays interest on these loans regularly. It paid $ 7.8 billion as debts services charges during 2010-11. The interest payment has adversely affected the balance of payment.B-UN-RESTRICTED IMPORT NEEDS14. Import of Capital GoodsPakistan has to import capital goods for rapid industrialization of the country in order to build up the economy. The heavy import of machinery has considerable increased the import bill and has adversely affected balance of payment.15. Import Oriented IndustrySome of our industries are based on the imported inputs and raw material e.g., oil and petroleum etc. Most of industries, which were established for achieving the twin objective of earning and saving foreign exchange, have been eating away roughly 30 % of aggregate import bill.16. Rise in Oil PricesThe sharp rise in the prices of oil particularly in 70s and also in the beginning of 1980s and 1990s is taking a big amount of the foreign exchange earnings. Our import bill of petroleum group is increased to $ 8670.4 million in 2007-08, while it was $ 530 million in 1978-79.17. Increases in Import Payment for FertilizerThere is sharp increase in the import payments to the outside world due to increase in prices of fertilizers, edible oil and petroleum. Our balance of payment shows debit due to high payments.18. Defense NeedsWe have to purchase modern weapons for our defense at a very high cost from different countries, which increases burden on our BOP and it becomes adverse. Expenditure on defense is Rs. 275 billion.

MEASURES TO CORRECT ADVERSE BOPMeasures to correct the deficit balance are of three types:A.EXPORT LED GROWTH1. Labour Intensive IndustriesLabour intensive industries should be established, because labour is cheaper in Pakistan, these industries can be set up at lower cost. The products of these industries can be exported.2. Manufactured GoodsInstead of exporting primary goods like raw cotton, Pakistan should export manufactured goods like textiles and garments, leather goods, food products and electrical goods.3. Reduction in Export DutiesThis step will make our export competitive in the international market. Foreigners will prefer to import from Pakistan because of low prices.4. Quality ProductsMany of our goods cannot be exported because of poor quality. Thus, electric fans, cycles, electric motors, shoes, ball pens, crockery etc. cannot be sold abroad. Pakistan is needed to improve the quality of its products according to international standard.5. Export MarketingAgencies should be made more active. Pakistan has already done this. There are Export Promotion Bureau, Export Development Fund and Export Processing Zones etc. All these are playing their effective role to increase export and to correct the BOP.6. Immoral PracticesMany Pakistanis have brought bad name to our trade because they export commodities of inferior quality than specified in agreements. So, all this should be restricted.7. Pricing of GoodsIt is necessary for increasing exports that goods should be produced under optimal conditions and offered at competitive prices in international market.8. PackingHigh quality packing is essential for promoting exports. If packing is not attractive and durable, it will not capture foreign market.9. Joint VentureEstablishing industries with joint venture of foreign investors can also push up the export. The products of these industries can be sold in the foreign market.B.REDUCTION IN IMPORTS10. Import of Only Essential ItemsOnly essential items should be imported which are needed for our industrial production. Import of luxuries should be banned. People should be educated to come out from the complex of foreign goods.11. Exchange ControlExchange control is also an important step to minimize the imports. Exchange control should be followed, so that there is no wastage of foreign exchange to import of un-necessary and luxuries.12. Substitutes for Imported ItemsImport substitutes should be manufactured in the country. If home production of fertilizer, paper, steel, edible oil and electrical goods are increased, there will be less need for such imports.C.MISCELLANEOUS13. Decrease in ConsumptionTaxes should be imposed to reduce the consumption of many items. Rich people in our country are spending freely on unnecessary imported consumer items. So, foreign exchange reserves are wasted.14. Control of SmugglingBara markets should be eliminated. After atomic explosion, the Govt. is taking strict measures to eliminate markets of smuggled goods.15. Population ControlMany of our problems are arising due to fast increase in population. Sincere efforts should be made to decrease growth rate of population. People should be educated in this regard.Conclusion: Achievement of surplus in balance of payment is difficult but not impossible. It can achieve through installing import substitution and export promoting industries. Government should control the forex and check the import of luxuries.Development of human capital, Human capital formation, its factors, importance and problemsPosted by : Ahsan KhanMonday, 23 April 2012

WHAT IS MEANT BY HUMAN CAPITAL FORMATION? WHAT ARE THE FACTORS, IMPORTANCE AND PROBLEMS OF HUMAN CAPITAL FORMATION IN PAKISTAN?Introduction:Various economists believe that the quality of labour inputs or human capital is very important for economic development. Too little population cannot help in the development of a country but if training, education, skills etc. are provided to population then it can speed up the growth of economic development.What is Human Capital?Human capital refers to the productive qualities that activate the labour force. The productive qualities are education, health and skills of the labour force.According to Michael Parkin:Human capital refers to the skill and knowledge of human beings.Human capital is the qualities of education, skills, training specialization etc. in population.Human Capital Formation:Expenditure on education and training are called human capital formation. It refers to the process by which educated, skilled and trained persons are increased in a country. Accordingly, human capital formation is the act of increasing the productive qualities of labour force by providing more education and by increasing skill, health and nutrition level.In the words of Prof. Harbinson:The process of acquiring and increasing the number of person who have the skills, education and experience which are critical for the economic and political development of a country.Explanation:Human capital formation is the process by which educated, skilled and trained persons are increased in a country. Therefore, it is the allocation of resources to improve the value of population. If the people of a country are well educated, well nourished, skilled and healthy that will be said to have more human capital.METHODS OF CAPITAL FORMATIONAccording to Schultz:There arefive methodsof developing human resources:i. Providinghealth facilitieswhich increase the life expectancy of the peopleii. Arranging on thejob trainingiii. Provision ofeducationat primary, secondary and higher leveliv. Allowingmigrationto individuals for changes of jobsv. Organizingstudy and extensionprogrammes for the adultsFACTORS OF HUMAN CAPITAL FORMATION IN PAKISTANFollowing factors are important for the development of human capital:1-Better EducationIncrease in education is the major factor of human capital formation. Education is a major form of investment in human capital, which provides as a key input in human resource development. Education improves the quality of manpower and enables the skilled workers to manage the developing technology of the country.i. Literacy rate is just 57.7 % in Pakistan, i. e., almost 100 % in developed countriesii. Expenditure on education sector is just 1.8 % of GDP i. e., lowest in Asia2-On-the-Job TrainingLow literacy rate leads to low efficiency of workforce. Heavy amount of investment is needed to provide training to the on job employees.Provisions of training facilities, practical applications and refresher courses will lead to:i. Improvement in the treatment method of a Doctorii. Advanced means of teaching for a Teacheriii. Introduction of new inventions and discoveries to engineersiv. It makes possible to connect the technicians with modern technology3-Non-material Capital DevelopmentMore attention is given to material capital formation rather than human capital formation in Pakistan. In fact, more concentration should be given to human capital formation because it improves the services of engineers, technicians and administrators, which cause in economic growth and development.4-Manpower PlanningRapidly growing population and improper manpower planning are resulted in unemployment and under-employment. Due to improper labour market, there is brain drain in Pakistan. Availability of proper manpower planning is also a main factor of human capital formation.i.Population growth rate is 2.1 %ii.Unemployment rate is 5.6 %iii.Under-employment rate is 16 %iv.Disguised-unemployment rate is 20 %5-Health and NutritionPoor population is backward also in Pakistan. Rapidly growing population has not proper health and nutrition facilities. If a worker is not healthy and fully nourished then it is impossible for it to maintain the efficiency.i. Total expenditure on health sector is only 0.23 % of GNP in Pakistan.ii. Death rate is 0.73 % and life expectancy is 67.2 yearsiii. One MBBS doctor is available for 1222 personsiv. One hospital bed is for 1701 personsv. Per capita food intake is targeted at 2526 calories per day, against the required 2550 calories per day6-Housing FacilitiesAppropriate housing facilities are the basic right of the population. It is the basic necessity of life and an important factor of human capital formation. Housing facilities are not in a satisfactory situating in Pakistan. Effective planning of government is required to provide proper houses and shelters to the existing population.7-Water and Electricity FacilitiesDrinking water and electricity facilities in Pakistan are insufficient and irregular. There is problem of load-shedding, which inversely affect the productivity level. These facilities are compulsory for the human capital formation in their advanced form.i. 50 % population has to go to outside the house to obtain water in Pakistanii. 65% population has access to clean wateriii. Only 44 % population has facilities to sewerage and sanitationsiv. Number of continuous air pollution monitoring stations is only 7v. Growth rate of electricity and gas sector 21.1 %IMPORTANCE OF HUMAN CAPITAL FORMATIONHuman capital formation is the most essential source of economic growth. It is a source for both to increase productivity and to achieve technological advancement. Importance of human capital formation can know through following aspects:A.HISTORICAL ASPECTS1-Economy of Japan and GermanyJapan and Germany are the nations which built their economies on the basis of technological advancement, know how and educations.2-Economy of United StatesThere is a general agreement among government advisors in US that it will be necessary to increase investments in human capital. They tell us that a dollar invested on education brings a grater increase in national income than a dollar invested on dams, roads and factories.B.ECONOMIC ASPECTS3-Co-existence of CapitalsCapital is one of the most important factors of production. But only the capital is not enough to utilize the resources properly. Increase in saving and investment is not responsible for the utilizations of resources. Capital without human capital has less importance in economics. Accordingly, co-existence of both capitals is necessary for economic growth and development.4-Full Utilization of ResourcesBetter utilization of available resources is impossible with the help of only saving and investment. Human capital formation is also required for the optimal allocation of resources of a country.5-Effective PlanningThe effective planning is possible only if there are a large number of educated engineers, trained doctors and healthy labour force etc. in the country.6-Maintenance of MachineryThe more import of machinery and technologies are not enough for economic development but skilled people are also required to operate and maintain the machines.7-Improved InfrastructureHuman capital formation creates more educated person, trained doctors and efficient engineers. All these result in efficient management, better health and proper system of transport and communication.8-Industrial PerformanceIndustrial sector is the second major sector of our economy. It is still backward. Only more investment and use of modern techniques of productions are not necessary for its improvement. Human capital formation is required for the development of industrial sector.9-Extra ProductionThe productive capacity of the labour is very low in less developed countries like Pakistan. There is a need of human capital creation to increase the productive capacity of labour. Extra production can be achieved with the help of human capital formation.10-Self EmploymentPakistan is facing a major economic problem of unemployment. Educated, skilled and trained labour forces can create self-employment opportunities due to human capital formation. So, human capital formation is resulted in reduction in unemployment.11-Modern TechnologySufficient amount of capital is required to import modern technology. But it is impossible to operate the modern techniques of production without human capital formation.12-Increase in Efficiency of FactorsIt is possible to improve the efficiency of factors like labour and capital due to human capital formation. Productivity level is low that can improve through human capital development in Pakistan.13-Modern Means of ProductionHuman capital formation leads to introduce the new, better and improved methods of production. Modern means of production cause in more output by using less raw material in less time period.14-Reduction in PovertyThere is unemployment and poverty due to illiteracy, lack of skill and shortage of training facilities. Poverty can be reduced through human capital formation. Reduction in poverty is the great symbol of economic progress.C.SOCIAL ASPECTS15-Increase in Literacy RateHuman capital formation makes it possible to invest in education sector. Today return in education sector is not low. Low literacy rate of 57.7% in Pakistan can increase with the help of human capital formation.16-Improvement in HealthHuman capital formation encourages the more investment in health sector. Investment in health sector introduces modern tools and means of treatment, all this causes in improvement and maintenance of better health.17-Better Living StandardHuman capital formation increases the income and standard of living of the people. More education, skill and training will improve the living standard of the population.PROBLEMS OF HUMAN CAPITAL FORMATIONThe main problems of human capital formation in developing countries like Pakistan are as follow:1-Rapidly Growing PopulationGrowth rate of population is very fast. Increase in resources is less than increase in population. High population growth rate of 2.1 % is a big problem in way of human capital formation.2-Lack of AwarenessPeople of Pakistan are not aware of with the role of the available resources. Due to lake of education, people are ignorant and have not enough knowledge to evaluate the hidden benefits.3-Unequal Distribution of WealthThere are various disparities in the country due to unequal distribution of income and wealth. Only rich class can participate in economic activities and in the creation of human capital. A little portion of population can afford the higher education, which is so costly. 20 % poor population has control on only 6 % national resources in Pakistan.4-Investment in Buildings and EquipmentsPeople in less developed countries like to invest in building, equipment, gold and silver ornament and other real states. They have little trend to invest in human resources that is also a big problem to develop the human capital.5-Inappropriate EducationEducation system in developing countries is backward. Literacy rate is 57.7% and expenditure on education is only 1.8 % of GDP in Pakistan.6-Ill-health and Ill-nutrition FacilitiesThere is shortage of trained nurses, qualified doctors, medical equipments and medicines etc. in the less developed countries of the world. The less availability of health facilities create risk to the million of the people living there.7-No Proper Training for EmployeesThere is no availability of training facilities for the employees in Pakistan. Training facilities are necessary for the up-dating and refreshing the knowledge. These are also some other problems of human capital formation.8-Less Promotion for EmployeesAnother problem in way of human capital development is that there is high rate of unemployment and under-employment in developing countries. On the other hand, there is less reward of the hard work and efficiency.9-Agriculture, the Main OccupationMostly people have outdated knowledge and almost 2/3 of the population is attached with agricultural sector. In this situation, people have no or less trend to be educated, skilled and trained.10-No Manpower PlanningThere is absence of manpower planning. Sometimes, due to non-availability of exact information about population it is not possible to plan about manpower.Conclusion:Investment in human capital is also required to raise the general living standards of the people in developing countries. This is possible when education and training make full and rational utilization of surplusmanpower by providing larger and better job opportunities in both rural and urban areas. There is more return raise in income and improvement in living standard of the population due to capital formation.

WHAT IS DIFFERENCE BETWEEN ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT?Posted by : Ahsan KhanThursday, 22 December 2011

In general, the terms Economic Growth and Economic Development are used to express the same idea i. e., Economic Advancement. But the term economic development is more comprehensive in its scope. Growth means persistent increase in per capita income. While development includes growth and structural changes like, infrastructural, social and political in the country.ECONOMIC GROWTH:Definitions:According to Micheal P. Todaro.Economic growth is a steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national output and income.According to Simon Kuznets.Economic growth may be defined as a long term process wherein the substantial and sustained rise in real national income, total population and real per capita income takes place.Essentials of Economic Growth:Above definitions are showing following basics of economic growth:i. Economic growth isa long run process;it includes a period of decades.ii. Economic growth shows higher rate ofincrease in real per capita incomethan rate of growth of population.iii. Economic growth is always linked with largeincrease in productive abilityof the economy.iv. Economic growth is connected with the fair distribution ofincome and wealth.v. Economic growth is attached with the reduction inpoverty and unemployment.ECONOMIC DEVELOPMENT:Definitions:Simple Definition.It refers to the process whereby the total supply of goods and services of the society increases leading towards improved living standard.According to Micheal P. Todaro.Development must be conceived (considered) for as a multi-dimensional process involving major change in social structures, popular attitudes and national institutions as well as the acceleration of eco-growth, the eradication (end) of poverty and reduction of inequality of wealth.

Structural Changes of Economic Development:Economic development represents following structural changes in various sectors of the country:There is a change in theoccupational structure.In economic development there is decrease in the share of labour force in primary sector (farming, fishing and mining etc.) and increase in the share of labour force in secondary sector (industry etc).i. There is a change in thestructure of national output.The contribution of primary sector in the national output falls and the share of secondary and tertiary (3rd) sector slowly go up.ii. There is a change in thestructure of industrial production.There is an increase in the production of capital goods and decrease in the production of consumer goods.iii. There is a change in thestructure of foreign trade.The share of primary goods in exports decreases and the share of capital goods in imports increase. Accordingly, in economic development there is an increase in exports of manufactured and final goods. Similarly, there is decrease in the imports of consumer items.iv. There is a change in thestructure of technology.In the economic development modern and advanced techniques are used in all the sectors of economy.v. There is a change in thesocial and institutional sector.Due to economic development there is an increase in the self-esteem and living standard of the population.Conclusion:We conclude that, normally the terms economic growth and economic development are used for the explanation of encouraging changes in the economic achievements of a country.

Economic Growth=Annual increase in per capita income

Economic Development =Economic Growth + Structural Changes

DIFFERENCES BETWEEN ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT:Both the terms seem similar, but there are various following points, which create difference between these two:1- DefinitionEconomic GrowthEconomic Development

The term economic growth is only concerned withraising income level and volume of productionof goods and services.The basic feature of economic development is to raise income level and improve thehuman being.

2- Nature in Economic LiteratureEconomic GrowthEconomic Development

Economic growth is the key issue undertraditional economics.According to this approachtake care of growth and poverty would eliminate automatically.Economic development is the main issue undermodern economicsliterature. Accordingly,take care of poverty and growth would take care of itself.

3- ScopeEconomic GrowthEconomic Development

Scope of economic growthis narrowbecause it is concerned with changes in income level only.Scope of economic developmentis wideand comprehensive than economic growth. Its link is not only with income but also with the prosperity of the society and economy.

4- Institutional changesEconomic GrowthEconomic Development

In case of economic growth strong and effective institutional set-upis not necessary.Efficient institutional set-upis necessary.Effective and strong institutional revolution is the sign of economic development.

5- Type of ApproachEconomic GrowthEconomic Development

According to various economists, economic growth is said to bequantitative approach.Economic development refers to thequalitative approach.

6- ImportanceEconomic GrowthEconomic Development

Economic growth isless importantdue to the attachment with income level only.The Concept of economic development ismore importantbecause it discusses an economy in wider sense.

7- Time SpanEconomic GrowthEconomic Development

Economic growth is ashort-term process.We can measure income changes yearly. So, its time span may be of one year.Economic development is along-term processabout 20 to 25 years. Because it takes years to change social, economic and institutional set-up.

8- National ProblemEconomic GrowthEconomic Development

Economic growth is the problem ofdeveloped countriesof the world.Economic development is the problem ofdeveloping countries.

9- Political ChangesEconomic GrowthEconomic Development

Economic growth isnot concernedwith the political stability.The concept of economic development isincompletewithout political stability.

10- Dependence and Self-SufficiencyEconomic GrowthEconomic Development

Economic growth does not ensure the freedom from thedependence of foreign countries.In case of economic development our dependence on other countries reduces and country adopts theself-reliance policy.

11- Economic ApplicationEconomic GrowthEconomic Development

Economic growth first checks thestatistical upwardmovement in the economy.Economic development basically emphasizes on thebalanced growthof economy.

12- Social ImpactEconomic GrowthEconomic Development

Theremay or may notbe any social changes in case of economic growth. It ignores the human beings and it is only concerned with income level etc.Social changes, in case of economic development,are compulsory.It refers to the better jobs, availability of food, better health and education etc.

13- Economic WelfareEconomic GrowthEconomic Development

Economic growth isnot much attachedwith the human beings. It has no link with the good or bad.In economic development,more importanceis given to the mankind as compare to the economic growth.

14- Practical SignificanceEconomic GrowthEconomic Development

In Pakistan, in 1960s,growth rate was higherthan the growth rate in 1990s.Now, Pakistan ismore developed countryas compare to 1960s and 1990s. Today in Pakistan there is more industries, universities and other infrastructure etc.

15- MeasurementA.Economic GrowthEconomic Development

Economic growth is measured only by comparing income levels of different years. It also can be measured numerically.Measurement of economic development is based on the reduction in poverty, development of human being and living standard etc.

16- Quantity and QualityEconomic GrowthEconomic Development

Economic growth is concerned withquantityof goods and services only.Economic development is concerned with not only quantity but also with thequality.

17- Problem of AssessmentEconomic GrowthB.Economic Development

It isvery difficultto estimate exactly the level of economic growth in developing countries like Pakistan.Computation of economic development isnot a difficulttask in developed nations of the world.

18- Use of TechnologyEconomic GrowthEconomic Development

In economic growth, use of advanced technology isnot appreciated.For the economic development use of modern technology iscompulsory.

Conclusion:From all above points of difference, we conclude that economic growth is attached to the increase in production and income etc. while in economic development more importance is given to man and it tries to remove poverty.PRE-REQUISITES -OR- DETERMINANTS OF ECONOMIC DEVELOPMENT MAINLY IN PAKISTANPosted by : Ahsan KhanThursday, 22 December 2011

Economic growth and development is not the result of any one factor. These depend upon various factors like, natural resources, stock of capital, manpower, technology, attitude of the people and political condition in the economy.

PRE-REQUISITES OF ECONOMIC DEVELOPMENT:Pre-requisites are those conditions and factors, which are necessary for economic growth & development. Factors of development may be classified into two types:I-Economic Factors andII-Non-economic FactorsI-ECONOMIC FACTORSEconomic factors play very important role in the economic development of a country. Some major factors of economic developments are as follow:1. Availability of Natural ResourcesNatural resources are the material source of wealth, such as mineral deposits, climate, forest, fisheries and fresh water that occur in a natural state and have economic value. Accordingly, natural resources are available on the surface, below the level of earth, in the air and in ocean. If a country has more natural resources then there is more possibility of development. Availability of natural resources is a necessary but not a sufficient condition for economic growth & development.Role of Natural Resources:a)More natural resources mean more possibility of increase in national income.b)More natural resources lead to more possibility of using labour force.c)More natural resources refer more possibility of attaining self-sufficiency.d)More natural resources cause more possibility of increase in per capita income.Situation in Pakistan:Natural resources are available in the country but these are not utilized optimally. Contribution of natural resources to GDP is just 0.8 %. Forest area of Pakistan is 4.21 % of its total area. Land area for wild life is 11.3 %.2. Capital Formation/AccumulationCapital formation refers to the creation of capital. It is an increase in the stock of existing capital. Capital formation is an increasing function of saving. Accordingly more saving leads to more capital formation and vice versa.Role of Capital Accumulation:a)Capital formation leads to reduction in poverty.b)Capital formation results in more employment.c)Due to capital formation there is growth and development of economy.d)Accumulation of capital caused to correct the balance of payment.Sources of Capital Accumulation:Sources of capital formation includes:a)Internal resourcesb)External resourcesCapital Formation in Pakistan:Rate of capital formation is just 5 % in Pakistan, while it should be at least 20 % to make development. Low capital formation rate is due to low investment, which is 16.6 % of GDP and low domestic saving which only 9.9 % of GDP.3. Manpower or Efficient LabourManpower or labour means physical or mental effort or activity directed toward the production of goods and services. It is an important factor of production. According to classical economists, labour is the only variable factor of production. If in a country there is proper manpower planning and labour is efficient, literate and trained then there is more possibility of economic development.Labour Situation in Pakistan:Labour force is 53.82 million of the total population in Pakistan. Annual value of productivity of labour in Pakistan is just $ 100 and it is $2500 in developed countries. Rate of unemployment is 5.5 %.

4. Energy and Power ResourcesPower resources include coal, gas, oil and electricity etc. Today without use of power resources economic development is impossible. Energy and power resources play very important role in the economic development of a country.Situation in Pakistan:The government has provided a subsidy of Rs. 5.549 billion in March 2007 to WAPDA. The World Bank and the Asian Development Bank have agreed to provide increased funding of $ 4.0 billion for the construction of Diamer-Bhasha Dam estimated tentatively to cost $ 6.5 billion. Growth rate of electricity and gas sector is 0.4 %. Increase in the production of Oil and Gas daily is 1.7 % and 1.3 % respectively.5. Transport and CommunicationTransport and communication is also an important sector of an economy. Transport includes railways, road, air and sea transport. On the other hand, communication includes postal, mobile, telephone, television and radio etc. Advanced means of transport and communication increase the internal and external trade that leads to economic development.Position in Pakistan:At present total length of roads is 2,59,618 kilometers and total number of registered motor vehicles till March 2010 is 67,57,315. More than 91.4 million population is using mobile phones. The telecommunication sector has attracted an investment of $ 716 million over the last few years.6. Education and TrainingIn advanced countries education and training facilities are available in fully advanced form. But in developing countries high rate of illiteracy and low level of training is a major problem of economic development.In case of Pakistan:Education and training situation in Pakistan is at its low stage. There is shortage of training institutions and literacy rate is only 57 %. The government has decided to raise the public-private investment in the educational sector from the present level of 2.0 % of GDP to a level of 5% of GDP in 2008-09.II- NON-ECONOMIC FACTORSA- SOCIO-CULTURE FACTORS:7.Absence of Joint Family SystemAbsence of joint family system is necessary for the economic development. In presence of joint family system, all the members of a family do not take an active part in the economic activities of economy. 32.17 % population is engaged in economic activates in Pakistan and remaining 67.83 % is depending upon them.

8.Caste-Ridden SocietyPeople in developing countries have strict attachment with the occupations of their castes. Adoption of jobs only with accordance of caste is the status symbol.9.Social BehaviourSocial attitude of backward population in developing countries is not desirable. People give preference to fortune instead to work-hard. They have no mind to develop and to improve their living standard.10.Control the Customs and TraditionsIn developing countries like Pakistan, people have to spend a large amount of their income to maintain the customs and traditions. A huge proportion of income is used at the time of death, birth, marriages and other circumstance.B- POLITICAL FACTORS:11.Stability in Govt. PoliciesStable government and stability in the policies of government is also a major factor of economic progress. Stability causes more investment and rapid growth and development of an economy. In most of the developing countries like Pakistan, political situation is not satisfactory.12.Law and Order ConditionsBetter implementation of law and order is compulsory for the development of economy. Pakistan is a strange country where the Chief Justice (Iftikhar Muhammad Chohdery) was crying for justice and Chief of Army Staff (General Pervaiz Musharf) was depending on security.13.Democratic GovernmentDemocratic government is another requirement of economic development. In most of the developing countries there is absence of election but selection exists at political stages.14.Efficient BureaucracyTo enhance the process of economic development an efficient bureaucracy is needed. Public servants and administrators should do their jobs honestly and efficiently. Without efficient and effective bureaucracy economic development is impossible.15.Developed MindedWill to develop is also a factor of production. Developed minded population is necessary for the development of a country. In Pakistan, people are not of commercial mind, they like to spend subsistence life.C- ADMINISTRATIVE FACTORS:16.EducationAn administrator must be highly educated to administrate the economic activities. But in Pakistan, there is lack of training institutionsand literacy rate is only 57 % that is very low as compare to the rich countries.17.Absence of CorruptionCorruption means dishonesty and immorality. It is a process of receiving illegal money for any legal or illegal activity. Absence of corruption is necessary for the economic development. In Pakistan, corruption is a common practice.18.Reward, Pay and StatusIn most of the developing countries like Pakistan, distribution of authorities is improper. Some employees of low rank have more powers and some officers of high rank have fewer authorities, less honour, less reward and low status. To make development, it is necessary to provide reward, pay and status according to the capabilities of employees.19.Efficient ManagementEfficient management is the act, manner or practice of managing, handling, supervision or control of economic activity to make profit or to minimize losses. Efficient management is also required for economic development. If management is educated, trained and efficient then business policies will be in improved form and it will cause economic progress.

Conclusion: At the end, we conclude that there are various factors of economic development. Almost in all the developing countries, various factors for economic development are available in better conditions. If government utilize the resources properly by employing modern technology then the target of achieving economic development is not difficult.

MAJOR ISSUES IN THE ECONOMY OF PAKISTAN / BASIC CHARACTERISTICS OF DEVELOPING COUNTRIES LIKE PAKISTAN BY AHSAN KHAN 2013Posted by : Ahsan KhanTuesday, 23 April 2013 q.1 MAJOR ISSUES IN THE ECONOMY OF PAKISTAN / BASIC CHARACTERISTICS OF DEVELOPING COUNTRIES LIKE PAKISTANIntroduction:A country where the average income of the people is much lower than that of developed countries, the economy depends upon a few export crops and where farming is conducted by primary methods is called developing country. Rapid population growth is causing the shortage of food in many developing countries. Criteria to an Under-developed Nation:i. Potential to become economically developed.ii. Low or no rising trend of per capita income.iii. Countries very poor in resources.Prof. Harvey Leibenstein, in his Economic Backwardness and Economic Growth divides these characteristics into four categories: A. Economic characteristics: Following are the economic characteristics of UDCs:1- General Poverty and Low Living Standard.Poverty cannot be described, it can only be felt. The most of the less developed countries (LDC) are facing the major problem of general as well as absolute poverty and low standard of living. Most of the people in developing nations are ill-fed, ill-housed, ill-clothed and ill-literate. In LDCs almost 1/3 population is much poor. But in Pakistan, 21.0 % population is living below poverty.2- Burden of Internal and External Debts.Under developed countries (UDC) are loans and grants receiving nations. Most of the developing countries of the world are depending on foreign economic loans. An amount of foreign loans is increasing as the years pass. Their foreign trade and political structure is also dependent on the guidance of foreigners. The outstanding total public debts are Rs. 12024 billion (58.2% of GDP) and the value of external debts and liabilities is $ 60.3 billion and services charges on all types of debts are Rs. 730.733 billion during 2011-12, in Pakistan.3- Low Per Capita Income.Due to low national income and huge population growth rate, per capita income in developing countries is very low. At constant prices (Base Year 1959-60) per capita income of Pakistan was Rs. 985 and according to the Economic Survey of Pakistan 2011-12 per capita income of Pakistan is $ 1372.4- Over Dependence on Agriculture.61% Population of Pakistan is living in more than 50,000 villages. Backward agriculture is the major occupation of the population. Agriculture sector is backward due to old and traditional methods of cultivation, in-efficient farmers, lack of credit facilities; un-organized agriculture market etc. 66.7% population is directly or indirectly depending on agriculture sector in Pakistan. It contributes to GDP 21.0% while in advanced nations it is less than 5 %. It employed 45.0 % of labour force while it is less than 5 % in developed countries.5- Backward Industrial Sector.Backward industrial sector is an additional feature of under developed countries. Industrial sector of Pakistani economy is backward since independence. Pakistan got only 34 (3.7 % of total industrial units) industrial units out of 921 units in sub-continent in 1947. Small and backward industrial sector is based on low level of capital formation, technology, training and education and over dependence on agriculture sector. 13.7% labour force is attached with industrial sector in Pakistan. Its share to GDP is 25.4 % and to exports is more than 60 %.6- Unemployment.An outstanding problem of developing countries is their high rate of un-employment, under-employment and disguised-unemployment. More than 3.5 million people are unemployed in Pakistan. There is 16 % underemployed and 20% disguised unemployed of total labour force. Unemployment rate is 6.0%; it is mainly due to high population growth rate, which is 2.03%.7- Low level of Productivity.The productivity level is very low in under developed countries as compared to developed countries. Low level of productivity is due to economic backwardness of people, lack of skill, illiteracy and ill-training. Value of annual productivity of labour is about $ 100 while it is more than $ 2500 in advanced nations in Pakistan. Minimum wages are Rs.8000/- per month against the average gross salary of $3,950 (Rs.3,79,200) per month in United States.8- Deficit Balance of Payment.Third world countries have to import some finished and capital goods to make economic development, on the other hand they have no products to export but raw material. During July-April, its exports were $ 20.474 billion and imports were $ 33.15 billion in case of Pakistan. So, its deficit balance of payment was $ 12.68 billion in 2011-12.9- Dualistic Economy.Dualistic economy refers to the existence of advanced & modern sectors with traditional & backward sectors. Pakistani economy is also a dualistic economy as other developing countries on the following grounds: Co-existence of modern and traditional methods of production in urban and rural areas, Co-existence of wealthy, highly educated class with a large number of illiterate poor classes and Co-existence of very high living standard with very low living standard.10- Deficiency of Capital.Shortage of capital is another serious problem of poor nations. Lack of capital leads to low per capita income, less saving and short investment. National saving is 10.7% of GDP and total investment is 12.5% of GDP in Pakistan. Rate of capital accumulation is very low as 5%. On the other hand, capital output ratio (COR) is very high which is not desirable for economic development.11- In-appropriate Use of Natural Resources.Mostly there is shortage of natural resources in developing nations and this is also a cause of their economic backwardness. Natural resources are available in various poor countries but they remain un-utilized, under-utilized or mis-utilized due to capital shortage, less efficiency of labour, lack of skill and knowledge, backward state of technology, improper government actions and limited home market. Natural resources contribute to the GDP about 1%.12- Market Imperfection.Market is imperfect in accordance with market conditions, rules and regulations in the most of developing nations. There exist monopolies, mis-leading information, immobility of factors; hoarding and smuggling etc. that cause the market to remain imperfect.13- Limited Foreign Trade.Due to backwardness, developing countries have to export raw material because the quality of their products is not according to international standard ISO etc. Lower developing nations have to import finished and capital goods. Imports of Pakistan are $ 33.15 billion and exports are $ 20.474 billion that cause into unfavourable balance of payment of $ 12.676 billion.14- Vicious Circle of Poverty.According to vicious circle of poverty, less developed nations are trapped by their own poverty. Vicious circle of poverty is also applied in case of Pakistani economy. Due to poverty, national income of Pakistan is low which causes low saving and low investment. So, rate of capital formation is very low results in a country is poor because she is poor.15- Inflation.High rate of inflation causes economic backwardness in poor nations. Due to high level of price, purchasing power, value of money and saving of the consumers tend to decrease. Rate of inflation (CPI) is 10.8% in 2011-12 in Pakistan.B. Demographic characteristics:Following are the demographic characteristics:16- Backward Population Explosion.Another common feature of lower developing nations is population pressure due to high growth rate and reduction in death rate. Population of the Pakistan is 180.71 million with the rapid growth rate of 2.03% and death rate 0.72 % in 2011-12. Pakistan is at 6th number in the list of the most populous nations. Basic needs like food, clothing, housing, education, sanitations and health facilities are not available for the huge portion of population in these countries.17- Poor Health and Diseases.M. P. Todaro in his Economic Development states, Many people in developing countries fight a constant battle against malnutrition, diseases and ill health. Average life expectancy in Pakistan is 65.2 year against 75 years in developed countries. One Doctor is for 1206 persons and one Nurse is for 2369 persons, one Dentist for 16420 persons, number of hospitals is 972 and one hospital bed is available for 1665 persons. The total expenditure on health sector is just 0.27 % (Rs. 55.12 billion) of the GDP.18- Pollution.There is too much pollution in poor countries. On the one side huge existing population is not provided basic facilities of life, like sanitation, clean water, infrastructure etc. but on the other side due to rapid population growth, industrialization and transportation air, water and earth pollution is increasing. Industries are causing pollution because of non-installation of treatment plants. Number of continuous air pollution monitoring stations is only 7 in Pakistan. Pakistan is at number 29th at the chart of the most polluted nations and at number 6th in Asian countries.19- Brain Drain.An outflow of the best, brightest and talented student from poor nations to rich nations is called brain drain. There is less reward for the talent, which causes an outflow of best brain in the backward countries. Reward is not paid in accordance with the capability, skill and efficiency in less developed countries.20- Inadequate Infrastructure.Adequate infrastructure is needed which is not available in poor economies to enhance the process of economic development. Roads, transport, telecommunications, sanitation, health and education facilities are not at their best level in these nations. Government has reserved an amount of Rs.133 billion to develop the infrastructure. C. Cultural and political characteristics: Following are the cultural and political characteristics of LDCs:21- High Degree of Illiteracy.Illiteracy rate is very high in poor countries while it is almost zero in rich countries. There is lack of technical education and training centers, which is necessary for economic growth and development. Literacy rate in Pakistan is 58% during 2011-12. Expenditure on education sector is just 1.8 % of GDP during last year.22- Low Level of Organization.There is absence of developed minded leadership in economic activities in third world nations. Decision making power of entrepreneur is very low due to illiteracy, less training and backward techniques. Most of educational institutions are producing employees rather than employers.23- Low Self-esteem.There is less respect, honour and dignity of people in the lower developed countries. People are honoured due to their powers, relations and castes instead of capabilities. There is poverty, poor health, poor education and shortage of other social services. Government and population of poor countries are under the external influence.24- Un-productive Expenditures.Population mostly copies the styles of population of developed nations due to demonstration action in poor economies. Their consumption activities not only move around their income but also depend upon the relatives, friends and locality. They spend more on birth, death, marriages and various other ceremonies etc. which reduces their savings and investment.25- Political Instability.There is political instability in the most of the developing countries. There are a lot of clashes between government and the opposition that is a cause to reduction in domestic as well as foreign investment. Political instability keeps low the level of economic development.26- Influence of Feudal Lords.The poor class is under the influence of feudal lords and tribal heads in lower developed nations. The feudal lords want to keep the people backward and do not appreciate the development of the poor. About 50.8% poor borrow from landlords and 57.4 % poor are working for feudal lords without wages in Pakistan.27- Unproductive Use of Funds.The unproductive expenditures are rising day by day in developing countries like Pakistan due to socio-economic and administrative reasons. During the year 2009-10, Rs. 343 billion were spent for defence. About 75% of the budget is spent on defence, administration, repayments of loan and interest charges in Pakistan.28- Govt. Control by Wealthy Persons.Wealthy persons, landlords and elite class not only control the government but also they have full control over all the major sectors of the economy in poor countries. This rich class is not interested to solve the problems of the poor for their welfare but they make government policies for their own improvement.29- Frequent Changes in Fiscal Policy.Revenues and expenditures policy of government is not stable in developing countries. Government has to change the fiscal policy according to the will of its own people. Industrialists are the main controller of the government and they adjust the fiscal policy in accordance with their own benefits.30- Violation of Law and Order.Law and order conditions are at their poor stage in Pakistan like other developing countries. A huge portion of saving of people is wasted in costly and lengthy legal process. As in case of Iftikhar Muhammad Chohdery (CJP), he himself has to wait for justices for a long period.D. Technological and miscellaneous characteristics:Following are the technological and miscellaneous characteristics of developing countries:31- Backward State of Technology.Use of modern techniques of production is not adopted in developing countries. It may cause further unemployment. Use of advanced technology is impossible due to shortage of capital, lack of skill and training, high cost of production and lack of foreign exchange reserves. Backward state of technology is results in low production, high cost and wastage of time.32- Social Aspects.Under developed countries have also some factors such as joint family system, caste system, cultural and religious views, beliefs and values that badly affect their economic development. 30.88 % population is working population and remaining 69.12 % population is depending on them in Pakistan.33- Un-fair Wealth and Income Distribution.There are not only regional inequalities in developing countries but also wealth and income inequalities. There is unfair wealth and income distribution in less developed nation. 20 % extremely rich population has 50.02% of national resources, while 20 % poorest population has just 6.37 % of national resources in Pakistan. The difference between rich and poor is increasing day by day.34- Lack of Experts and Skilled Persons.People have to move abroad for advanced study due to illiteracy and lack of training institutes. They adjust them in foreign countries due to low remuneration and less self-esteem. So, there is scarcity of experts, skilled and trained staff that causes the poor nation to remain backward.35- Dependence on External Resources.The international trade, political activities and other economic activities are under the influence of other advanced countries in less developing countries. Their development plans are financed by the loan giving countries; these plans are made to serve the interests of foreign countries. So, poor nations are loans and grants receiving nations. Conclusion: We conclude that all above characteristics are unfavourable for the developing economies. These features are obstacles in way of economic development. All these features are cause of low rate of capital formation, poverty and creation of vicious circle of poverty.3 Role and Importance of Agriculture Sector in Economics Development of Pakistan. 3 Posted by : Ahsan KhanMonday, 23 April 2012

WHAT IS THE IMPORTANCE OF AGRICULTURE SECTOR IN ECONOMIC DEVELOPMENT OF PAKISTAN?Introduction:About 50 years earlier, agricultural sector was not considered as a commercial sector for economic development in a large number of developing and developed nations. During the last 50 years this sector is realized as a major productive sector of Pakistani economy. 61% population is living in more than 50,000 villages in Pakistan.

Latest Information:(According to Economic Survey 20010-11) Backward agricultural sector contributes 20.9 % to GDP. Its growth rate is as low as 1.2 %. It employs the 45.0 % of total labour force. Its contribution to exports (Food Group) is 8.62 %.ROLE OR IMPORTANCE IN ECONOMIC DEVELOPMENTImportance of agricultural sector can be shown as below:1-Increase in Per Capita IncomePer capita income is the annual average income of the individuals of a nation. We derive it by dividing national income on total population. Agricultural sector provides more jobs to unemployed people. It increases the individuals as well as national income. Agricultural sector is essential to increase the PCI, which is $ 1254 at present.2-Major Source of EmploymentAgriculture sector provides employment to major portion of our labour force. More than 45.0% of our labour force is directly involved in agriculture sector, while 66.7% of our rural population is dependent on agriculture. This is the major sector, which provides employment to a large portion of our population. Agriculture sector is helpful to reduce the unemployment and disguised unemployment.3-Reduction in PovertyAgriculture development has significant impact on rural development. If productivity increases in agriculture it reduces poverty and stimulates non-farm employment, too. They are able to get basic services of life such as water supply, sanitation, provision of health and educational facilitates. About 21.0% population of Pakistan is much poor.4-Supply of FoodFood is the first in basic necessities of the life. The agriculture sector is the sole provider of all type of food like wheat, rice, corn, sugarcane vegetables and fruits etc., to the population engaged in various sectors of the economy. Agricultural sector also provides food to those animals that provide milk, cheese, butter and meat to population to maintain theefficiency. According to economic survey of Pakistan, exports of food group are $ 2007.3 million.5-Source of Forex EarningAgriculture sector is the main source of foreign exchange (forex) earning which is used to import capital goods. Total forex resources of Pakistan is $ 17.1 billion out of which share of agriculture is $2007.3million. Major cash crops of Pakistan are cotton, rice, tobacco etc. that is helpful to correct the balance of payment.6-Supply of Surplus LabourAbout 61% population is living in more than 50,000 villages in Pakistan. This sector is the major source for supply of labor force to industrial sector due to farm mechanization and disguised unemployment. In this way an increase in the income of the people leads to improved living standard.7-Source of National IncomeAt the time of partition, contribution of agriculture sector to GNP was 60%, which decreased to 29.4% in 1980-81. Now its share to GDP is 20.9% in 2010-11. Accordingly, agricultural sector is the major contributor to Pakistans national income.8-Supply of Raw MaterialAgricultural sector provides not only food but also provides cotton, sugarcane, tobacco, rice, oil-seed, meat and milk to various agro-based, small scale and large-scale industries as a raw material.9-Development of Industrial SectorThere is inter-dependence and inter-relationship between agricultural and industrial sector, both are helpful to develop each other. Due to use of modern techniques of production in agricultural sector, when income of the agriculturists increases, they will demand for industrial articles, like threshers, harvesters, tractors, tub-wells and various other consumer goods, which results in industrial growth and development.10-Balance of Payment PositionPromotion of agriculture sector will provide surplus production for exports and our foreign exchange reserves will be increased. This will be helpful in the improvement of balance of payment. At present Pakistan is facing a deficit of $ 8.3 billion in its balance of payment.11-Improvement in Living StandardThere is an increase in the income of the farmers due to development of agricultural sector. It will improve their living standard by constructing better houses, demanding luxuries of life, television, computer, mobile, motor-cycles and a lot of other items. So, growth of agricultural sector will cause to improve the standard of living of the population.12-Extension in Market SizeThere is more output in agricultural sector due to farm mechanization. It enlarges the size of market. If there is more production, then surplusproduction can be export to the other countries of the world. So, agricultural sector expands the market at national and international level.13-Capital FormationRole of agricultural sector in capital formation cannot ignore. It increases the incomes of the people that lead to more saving and more investment. Here, more investment leads to rapid capital formation. Capital formation rate in Pakistan is 5%.14-Increase in InvestmentTotal investment is only 13.4% of GDP in Pakistan. This low investment is mainly due to low income and low savings. Agricultural sector increases the income of people that caused in more saving and more investment. Accordingly, agricultural sector is helpful in increasing the investment.15-Economic DevelopmentEconomic development, progress and prosperity cannot achieve without agricultural sector. It provides employment opportunities to a lot of people. It produces exportable items, which increases the foreign exchange resources. So, agricultural sector is helpful to make rapid economic development. Real GDP growth rate is 2.4%.16-Self Reliance PolicyAgriculture sector is helpful to achieve the self-sufficiency. Our country will not only become self-sufficient in food but supply of raw materials for industries will also expand our industrial sector.17-Direct Foreign InvestmentNow a day, use of advanced technologies in farming is common. It boost-up the industries like tractors, harvesters, thrashers, chemicals etc. It has increases the foreign direct investment in our country. It provides employments to our population and also increases the national income. Foreign investment is $ 1.8 billion in Pakistan.18-Controlling InflationInflation refers to the increase in general price level. It may be due to increase in demand and shortage in supply. Agricultural sector is very helpful to control the inflation. It produces more goods and maintains the equilibrium in demand and supply. Rate of inflation is 14.1% in Pakistan.19-Reduction in Regional DisparitiesAgriculture sector is the life-blood of our economy. Development of agriculture sector will increase the living standard of the rural population. This leads to reduce the urban and rural differences in the country.20-Demand for Industrial GoodsAs the agriculture productivity increases, the income of farmers goes up. With the rise in income the demand for both agricultural goods (tractor, fertilizer, pesticides, tube-wells etc.) and industrial goods (television, mobile, computer etc.) will increase in rural areas.21-Balanced Growth EconomyThere exists close inter-dependence between agricultural sector and industrial sector. Agricultural sector will develop the industrial sector also. Income received by cultivator will develop the demand for the industrial goods. Its results are in balance growth of the economy.22-Increase in Govt. RevenueThere is no direct tax on the agricultural income. But indirectly government receives a huge amount of tax form agricultural sector. It imposed some duties on imported technologies applied in farming. It imposes tax on chemicals etc. So agriculture sector is also a source of income for the government.Conclusion: Agriculture sector is playing an important role in the economic development of Pakistan. Our all-economic activities are based on agricultural sector. But, unfortunately it is still backward and government should take some effective steps for its improvement.

MAJOR PROBLEMS OF AGRICULTURAL SECTOR OF PAKISTANPosted by : Ahsan KhanMonday, 23 April 2012

DISCUSS THE MAJOR PROBLEMS OF AGRICULTURAL SECTOR OF PAKISTAN. WHAT MEASURES DO YOU SUGGEST TO IMPROVE THIS SECTOR?Introduction:Agricultural sector is the backbone of our economy. But the growth of agriculture in Pakistan is facing a lot of problems. Due to various causes, per acre yield is very low in Pakistan as compare to other developed countries.PROBLEMS OF AGRICULTURAL SECTORProblems of agricultural sector are categorized as below:A. TECHNO-ECONOMIC PROBLEMS1)Limited Cultivable AreaThe total area of Pakistan is about 79.6 million hectares, out of which only 23.7 million hectares (28%) area is used for agricultural purposes. About 8 million hectares area is idle and un-utilized. There is vast sub-division and fragmentation of land holdings, as a result modern technology cannot be applied in agriculture sector.2)Water Logging and SalinityWater logging and salinity are twin problems of agricultural sector due to salinity, deposits of salt in land have appeared on the surface of land and they have adversely affected the performance of agricultural sector. Water logging and salinity affect about 0.10 million acre of land in every year. It is not only waste of land but also reduction in productivity.3)Slow Growth of Allied ProductsAllied products refer to those productions, which are not agricultural but indirectly, help the farmer to improve his living standard.Pakistan is in-sufficient in the production of fruits, milk, poultry, fisheries, livestock and forestry. As a result not only our food quality is poor but also industries such as furniture, textiles and dairy cannot be developed.4)Low Per Hectare YieldThe most important problem of agriculture is its low yield per hectare for almost every major crop. 45.0% of labour force is engaged in this sector in Pakistan while it is less than 5% in developed countries. But, other countries of world are getting higher yield per hectare due to use of modern technology and trained labour.5)Inadequate InfrastructureRural infrastructure like, roads, storage facilities, transport, electricity, education, sanitation and health facilities etc. is inadequate to meet the requirement of growth of agriculture. Total length of farm-to-market road is not only shorter but their condition is also poor. Many villages have no metal-led road at all. Electricity is available to only 3/4 rural populations.6)Uneconomic Land HoldingsDue to increasing population and division of land under the law of inheritance, landholdings are subdivided over and over again. The result is that very large number of farmers has less than 2 hectares of area. Moreover holdings are scattered. It is difficult to use modern machinery on small pieces of land.7)Old Methods of ProductionNo doubt, mechanization of agriculture is increasing in Pakistan, but in most of the areas, the old implements are still being used for agricultural production. Old and orthodox techniques of production cannot increase the production according to international levels.8)Inadequate Supply of Agricultural InputsThe supply of modern inputs like high yielding variety (HYV) seeds, chemical fertilizers, pesticides, mechanized machinery etc. not only costly but also inadequate and irregular in Pakistan. Numbers of fertilizer producing units are just 10 in Pakistan.9)Lack of Irrigation FacilitiesShortage of irrigation facilities causes a serious limitation in the expansion of crop area in Pakistan. The lower water supplies, loses from water course in the fields are the serious problems of farm sector. Actual surface water availability is 91.8 million acre feet.10)Inadequate Agricultural ResearchThe average crop yield in Pakistan is very low as compared to the production levels of the advanced countries of the world. In order to raise the potential of agricultural production, there should be continuous improvement in the research for agricultural growth. Total agricultural universities and colleges are only 16 in Pakistan.11)Problem of Land ReformsLand reforms have been implemented against the will of people. There is an urgent need to conduct a proper land reform for improving agricultural growth. Due to this problem agricultural production cannot increase to desired level.12)Defective Land Tenure SystemDefective land tenure system is also responsible for low yield per acre in agricultural sector. Landlords and feudal-lords live in posh urban areas while tenants and peasants have no or less incentive for their hard work. So, the productivity in agricultural sector remains low.13)Subsistence FarmingOur farmer is attached with subsistence farming; a huge of portion of production is consumed at farmers own house to support large family. Hence, less portion of the production is available for market supply. It causes low income of the farmers. Farming is not conducted at commercial level in Pakistan.14)Low Cropping IntensityCropping intensity means the number of crops grown on a piece of land in one year. At the present stage of our development, there is low level of cropping intensity as compared to advanced countries. Cultivable area under double or multiple cropping is inadequate in Pakistan.15)Improper Crop RotationProper turning round of crops is essential to re-establish the fertility of the land. The constant cultivation of one crop or two; exhausts the fertility of the soil. Proper rotation of crops is necessary in order to restore the fertility.B. NATURAL PROBLEMS16)Various Plant DiseasesVarious agricultural crops like cotton, sugarcane, tobacco, wheat and rice often come under attack of pests and insects. Pests and plant diseases reduce the annual productivity of agriculture.17)Natural CalamitiesLabour is in the hand of mankind but its result is in the hands of ALLAH in agriculture sector. So, growth of agriculture is dominated by nature. In case if there is too much rain, reduction in the productivity. There is 20% reduction in productivity due to unnecessary rain and unfavourable climatic situations in Pakistan.18)Scarcity of HYV SeedsOur poor farmers have to use lower quality seeds due to non-availability of High Yielding Variety (HYV) seeds. On the other hand, if seed is available they cannot be purchased due to low income. Agricultural production is badly affected because of inferior quality of seeds.19)Under Utilization of LandMostly poor population is attached with agricultural sector in Pakistan. They are using orthodox and traditional means of cultivation.Our farmer is not interested to use the advanced and modern means of farming, as a result area under cultivation remains under utilized, un-utilized or mis-utilized.C. SOCIO-ECONOMIC PROBLEMS20)Consumption OrientedOur farmers have no proper records of their incomes and expenses. Mostly, they spend more when they have more due to illiteracy. A huge part of the farmers income is consumed on occasions of marriage, birth, death and several other rural ceremonies and festivals in Pakistan.21)Farmers LitigationThere are frequent and continuous litigations among the farmers directly or indirectly. They are often seen in courts, police stations, irrigation offices, revenue boards and other official problems. Due to mentioned problems, our farmer cannot devote his time, energy, efficiency and labour to agricultural productions.22)Joint Family SystemJoint family system is also a big problem in agricultural sector. Our farmer is poor; on the other hand he has to support his big family. It creates deficiency in saving and investment. A huge part of farmers productivity is consumed at his own house.23)Illiteracy and Ill-healthMost of the farmers, labourers and tenants in our country are illiterate. They are untrained and inefficient to boost up the agricultural productivity. On the other side, the health of our farmers is improper due to rural backwardness. Literacy rate is only 57.7 % in Pakistan. Economic Survey of Pakistan shows that literacy remains higher in urban areas (73.2 percent) than in rural areas (49.2 percent).24)Political InstabilityPolitical instability has affected development in all economic and social sectors. Unfortunately, the political situations in Pakistan are not stable. It creates unrest among the farmers to sell the productions to various industries as a raw material. On the other hand, people hesitate to invest in agricultural sector due to political unrest.D. FINANCIAL PROBLEMS25)Lack of CreditBasically our farmer is poor and he has low level of income. Agricultural credit facilities are not common in Pakistan. Credit that can facilitate agriculture is not available easily. Moreover non-institutional sources are available but these are not reliable due to high rate of interest. About 50.8% poor borrow from landlords in Pakistan.26)Poor Financial Position of FarmersIt is a common saying aboutour farmer that he borns in debts, grows in debts and dies in debts.It means that financial position ofPakistani farmer is weak and poor. According to Pakistan Human Development Report 2003 about 57.4% poor are working for feudal-lords without wages.27)Instability in Market PricesThe price market of agricultural goods generally remains unstable in the country. Cobweb theorem is very popular in case of market prices; it means that a price of one commodity is much high in this year and much low in the next year and vice versa. The farmers, do not get due reward from the sale of their productions. So, they remain unsatisfied.28)Shortage of Agricultural FinanceAgricultural credit facilities are not sufficient in Pakistan. Rate of interest on agricultural credit is high and loan is not provided in time. According to Pakistan Human Development Report 2003 in Pakistan about 50.8% poor borrow from landlords at very high rate of interest.MEASURES TO REMOVE THESE PROBLEMSFollowing measures are suggested to improve the agriculture:1)Supply of Agriculture CreditPoor farmers cannot afford the expensive technology from their own resources in Pakistan. So, supply of agriculture credit at easy terms and conditions is very necessary. An amount of Rs. 85,177 million is disbursed by commercial banks in 2009 and Rs. 49 billion was distributed by ZTBL. ZTBL issued credit or Rs. 37.4 billions during 2010-11.2)Water Logging and Salinity ControlWater logging and salinity destroys about one million acre of land every year in Punjab and Sindh. It reduces our cultivable area. For this purpose, installation of tube wells, repair of canal banks and drainage of water etc. are needed. The Ministry of Agriculture proposed to invest Rs. 18.5 billion with the objective of converting 2,00,000 acres of irrigated land to drip and shower irrigation system.3)Construction of DamesSometimes, due to heavy unwanted rains and floods agricultural productivities destroys. To tackle this problem it is necessary to construct dames and bands on rivers.4)Provision of HYV SeedHigh yielding variety seed is not available at suitable price in Pakistan. So, farmers have to depend upon low quality of seeds that causes 20% reduction in total production. Government should provide HYV seed at minimum price in this case.5)MechanizationFarm mechanization is necessary to remove the problems to agriculture sector. Sowing, cultivation and harvesting of crops through agricultural machines increase the productive quality and quantity.6)Agricultural ResearchAgricultural research is compulsory to remove the backwardness of agriculture sector. Major agricultural colleges and universities are onlyabout 16 in Pakistan. Government should increase the research work in the field of agriculture.7)Agro-based IndustriesAgro-based industries like poultry, fisheries, dairy and livestock should establish. These industries indirectly lead to improve the agricultural sector.8)Tax ConcessionsMechanization is necessary to remove the problems of agriculture sector. Government should give tax concession on imports of agricultural technologies to enhance the process of farm mechanization.9)Training of FarmersOur farmers are illiterate and ill trained so, their efficiencies are poor. Government should start special education programme for farmers and give them training about farming.10)Prices of Agricultural ProductivitiesSometimes, our farmers receive low prices of their crops. There is no proper effective price policy of government. Government should set reasonable prices of agricultural productions to develop the living standard of farmers.Conclusion:Being an agrarian country, agricultural sector of Pakistans economy is still backward. Use of modern techniques, provision of credit facilities, basic infrastructure and agriculture research facilities are needed to remove all the problems of agriculture sector.

CAUSES AND REMOVAL OF INDUSTRIAL BACKWARDNESS IN PAKISTANPosted by : Ahsan KhanMonday, 23 April 2012

DISCUSS THE MAJOR CAUSES OF INDUSTRIAL BACKWARDNESS IN PAKISTAN? WHAT ARE THE MEASURES TO REMOVE INDUSTRIAL BACKWARDNESS?Introduction:Backward industrial sector is the second major sector of the economyof Pakistan. Industrial sector plays an important role in the development process of any country. Manufacturing is secondary economic activity after agriculture.Origin & History:Since the latter part of the 18thcentury manufacturing as a human occupation got much importance. The modern concept of industry-manufacturing goods began in Great Britain in the late 18thcentury.PROBLEMS OR CAUSES OF INDUSTRIAL BACKWARDNESS:Causes of industrial backwardness may be divided into following four major categories:A. HISTORICAL CAUSES1)The Policy of British RulersThere were no favours for the Muslims due to British government, before independence in the sub-continent. British exported the raw material at cheaper rate to Britain so that the industrialization process in the sub-continent is to be stopped.2)Lack of Technical KnowledgeModern technology was introduced in the beginning of 20thcentury. British used the modern methods of production in Britain. But in sub-continent they used old method of production in all the manufacturing units. So, quality and quantity of production was very low it creates a bad view of our industry at world level.3)Industrial ShareBefore partition, there were 921 total industrial units in sub-continent. But out of 921 industrial units, Pakistan got only 34 industrial units that are just 3.69 % of total industrial share. Accordingly, we started our economy without industrial sector.

B. ECONOMIC CAUSES4)Disputable Industrial StrategyIt is a huge barrier in the way of industrial advancement. In the history of Pakistan, there was a policy of import substitution, in the early 1950s. There was a trend of industrialization in the 1960s. The policy of Nationalization was adopted in Z. A. Bhuttos period and Zia-ul-Haq adopted the policy of Privatization. The investors are always hesitant to make investment in such situations.5)Lack of Mineral ResourcesThere is acute shortage of mineral resources like oil and coal etc. These resources are necessary for industrial development. Due to lack of mineral resources, rate of industrial development in Pakistan is very low. Contribution of natural resources to GDP is 0.8 % in Pakistan.6)Low Investment and Low SavingsDeficiency of capital is one more major problem in the way of industrial development. Pakistan is fundamentally, underdeveloped and there is shortage of capital in the country. Industrial development is impossible without capital. Sufficient capital is a major condition for industrial development. Total investment and domestic saving are 13.4% and 9.5% of GDP respectively.7)Lack of Technical Know-howThere is lack of technical and skilled workers in the country due to high rate of illiteracy. Efficiency of labour is very low due to use of backward and orthodox technology. It is also a main cause of industrial backwardness.8)Lack of InfrastructureThe infrastructure for industrial development is necessary. There is shortage of infrastructure in Pakistan. For example, gas, electricity, transport, roads, railways network and communication are not available up to the requirement of industrial development.9)Inflationary PressuresRate of inflation is very high in Pakistan. The prices of imported machinery, oils, chemicals and spare-parts are rising very sharply. These factors contribute toward industrial backwardness. Very high rate of inflation is 14.1 % in Pakistan.10)Inadequate Industrial CreditThere is shortage of active financial institutions in Pakistan, which may provide credit services to industrialists according to their needs. Terms and conditions for the provision of credit are so tight.11)Unfavourable Industrial StructureThere are inequalities in industrial growth in Pakistan. Manufacturing of consumer goods is preferred over capital goods. No doubt, return on consumer goods is more but capital goods are necessary for economic development.12)Limited Market for Capital GoodsThe narrowness of domestic and foreign markets for the industrial goods is also a major hurdle in the way of industrial development. Small size of market is due to low purchasing power, low standard of goods and high cost of production etc.13)Lack of Industrial Consultancy FirmsThe investment in modern industries is not only costly but also risky. The capitalists are regularly withdrawn and hesitant in investing their capital in new industrial ventures. No doubt, deficiency of capital is a problem in Pakistan but the major problem is that existing capital is not properly utilizing due to lack of consultancy firms.14)Lack of Industrial ResearchResearch work for industrial sector is not satisfactory due to lack of technical education and shortage of technological universities in the country. Improvement in production and reduction in cost of production is impossible due to lack of research. Number of technical and vocational institutions in Pakistan is more than 1522 out of which 1140 are in public sector. These are providing training to 3,00,000 persons.15)Frequent Breakdown of ElectricityLike other power resources, electricity is also insufficient in Pakistan to meet the domestic needs. There is irregular supply and frequent breakdown of electricity in Pakistan. It is affecting the industrial production in the country. Growth rate of electricity and gas sector, in Pakistan is -21.1%.16)Economic SanctionsAdvanced countries are not willing in the improvement of backward countries. They have created various trade zones among themselves. As a result, they import and export among themselves. So, export volume of developing countries remains very low. On the other hand, developed nations have imposed various sanctions on import and export with poor nations.17)Global RecessionThe global economic recession in the last years adversely affected the growth of manufacturing sector. The donor countries usually interfere in our internal affairs and economic activities in the time of recession.18)Adverse Balance of PaymentAdverse balance of payment is a new cause of industrial backwardness. To make industrial development, we have to import modern machinery and advanced technology from other countries. But due to shortage of foreign exchange, we cannot import such items to make rapid economic development. Pakistan is facing the deficit of $ 8.3 billion in its balance of payment during 2010-11.A.SOCIAL CAUSES19)Lack of EducationPeople have no idea how to set up the industry due to high degree of illiteracy. They have no sufficient resources to start heavy projects. Efficiency of unskilled, untrained and illiterate labour is very low that causes in industrial backwardness. Literacy rate is just 57.7 % and expenditures on education sector are only 1.8 % of GDP, which is lowest in Asia.20)Faith & FateMan should work hard first and then put the result in the hands of ALLAH. Mostly, our people are irrational, they believe on faith and fate. They do not want to take the risks. They are working just to meet their basic needs. There is absence of commercial mind in Pakistan.21)CorruptionCorruption is a great evil, which is still increasing at very high rate in Pakistan. It is found in government as well as private sector also. Due to corruption, illiterate and dishonest workers come forward and cause industrial backwardness. Pakistan is at number 34that the table of the most corrupt nations and at number 1stin South Asia.22)Climate and WeatherClimate and weather conditions are also a big cause of backwardness in various industries. There is inter-relationship between industrial and agr