Akmal HussainWith inputs fromA.R. Kemal, A.I. Hamid, Imran Ali, Khawar Mumtaz, Ayub Qutub

POVERTY, GROWTH AND GOVERNANCE

PAKISTANNATIONAL HUMANDEVELOPMENTREPORT 2003

Pakistan

© United Nations Development Programme 2003

All rights reserved. No part of this publication may be reproduced,stored in a retrieval system, or transmitted, in any form or by any means,

electronic, mechanical, photocopying, recording or otherwise,without the prior permission of UNDP.

ISBN 969 8736 00X

The analysis and policy recommendations of the Report do not necessarily reflect the views of theUnited Nations Development Programme, its Executive Board or its Member States. The Report is an

independent publication commissioned by UNDP and authored byDr Akmal Hussain who deserves all the moral rights to this publication.

Typeset in TimesPrinted in Pakistan by

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Oxford University PressPlot No. 38, Sector 15, Korangi Industrial Area,

Karachi-74900, Pakistan.

The National Human Development Report(NHDR) for Pakistan argues that povertycan only be overcome through theempowerment of the poor, especially poorwomen. The Report recommends a multi-dimensional strategy for poverty alleviation,including alternative economic growthstrategies and governance reforms. TheReport highlights the need for an integrated,national strategy of public policy and action.

The NHDR presents the first applicationof the Human Development Index (HDI) atthe provincial and district levels. The HDIis a composite of living standard, longevityand education variables, and provides abaseline against which to measure the futuretrend in poverty, in Pakistan. This may becomplemented by the baseline of socialaudits under way that additionally includesubjective variables, including levels ofcitizen satisfaction, on devolution, health,education, police, justice, and water.

The Report recommends the formationof autonomous organizations of the poor,and further maintains that empowerment ofthe poor requires establishing institutional

Foreword

links between autonomous organizations ofthe poor and various tiers of localgovernment. In this connection, the Reportcan be discussed in the context of the LocalGovernment Ordinance 2001 that providesfor the organization of independent Citizen’sCommunity Boards equipped to access localcouncil development funds for theircommunity development projects to monitorthe services that are essential for the poor.This concept has the potential to bring abreakthrough on autonomous organizationfor the poor, participatory development,state-citizen relations at the local level, andcommunity empowerment.

I wish to congratulate the PrincipalAuthor for two years of hard work withgreat dedication. It is hoped that the firstNational Human Development Report willcontribute in a constructive fashion to theongoing public discourse on the reductionof poverty and the advancement of theMillennium Development Goals whichPakistan has endorsed.

Islamabad in March 2003

Onder YucerUN Resident CoordinatorUNDP Resident Representative

Acknowledgements

The poor in Pakistan in their songs anddances, as much as in the cadences of theirspeech celebrate their tradition thatsynthesizes Love and Reason. They affirmtheir humanity by giving of themselves totheir families and friends: ‘Burn the bloodof your heart for your friends’, runs a Sufisong. It is in this spirit that I undertook atwo-year labour of love in writing thisreport.

To start with thanks are due to Mr OnderYucer who set me off on this long and oftenpainful journey. His trust and affectioninspired me to give of myself for theresearch and writing of this report.

Special thanks are due to Dr Hafiz Pashafor his incisive comments and invaluablesuggestions on my preliminary analysis ofthe survey data. His encouragement at acritical moment in the NHDR work were agreat source of strength. Thanks are also dueto him and his staff at UNDP Headquartersfor their helpful comments on the first draft.

A profound debt of gratitude is owed toMr Omar Noman whose diligent reading ofthe first draft and detailed suggestions wereinvaluable in improving the quality of thefinal version of the report. Thanks are dueto Dr Socorro L. Reyes for her commentsand written input which led to a moredetailed analysis and policy suggestions onthe gender issue in the final version of thereport. I must also thank Ms Lena Lindberg,Dr Inayatullah, Mr Naeem Ahmad and theother staff members of the UNDP inIslamabad for their encouragement andcomments on an earlier draft.

I am grateful to Dr A.R. Kemal and histeam for the NHDR/PIDE Survey on thebasis of which I was able to present theanalysis in chapter 3. Thanks are also dueto Mr A.I. Hamid for doing the ImpactAssessment Spot Survey on the basis of

which I was able to write sections II, III andIV of chapter 4. I am grateful to ProfessorImran Ali for his analysis of the Pakistanarea in the eighteenth and nineteenthcenturies which is embodied in two boxesat the end of chapter 2 of the report. I amgrateful to Ms Khawar Mumtaz for herpaper on the gender perspective which washelpful for me in bringing the women’sdimension as a vital element in the policysection III of chapter 5 of the report. Thanksare also due to Mr Ayub Qutub for his workon the environment which enabled me towrite two paragraphs in sub-section V.11 atthe end of chapter 5.

I would also like to thank Mr Umar Zafar(who gave of his time voluntarily) andMr Wasay Majid for their assistance inestimating Human Development Indices.Particular thanks are due to Syed Khalid Aliwho gave of his time and energy on avoluntary basis to help compile newspaperbased reports on suicides.

Thanks are also due to Mr MuhammadAzeem for his indefatigable efforts in typingout successive drafts of each chapter. I amgrateful to Mr Ijaz Ali Qureshi for the longhours of voluntary labour and imaginationthat he deployed in developing theformatting design of the report. Thanks aredue to Savail Hussain for his helpfulsuggestions before the start of the researchand for reading through the final version.I shall always remember with gratefulness,the commitment and hard work of the staffof Sayyed Engineers who kept the companyrunning and thereby allowed me to take timeoff for two years, to research and write thisreport.

Finally thanks are due to my wife Rafiaand the children, Savail, Jalal and Abbasfor their patience, love and understanding.

Akmal Hussain

Contents

FOREWORD iii

ACKNOWLEDGEMENTS iv

OVERVIEW vii

INTRODUCTION xv

CHAPTER 1The Multifaceted Crisis of Economy and Society 1The Financial Crisis 3The Economic Crisis 5The Crisis of the Human Condition 10Conclusions 32

CHAPTER 2Economic Policy, Economic Structure and Poverty 35Introduction 37The Ayub Regime 1958-69: Economic Growth, Inequality and the Roots of Financial

Dependence 37The Bhutto Regime 1973-77: Investment, Growth and the Budget Deficit 41The Zia Regime 1977-89: Economic Growth and the Prelude to Recession 43The Deepening Crisis 1989-99: Economic Growth, Employment and Poverty

in the Decade of the 1990s 45Conclusions 47

CHAPTER 3The Structure of Poverty and the Process of Poverty Generation 51Introduction: A Conceptual and Empirical Perspective on Poverty 53Poverty and Modes of Financing Consumption 54Poverty Alleviation and Number of Earners in the Household 57Local Power Structures, Markets and Poverty 60Disputes and the Economic Cost of Seeking Resolution 68Poverty and Illness 69Micro-Enterprises and Poverty Alleviation 71Credit for the Poor: Where Does It Come From, Where Does It Go? 72Conclusions 75

CHAPTER 4Poverty Alleviation through NGOs 81Types of NGOs and the Participatory Development Approach 83Selected Issues in Micro-Credit 85Profiles of Participatory NGOs 89Comparative Impact Assessment of NGOs 92Strategic Issues of Up-scaling 94Enabling Apex Structure for Poverty Alleviation with NGOs 98Conclusions 100

CHAPTER 5A Strategy of Economic Growth and Empowering the Poor 103Introduction 105Structural Factors in Slow Growth and Rising Poverty 105Restructuring Growth for Faster Poverty Reduction 107Direct Attack on Poverty 111The Government’s Policy Measures 116Summary Policy Proposals 122Conclusions 125

REFERENCES 129

ANNEXURESChapter 1 131Chapter 2 149Chapter 3 155Chapter 5 177

vi POVERTY, GROWTH AND GOVERNANCE

OVERVIEW vii

I. THE SCOPE AND PRIMARYPROPOSITIONS

1. Pakistan is at a conjunctural moment inits history as it confronts a multifacetedcrisis of the human condition. At the end ofthe decade of the 1990s the governmentfaced financial bankruptcy, the realeconomy was in deep recession, poverty hadreached alarming levels and the institutionsof governance had eroded to a critical point.The National Human Development Reportshows how each of these facets isdynamically interlinked, to suggest that anintegrated and comprehensive strategy ofpublic action needs to be pursued toovercome the crisis.

2. The Report traces the emergence of aneconomic structure characterized by atendency for increasing loan dependence,slow GDP growth and growing poverty.This is done through a historical analysis ofthe pattern of economic growth, fiscaldeficits and the process of poverty creationin the context of the economic policy ofvarious regimes.

The patron-client model of governancepracticed first during the British Raj andlater in independent Pakistan involvedwinning political support through thetransfer of state resources in the form ofrents to a dependent economic elite. In asituation where government resources afterindependence were quite limited, such aform of governance may have been animportant factor in growing fiscal deficits,restricting the international competitivenessof manufacturing industry and increasingpoverty. Thus the failure to establish anddeepen democracy in the past may havebeen a factor in deepening poverty.

3. The Report for the first time presentsestimates of Human Development Indices(HDI) at the district and provincial levels inPakistan. The variations in HDI betweenprovinces and districts are indicative ofregional disparities in both the level of

economic growth as well as in terms ofhealth, education and quality of life.

4. The Report locates the problem ofpoverty in Pakistan in the practice ofgovernance on the one hand and thestructure of the economy on the other. Inthis context the Report proposes that at onelevel the challenge of overcoming povertyis to change the structure of the economy soas to achieve both a higher economic growthas well as an enhanced capacity of GDPgrowth for poverty reduction. At anotherlevel the challenge is better governance suchthat the poor particularly poor women, areempowered to actualize their potential for asustainable increase in incomes and a greatervoice in various tiers of government.

5. The Report represents a paradigmaticchange in the understanding of poverty andpolicies for overcoming it. The poor inPakistan cannot simply be seen as freeindividuals with certain adverse ‘resourceendowments’ making choices in more orless ‘free markets’. By contrast we arguethat poverty occurs when the individualhousehold in a fragmented community islocked into a nexus of power thatsystematically perpetuates poverty. TheReport for the first time shows how the poorface markets, state institutions and localstructures of power that discriminate againstthe poor and deprive them of a largeproportion of their actual and potentialincomes. Therefore overcoming poverty isnot simply a question of allocating morepublic funds, nor of addressing theirvulnerability through ‘risk management’ orproviding micro credit in a fragmented way,nor even of correcting ‘market distortions’associated with macroeconomic policy.Overcoming poverty means empowering thepoor to acquire greater control over theiruse of productive resources including theirown labour, and keeping their incomes andsavings in their own hands. It meansenabling the poor to get organized and haveinstitutionalized access over local

Overview

viii POVERTY, GROWTH AND GOVERNANCE

government, and participation in decisionsregarding the allocation of governmentresources at the local level, and the designand implementation of local governmentprojects for the poor. Overcoming povertymeans shifting the location of the poor inthe local power structures from beingvictims to active subjects in achievingequitable access over markets, and overinstitutions providing credit, health andeducation services.

6. Most studies on poverty in Pakistanhave examined the problem simply in termsof measuring the number of people belowcertain poverty lines. However if poverty isto be overcome what is required is tounderstand the processes of poverty creationand to identify the points of intervention inthe poverty process through which the poorcan be enabled to overcome poverty on asustainable basis. In the pursuit of thisobjective the NHDR study for the first timeundertook to establish a new data set to beable to conduct an analysis of the processesthrough which poverty is perpetuated andthe possible routes out of it.

Our survey data suggests that not only isthere a high prevalence of disease amongstthe poor but also that disease is a majortrigger that pushes households into poverty.The survey data also show that one of thekey factors which determines the ability ofa poor household to pull out of poverty iswhether or not the family has a secondearner and the level of her/his education.

7. The NHDR quantitative data set is newsimply because the underlying questionshave not been asked before. Some of thequestions raised are: How do distortedmarkets for inputs and outputs of goods andservices result in the loss of the actual orpotential income of the poor? If this isindeed the case then what is the magnitudeof the income loss? How do local structuresof power with respect to landlords, localadministrative officials, and institutions forthe provision of health, credit and disputeresolution deprive the poor of their income,assets and the fruits of their labour?

8. In exploring a strategy for overcomingpoverty the issue of the NGO sector as aform of public action for community basedpoverty alleviation initiatives was examined.The question investigated was whether these

alternative institutional forms of publicaction for overcoming poverty, can achievesufficient coverage of the poor populationand cost effectiveness, for a significantimpact on the overall poverty problem inthe country. In addressing this question theReport examines the institutional dynamicsand management issues involved inachieving rapid coverage and efficacy ofNGOs. A small sample spot survey was alsoconducted to investigate the impact ofvarious types of NGOs on their beneficiarieswith respect to nutrition, health andsustainable income increases.

9. On the basis of an analysis of theprocesses of poverty and the structure ofthe national economy, the Report articulatesthe outline of a three dimensional strategyfor overcoming poverty: (i) The firstdimension would consist of a majordevelopment programme that can providehealth, education and basic services to thepeople together with employmentopportunities. (ii) The second dimensionindicates an economic growth strategy thatcan achieve both faster growth and anenhanced capacity of GDP growth to reducepoverty. It would consist of providinginstitutional support to small scale exportbased industries in the manufacturing sector,high value added export products such asmilk, marine fisheries, fruits and vegetablesin the agriculture sector, and softwareexports in the services sector. (iii) The thirddimension presents the approach for a directattack on poverty through participatorydevelopment at the local level. This is aprocess of building autonomous communitybased organizations through which the poorparticipate at the village/mohallah level tobuild their human, natural and economicresource base for breaking out of the povertynexus. It specifically aims at achieving alocalized capital accumulation process. Thisis based on the progressive development ofgroup identity, skill development, localresource generation, increased productivity,incomes, savings and investment.

The Report examines the challenge andopportunity of local government institutionsand the pitfalls of implementingdecentralization reforms. It is proposed thatformal decentralization of administrativefunctions does not necessarily help the poor.Empowerment of the poor in this contextrequires establishing institutionalized links

OVERVIEW ix

between autonomous organizations of thepoor and various tiers of local government.

II. CHAPTER OUTLINES

Chapter 1: This chapter gives a brief snapshot picture of the multifaceted crisis offinance, economy and society. There hasbeen an unprecedented increase in thenumber of people in poverty andunemployment during the 1990s. Theacuteness of the economic condition of thepoor households is reinforced by extremelyinadequate coverage and quality of basicservices such as primary education andhealth, particularly for women. We haveindicated some of the structural features inboth the fiscal crisis as well as the crisis inthe real economy. Unless these structuraland institutional problems are addressed,growth is likely to remain slow and unstable,leading to still greater poverty in the future.

The impact of the crisis of poverty isparticularly acute on the most vulnerablesections of society: Women and children.The suffering of women is intensified asthey face social discrimination, genderinequality in the access over basic services,employment and income. The data presentedin this chapter show that a disturbingproportion of poor children face malnutrition and consequently increasedsusceptibility to disease. At the same timegrowing numbers of them instead of goingto school are going to work in hazardousoccupations where they are subjected toincreased risk of disease and physical injurydue to the work environment.

Poor households faced with hunger,frequent illness and seeing their childrenbeing physically and mentally mutilated, areconfronted with the added distress ofviolence, kidnapping and theft due to thepoor law and order situation.

It is clear therefore that in facing thismultifaceted crisis of the human condition,the inter related dimensions of the economy,institutions and governance would have tobe simultaneously addressed in an integratednational strategy of public action.

Chapter 2: This chapter presents a dynamicpicture of the multifaceted crisis through ahistorical analysis of economy, society andState over the last four decades. The analysisexamines the interplay between economicpolicy, the changing structure of the

economy, and the poverty process. Theseprocesses accelerated during the 1990s andbegan to be manifested in terms of acutepoverty, sharp slow down in the GDPgrowth, unsustainable fiscal deficits andintense pressures on governance.

The analysis shows how during the Ayubregime the mechanisms of rural povertyobservable today, were rooted in theincreased peasant dependence on thelandlord and asymmetric markets for inputsand outputs that resulted from a particularstructure of agricultural growth. Theanalysis also shows how the tendency forthe economy’s loan dependence so manifesttoday, may have originated in the economicpolicies adopted during this period. Thegovernment by providing State subsidieslocked the economy into an industrialstructure which was dominated by low valueadded industries incapable of generatingforeign exchange for the country.

The structural constraints to fiscal spacewere exacerbated as successive governmentsengaged in financial profligacy, andallocating State resources based onconsiderations of political patronage ratherthan economic efficiency. Nationalization ofindustries and the growing losses ofnationalized units laid the basis ofsubsequent fiscal haemorrhaging of thegovernment. During the Zia regime, Statefunds were directed to attempting theestablishment of a theocracy instead ofurgently needed investment in economicinfrastructure, and provision of health andeducation. Consequently when the cushionof foreign financial assistance waswithdrawn after the Afghan war, investmentand growth declined, budget deficitsincreased sharply and poverty intensified.

The decade of the 1990s was marked bya rapid deterioration in the institutions ofgovernance and a worsening law and ordersituation. This resulted in an adverseenvironment for private sector investmentand a lower level, and reduced efficiencyof, public sector expenditure. Consequentlyduring the decade of the 1990s the structureof GDP growth underwent further adversechanges as both capital and labourproductivity fell sharply together withdeclining employment elasticities. Areduction in capital productivity led toslower growth, while reduction in labourproductivity led to falling real wages. Asboth GDP growth and real wages fell,

x POVERTY, GROWTH AND GOVERNANCE

poverty tended to increase. This tendencywas reinforced by declining employmentelasticities. Thus deteriorating institutions ofgovernance and associated adverse changesin the structure of the economy in this periodlaid the basis for a rapid increase in povertyand unemployment.

Chapter 3: In this chapter we haveexamined essentially three questions on thebasis of our survey data: (i) Who are thepoor? (ii) What pushes them into poverty?and (iii) What are the mechanisms whichkeep them poor? For the first time theprocesses of poverty generation are analyzedon the basis of quantitative data. Theanalysis shows how asymmetric access ofthe poor to local markets and the functioningof local power structures deprives the poorof a large proportion of their actual andpotential income. We have also identifiedsome of the major economic and socialfeatures of the poor population. This is withrespect to the sources of income of the poor,the sources of their loans and level ofindebtedness, their major occupations, theirhealth status, the types and costs of healthfacilities they use and finally the types ofdisputes they face and the costs ofresolution. Some of the major conclusionsthat emerge from our empirical analysis areas follows:

(i) Poverty and Modes of FinancingConsumption: The total annualhousehold income of the extremelypoor is substantially less than theminimum food consumption require-ment. Consequently they are obligedto borrow money for foodconsumption. Since availability ofloans to the poor is extremely limitedthey suffer from acute nutritionaldeficiencies. Various forms of charityand remittances provide a significantsource for financing consumptionrequirements of poor households withprivate sector charity being three timesas large as that of the public sector.

(ii) Moving into and Out of Poverty: Thedata show that the income level of thesecond earner of a poor household isthe key determinant of the probabilityof moving out or falling into deeperpoverty. A predominant proportion ofmajor earners in poor households areunskilled workers engaged in low

productivity and low incomeoccupations.

(iii) Local Power Structures and thePoverty Process:

• Due to the landlords power theextremely poor tenant farmers areobliged to pay as crop share a largerproportion of their farm producecompared to non poor tenantfarmers. Consequently theextremely poor tenant householdsare likely to run out of theirhousehold stock of food grain andare obliged to purchase grain in themarket at the end of the productioncycle when market prices are high.Such households have to borrow forfood consumption or face starvation.

• Given their food budget deficitmany poor tenants are obliged tosupplement their incomes byworking part-time on the landlord’sowner cultivated piece of thelandholding. Given their superiorpower position, the landlords areable to pay a lower than marketwage rate to their dependent tenants.(The wage rates of the poor arealmost half the wage rates at whichthe non poor work for the same job).

• Due to inadequate access of thepoor over institutionalized credit theextremely poor households borrowfrom the landlords. The resultantincrease in leverage of the landlord,obliges many poor households towork for the landlord without anywage at all (57.4 per cent ofextremely poor households workedfor the landlord without wages).

• The tenancy arrangements of thepoor during the last decade haveworsened. Since the majority of theextremely poor are tenants (52.5 percent), any deterioration in tenancyarrangements would thereforeincrease poverty.

(iv) Income Loss Resulting from UnequalAccess over Input Markets: As manyas 28.2 per cent of the extremely poorpeasants have to buy their inputs fromthe landlord. The data show that onaverage the poor have to pay 11.8 percent more than the actual amountwhich they would have to pay in case

OVERVIEW xi

these inputs were procured from leastcost sources.

(v) Income Loss Resulting from UnequalAccess over Output Markets: An over-whelming proportion of output sold bythe poor farmers in the case of rice,cotton and wheat, is sold to traders andlandlords who constitute an importantelement in the local power structure inmany areas.

If the income loss resulting frommarket distortions in the input andoutput markets are taken into accounttogether with regular monthly/annualbribe payments to local administrationofficials, then the total income loss isas much as one-third of the householdincome of the poor peasant.

(vi) Poverty and Illness: Frequency ofillness and often its protracted naturewith resultant high cost of treatment,is an important factor pushing marginalhouseholds into poverty and poorhouseholds into deeper poverty. Onaverage 62 per cent of the poor in oursample were ill at the time of thesurvey. These findings are supportedby the National Health Survey ofPakistan data, which show thatamongst low income persons of45 years and above, 45 per cent sufferfrom poor health, and 80 per centsuffer from poor to fair health. Ourdata also show that most of the illrespondents have been suffering for aprotracted period. As many as 54 percent go to private medical practitioners,49.4 per cent travel on average morethan six kilometers for their medicalconsultation. The average medical coston the current illness was as much asRs.1,885.

(vii) Disputes and Poverty: 48.7 per cent ofreported disputes occur in poorhouseholds with the average cost ofmediation being Rs.18,333 which ishigher than the average annualhousehold income of the extremelypoor. Yet inspite of bearing thiscrippling burden (usually financed byborrowing money or selling livestock)the percentage of successful resolutionof disputes is only 38.5 per cent.

Chapter 4: In this chapter we haveexamined the issue of NGOs emerging asan institutional basis, (alongside the

government), for contributing to povertyalleviation. The total coverage of NGOscurrently, is relatively insignificantcompared to the magnitude of the poorpopulation. The NHDR/PIDE 2001 surveyfor example shows that of the total loansreceived by all categories of the samplepopulation, the percentage of loans receivedfrom NGOs was only 0.8 per cent in therural areas and 1 per cent in the urban areas.

We have examined the issue of theincrease in coverage of NGOs and theeffectiveness of their impact on the poor.This was done in the context of examiningdifferent types of NGOs, the comparativeeffectiveness of their impact on the poor,and key organizational and managementissues involved in up scaling. We alsoidentified the elements of an enablinginstitutional structure at the national level,which could accelerate the growth andenhance the effectiveness of NGOs.

The NHDR Spot Survey showed thatthere was considerable variation withrespect to the effectiveness of targeting ofthe poor between various NGOs. There wasalso considerable variation with respect tothe impact of NGO intervention on incomes,nutrition and health of the poor. This hasimplications for organizational forms andwork procedures.

Under the devolution programme a newstructure of local governments at the districtlevel is emerging, within which electedrepresentatives will be expected to under-take (amongst other functions) povertyalleviation at different tiers of localgovernment (district, tehsil, union counciland village levels). Within this structureNGOs that enable the formation ofautonomous organizations of the poor couldplay an important role in creating asystematic relationship between localgovernance and poor communities. Such arelationship would enable the poor toparticipate in identification andimplementation of development projects aswell as decisions related with access overmarkets and local power structures. It couldalso help broaden the social base of power,authority and the allocation and use ofpublic resources.

If NGOs are to play this role they wouldneed to function at the district level ratherthan across districts. This would benecessary if only to prevent centralized transdistrict and un-elected organizations to

xii POVERTY, GROWTH AND GOVERNANCE

impinge upon an elected decentralizedsystem. Equally important, the emphasisperhaps may need to shift from buildingcentralized NGOs in a large number ofdistricts with low intensity of coverage (andhigh overheads) in each, towards districtspecific NGOs which achieve full coverageof the poor population in the villages, unioncouncils and tehsils of that district. Thequestion therefore becomes how smallNGOs operating at the village or unioncouncil level can grow rapidly and costeffectively to achieve full coverage of thepoor population of that district. A relatedissue is how can organizations of the poorbe enabled to become genuinely auto-nomous on the one hand and link up withlocal governments on the other. We havediscussed some of the organizational andmanagement issues that would need to beaddressed in this context.

Chapter 5: In this chapter we have presentedan outline of an economic strategy toachieve growth with greater povertyalleviation. It has two broad thrusts: (1) Arestructured economic growth process thatwould not only enable a faster GDP growthbut enhanced poverty alleviation for givenGDP growth rates. (2) A direct attack onpoverty which would empower the poor byenabling them to organize themselves at thelocal level, to increase their productivity,incomes, savings and investment. Thus thepoor could achieve not only a sustainableincrease in their incomes but in so doingalso contribute to a faster and moreequitable GDP growth rate.

The strategy of a faster and restructuredgrowth is a four pronged one whichaddresses the main structural features of theeconomy. These features have beenidentified in our analysis in chapters 1, 2and 3 as being the major factors underlyingboth the slow down in GDP growth duringthe 1990s as well as its reduced ability toalleviate poverty. Therefore the growthstrategy would aim to: (a) change thecomposition of investment so as to generatefaster GDP growth for given levels ofinvestment. (b) Change the composition ofGDP so as to increase the employmentelasticity with respect to output and therebyenhance the employment generationcapability of economic growth. (c)Accelerate the growth rate of exports and(d) Enable a shift of the labour force from

low skill, low productivity sectors to higherskilled and higher productivity sectors inorder to achieve a faster increase in incomesof the lower income groups. In considerationof these strategic parameters the proposedfour-pronged growth strategy focuses on:

(1) Rehabilitation of the canal irrigationsystem so as to reduce transportationlosses of irrigation water and providemore water at the root zone of the crops.This would not only generate fasteremployment but also help farmers toincrease their yield per acre.

(2) Develop the ability to produce andexport milk, marine fisheries and highvalue added agriculture products suchas fruits, vegetables and flowers.Increased production and export ofthese products would not only put moreincome into the hands of the smallagricultural producers and fishermen,but also accelerate export growth.

(3) Develop infrastructure such as dams(for both increased reservoir capacityand cheap energy production), ports,national highways, railways, farm tomarket roads, and cheaper coal basedrather than furnace oil based energyproduction. This would not only createa facilitating environment for privatesector investment but also generateemployment and stimulate aggregatedemand.

(4) Accelerate the growth of small scaleenterprises (SSEs) which generate bothhigher output, employment and exportsfor given levels of investment. Thiscould be done by facilitating theestablishment in the private sector ofIndustrial Support Centres (ISCs).These would constitute the institutionalbasis for providing unit specific supportto SSEs, to enable them to shift tohigher value added products andaccelerate their growth.

The second broad thrust of the strategyis a direct attack on poverty. It is proposedto facilitate the growth of autonomousorganizations of the poor, especially ofwomen at the local level to enable the poorto achieve better access over input andoutput markets and increase theirproductivity and incomes on a sustainablebasis. An essential aspect of the emergenceof autonomous organizations of the poor,

OVERVIEW xiii

particularly of women is to enable aninstitutionalized relationship of the poorwith different tiers of local government. Tothe extent that this is achieved, it would notonly enhance the ability of localgovernments to work for the poor but alsobroaden the basis of power and decisionsrelated to resource allocation and resourceuse.

III. OVERCOMING THE NATIONALCRISIS: KEY POLICY AIMS

• Emergence of a modern, tolerant,democratic polity as envisaged bythe Quaid-i-Azam Muhammad AliJinnah. This would be the enablingpolitical framework for overcomingthe crisis of poverty, growth andgovernance.

• Re-establishing the writ of the Stateto control violent extremisttendencies. This is a necessarycondition for investment and growth.

• Empowering women and removingthe bias against them in law, publicpolicy and social norms. This isnecessary to unleash the creativepotential of society to overcome thenational crisis.

• Achieve a higher and restructuredGDP growth that can enable fasteremployment and productivity growthof the poor.

• Change the structure of power at thelocal level in favour of the poor. Thisis necessary to reduce systematicincome losses of the poor withindistorted markets for inputs, outputsand in institutions for health,education, credit and disputeresolution.

• Facilitate the building of autonomousorganizations of the poor, parti-cularly poor women and establishinstitutionalized linkages with localgovernments. This is necessary to

enable participation of the poor indecisions regarding local resourceallocation, project identification andimplementation.

• Provision of low cost and competenthealth care (especially preventivehealth care) to the poor. Highfrequency of disease, and high costof medical treatment togetherconstitute a major trigger that pushesmarginal households into poverty,and poor households into deeperpoverty.

• Improved quality and coverage oflow cost health and family planningservices to women. This is necessaryto reduce fertility rates and improvehealth of mothers and children. Thiswould help increase productivity andincomes of mothers as well as thechildren when the latter reachadulthood.

• It is important to achieve thegovernment’s target of stabilizing thepopulation to a level of 204 millionwith a replacement fertility rate of2.1 children per family by the year2023. This is crucial for a fasterincrease in per capita incomes.

• Sharply increase the literacy rate andthe coverage and quality ofeducation. This can be an importantfactor in increasing the earnings notonly of the main earner but also ofthe second earner, which (our surveyshows) is crucial to pulling ahousehold out of poverty.

• A large number of children frompoor families are working inhazardous occupations which arecausing repeated injuries, chronicdiseases, physical and mentaldeformities and in some cases death.An administrative mechanism forending child labour in hazardousindustries urgently needs to be putin place.

OVERVIEW xv

Pakistan is at a conjunctural moment in itshistory as it faces a multifaceted crisis. Atthe end of the decade of the 1990s, thegovernment faced financial bankruptcy, thereal economy was in deep recession, therewas an unprecedented increase in poverty,and the institutions of governance haderoded to a point where the structure of theState was threatened. As a contribution tothe on going effort to overcome this crisisof the human condition in Pakistan, TheNational Human Development Report(NHDR) aims to address three questions:(1) What is the nature of this crisis? (2) Howdid it reach this point? (3) How can it beovercome?

In examining the first question, we haveidentified the structural features of theeconomy which have given rise tonarrowing fiscal space, slow GDP growthand rising poverty.

The second question is examined byanalyzing in historical perspective theinterplay between the deterioratinginstitutions of governance, the forms andpractice of power, the structure of theeconomy, and the tendency for growingpoverty.

Introduction

In addressing the third question a newperspective on the nature and dynamics ofpoverty has been proposed and a detailedanalysis conducted on the basis of a newdata set. Most poverty studies in Pakistanhave sought to estimate the magnitude ofpoverty in terms of the percentage of thepopulation below variously defined povertylines. However, if poverty is to be overcomewhat may now be important is to understandthe processes of poverty creation and toidentify the points of intervention in theprocess through which the poor can beenabled to break out of the nexus of povertyon a sustainable basis. The NHDR thereforeinvestigates the processes through which thepoor lose their actual and potential income.In this context the specific features of localpower structures, and asymmetric marketsfor inputs and outputs are investigated bymeans of quantitative and qualitative data.On the basis of the analysis of the structureof the economy, the nature of governanceand the dynamics of poverty, policies forovercoming the crisis are identified. Thesepolicies are located in a restructuredeconomic growth process, reforms in theinstitutions of governance and autonomousorganizations of the poor.

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 1

CHAPTER 1

THE MULTIFACETED CRISIS OFECONOMY AND SOCIETY

Photograph by Zafar Ahmed

The boatman stands to declareThat the ship is in the midst of a storm

√ SHAH HUSSAIN17th Century Punjabi Sufi Poet (Translation)

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 3

CHAPTER 1

The Multifaceted Crisis of Economy andSociety

Pakistan today stands at the cusp of history,between a crisis of the economy and society,and the possibility of overcoming it. In thissection some of the major dimensions ofthis crisis will be briefly examined toindicate some of the broad areas in whichaction can be undertaken to address theproblem.

Never before in Pakistan has there beensuch a deep and protracted economicrecession, such a sharp increase in povertyand such a critical debt-servicing burden.For example:1 (a) GDP growth declinedfrom 6.1 per cent during the 1980s to 4.2 percent during the 1990s; (b) growth of thelarge scale manufacturing sector declinedfrom 8.2 per cent during the 1980s to 4.4 percent during the 1990s; (c) the percentage ofpopulation below the poverty line increasedfrom 18 per cent in 1987 to 34 per centtoday; (d) debt servicing as a percentage offoreign exchange earnings has increasedfrom 18 per cent in 1980 to about 40 percent in the year 2000.

Let us examine in turn the financial,economic and human dimensions of thecrisis in Pakistan.

I. THE FINANCIAL CRISIS

The financial crisis is a manifestation of theinter-play between problems of governance,the decay of institutions, and the adversestructure and slow growth, of GDP.

The essential feature of the problem inthe context of economic revival, is that thegovernment has severe fiscal constraints toundertaking major initiatives for stimulatingthe economy or directly attacking poverty.This is illustrated by the fact that in the year2000,2 60.3 per cent of government revenuewent into debt servicing. Successivegovernments had to finance an increasingpercentage of current expenditure withloans. The key element in the financial crisistherefore is the problem of debt.

As the Report of the Government’s DebtManagement Committee points out,Pakistan has a serious debt-servicing

problem in both external debt as well asoverall public debt. External debt,obligations increased from US$10 billion inJune 1980 to a peak of US$43 billion inMay 1998. Debt servicing as a percentageof foreign exchange earnings rose even moresharply from 18.3 per cent in 1980 to 40 percent in 1999.3 The rapid increase in the debtservicing burden reflected the increasingweight of higher interest and short termloans in total debt, especially after thesubstantial high cost borrowing followingthe 1996 foreign exchange crisis. In 1998 asecond foreign exchange crisis occurredafter economic sanctions associated withPakistan’s underground nuclear tests. At thisstage the government found it impossible tomeet its debt servicing obligations in viewof the fact that short-term debt could nolonger be rolled over, and the foreignexchange reserve was extremely low. Thegovernment responded by freezing theforeign currency deposits held in Pakistanby individuals. Subsequently the govern-ment sought help from the Paris Club toreschedule debt payment. Nevertheless,Pakistan’s external debt still stood at US$35billion in the year 2000.4

External debt undoubtedly is the morepressing problem, yet the overall public debtrepresents an even more serious problemfrom a longer-term perspective. Total publicdebt (external plus domestic) increased fromRs.155 billion to Rs.3,196 billion, duringthe period 1980 to 2000 (see Table 1). Themagnitude of this burden for the economy

The financial crisis is amanifestation of the inter-play between problems ofgovernance, the decay ofinstitutions, and the adversestructure and slow growth,of GDP

The essential feature of theproblem in the context ofeconomic revival, is that thegovernment has severefiscal constraints toundertaking majorinitiatives for stimulatingthe economy or directlyattacking poverty

Table 1 Total Debt and Debt Servicing Burden (Rs. in Billion)

Debt Payable in Rupees Mid Mid Mid Mid Mid1980 1990 1996 1999 2000

Debt Payable in Rupees 59.8 373.6 903.9 1389.3 1571.6Debt Payable in Foreign Exchange 95.6 428.5 992 1581.9 1624.5Total Public Debt 155.4 802.1 1895.9 2971.2 3196.1Public Debt Service as % of Revenue 19.6 35.7 46 61 60.3External Debt Service as % ofForeign Exchange Earnings 18.3 23.3 31.0 40.2 39.5

Source: A Debt Burden Reduction and Management Strategy Report, Government of Pakistan,March 2001 (Various Tables).

4 POVERTY, GROWTH AND GOVERNANCE

is indicated by the fact that public debt as apercentage of GDP increased from 66.3 percent in 1980 to 100.7 per cent by the year2000. The debt-servicing burden of totalpublic debt as a percentage of governmentrevenue increased from 19.6 per cent in1980 to 60.3 per cent in 2000.5

Even though these figures of public debtand debt servicing represent a crushingburden, yet they understate governmentliabilities. The official public debt figuresdo not make any provision for contingentliabilities which might arise in theforeseeable future. These include guaranteesto IPPs and other private and public bodies,unfunded losses of public corporations suchas WAPDA, KESC and Pakistan Steel Mills,and the losses of public sector owned bankson account of bad loans.6

The rapid build up of debt, while it maybe rooted in poor governance in Pakistan,

has had significant adverse implications forGDP growth and poverty. Governments inthe past had spent an increasing proportionof loans on non-development spending(current expenditure), to prop up their powerbase. The excess of current expenditure overgovernment revenue increased dramaticallyin the last two decades. During 1980-85 thegovernment revenue exceeded currentexpenditure by Rs.2.3 billion. By 1999-2000current expenditure was in excess ofgovernment revenue by as much as Rs.96billion.

Given the structure of governmentalpower, successive regimes when faced withfiscal pressures, chose to cut downdevelopment expenditure rather thanexpenditure on government itself. In factcurrent expenditure increased so sharplyduring 1980-1999 that despite of a hugereduction in development expenditure, fiscaldeficits did not decline significantly.

Another feature of Pakistan’s fiscal crisis,that is located in the problem of governanceis that not only is the tax base narrow (taxrevenue/GDP ratio was only 12.7 per centin 1999-2000), but about 75.6 per cent ofrevenues come from indirect taxation7 whichis regressive with respect to incomedistribution. The persistent failure ofgovernments to use tax revenues for thepeople combined with corruption in the taxcollection system, has contributed toundermining the trust between thegovernment and tax payers.

The debt-servicing burdenof total public debt as apercentage of governmentrevenue increased from19.6 per cent in 1980 to60.3 per cent in 2000

Chart 1 Debt Servicing Burden

70.0

60.0

50.0

40.0

30.0

20.0

10.0

–Mid-1980 Mid-1990 Mid-1996 Mid-1999 Mid-2000

Year

Public Debt Service as % of RevenueExternal Debt as % of Foreign ExchangeEarnings

Pub

lic D

ebt

(% o

f R

ev)/

Ext

erna

l Deb

t(%

of

For

eign

Exc

hang

e E

arni

ngs)

Chart 2 Total Debt Payable

3,500.0

3,000.0

2,500.0

2,000.0

1,500.0

1,000.0

500.0

–Mid-1980 Mid-1990 Mid-1996 Mid-1999 Mid-2000

Year

■◆

Total Public Debt

Debt Payable in Rupees

Debt Payable in Foreign Exchange

Deb

t (B

illio

n R

upee

s)

■■

■

■■◆

◆

◆

◆ ◆

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 5

The institutional failure to broaden thebase of direct taxes has meant that thegovernments have been under pressure togenerate more revenues from indirect taxessuch as regulatory duty and withholding tax.The impact of the recent sales tax andturnover tax is also essentially indirect sinceit is passed on to consumers. Indirect taxesimpact the lower income groups more thanthe higher income groups. For exampleevidence on the increase in the incidence oftaxation by income group over the period1987-88 to 1990-91 shows that the increasein the tax burden as a percentage of incomewas highest at 6.8 per cent for the lowestincome group (less than Rs.700 per month)and lowest at minus 4.3 per cent for thehighest income group (over Rs.4,500 permonth). Thus over time the tax burden onthe poor has increased and on the rich hasdeclined.8

II. THE ECONOMIC CRISIS

Underlying the financial crisis is adeepening crisis of the real economy. Thegrowth rate of GDP has declined sharplyfalling from an average of 6.3 per cent inthe 1980s to an average of 4.2 per cent inthe 1990s. At the same time, poverty hasincreased at a pace unprecedented inPakistan’s history. This has contributed tosharpening social polarization andincreasing the stress on institutions at a timewhen they have already been weakened bya historical process of institutional decay.(The interplay between the process ofinstitutional decay, and the economic andpolitical processes needs to be analyzed, butis outside the scope of this Report).

The declining trend in GDP growth hasbeen accompanied by three adversestructural features of economic growth inthe 1990s which may have not onlyaccentuated poverty but also increasedPakistan’s financial fragility with respect tothe budget and balance of payments deficit:(i) Increased instability of GDP growth,fuelled primarily by a much greateramplitude of fluctuations in the output ofthe crop sector.9 This has not only fuelledpoverty but in a situation of slow overallgrowth of exports, unstable growth inagriculture exports has induced a fragilityin the balance of payments. (ii) Decliningemployment elasticities of output in both

industry and agriculture, thereby reducingthe employment generation capability of theeconomy for given GDP growth rates.10

(iii) Declining labour productivity in bothagriculture and industry leading to theobserved decline in real wages of casualworkers, which is the predominant form ofhired labour in Pakistan.11

Let us now briefly discuss the three majorelements that underlie the slow down inGDP growth and the crisis in the realeconomy: (a) The crisis in agriculture (b)The water crisis. (c) The crisis in industry.

II.1 T HE CRISIS IN AGRICULTURE

The pattern of growth in the crop sectorduring the 1990s is characterized by a slowdown in the annual growth rate of majorcrops, a declining growth rate of factorproductivity and an increased instability ofoutput growth. For example the averageannual growth rate of major crops declinedfrom 3.34 per cent during the 1980s to 2.38per cent during the 1990s (see Table 2). Atthe same time, the frequency of negativegrowth in some of the major crops duringthe last seventeen years has been significantlyhigher than in the preceding two decades. Ifwe consider wheat, which is by far thelargest crop (it accounts for over 30 per centof value added in major crops), we find thatthe average annual growth rate has beensteadily declining since the onset of the‘Green Revolution’.12 (See Tables 2 and 3).

The slow down in the growth of yieldsper acre gives cause for concern in view ofthe fact that it has come at a time when theextensive margin in the crop sector has beenreached and further growth will have todepend on increasing the efficiency of inputuse.

Under conditions in which higher inputuse per acre is required to maintain yields,subsistence farmers with few resources arelikely to suffer a greater than averagedecline in yields compared to large farmers.At the same time due to lack of savings tofall back upon, poor farmers are relativelymore vulnerable to bad harvests underconditions of unstable growth.13

Consequently, slower and more unstablegrowth would be accompanied by atendency for growing inequality in ruralincome distribution, together with increasedpoverty. The available evidence suggeststhat this is indeed the case in Pakistan.

Over time the tax burdenon the poor has increasedand on the rich hasdeclined

The pattern of growth inthe crop sector during the1990s is characterized by aslow down in the annualgrowth rate of major crops,a declining growth rate offactor productivity and anincreased instability ofoutput growth

6 POVERTY, GROWTH AND GOVERNANCE

Table 7 (b) shows the Gini index (which isa measure of the degree of inequality) hasincreased from 26.85 in 1992-93 to 30.19 in1998-99. At the same time, the percentageof population below the poverty line hasincreased from 17 per cent in 1986-87 to26.3 per cent in 1996-97. (It increasedfurther to 32.2 per cent by 1998-99).

Underlying the phenomenon of slowoutput growth of major crops together withincreased instability of growth are fivemajor institutional constraints:14

(a) Reduced water availability at the farmgate due to poor maintenance of theirrigation system and low irrigationefficiencies of about 37 per cent. (Fora more detailed discussion, see Section

II.2 of this chapter). While theavailability of irrigation water has beenreduced, the requirement of water atthe farm level has increased due toincreased deposits of salts on the topsoil and the consequent need forleaching. For example, according tothe government about 33 million tonsof salts are annually brought into theIndus Basin Irrigation System, out ofwhich 24 million tons are beingretained.15

(b) What makes improved efficiency ofirrigation even more important is thatthe extensive margin of irrigatedacreage has been reached, so that futureagricultural growth will have to rely onimproving the efficiency of water useand other inputs. Thus the rehabilitationof Pakistan’s irrigation system forimproving irrigation efficiency hasbecome a crucial policy challenge forsustainable agriculture growth.

(c) It is well known that high yieldingvarieties of seeds gradually lose theirpotency through re-use, changing microstructure of soils, and changing ecologyof micro organisms in the top soil.Therefore, breeding of more vigorousseed varieties adapted to localenvironmental conditions and theirdiffusion amongst farmers through aneffective research and extensionprogramme is necessary. Yet there isno organized seed industry in Pakistanto meet the needs of farmers for thesupply of vigorous varieties of seedseven in the major crops. In wheat, forexample, the average age of seeds is11 years compared to an average of7 years for all developing countries. Ithas been shown that there was a sharpdecline in growth of total factorproductivity in Pakistan after 1975.Pakistan’s lower factor productivitygrowth compared to India, can beattributed to the poorer level of researchand extension in Pakistan compared toIndia.16

(d) A new dimension to the imperative ofimproving research capability in the cropsector is indicated by the possibility ofdeclining yields per acre related withglobal warming. Given the sensitivity ofwheat seed to temperature increase, evena 2-degree centigrade increase in averagesummer temperatures could mean an

Table 2 Average Annual Growth Rates of Major Crops*: 1980-97

Period 1980-81 to 1989-90 1990-91 to 1996-97

Average Annual Growth (%) 3.34 2.38

Note: *At constant 1980-81 factor cost.

Source: Federal Bureau of Statistics, Government of Pakistan.

Table 3 Wheat Average Annual Growth Rate of Output and Yield/Acre and the Frequency of Negative Yield Increase,1960 to 1996

Period Average Average Frequency ofAnnual Growth Annual Growth Negative YieldRate of Output Rate of Increase

(%) Yield/Acre (Compared to(%) Previous Year)

1960-61 to 1969-70 7.42 4.38 31970-71 to 1979-80 4.43 3.18 21980-81 to 1989-90 3.30 2.06 41990-91 to 1996-97 2.33 1.81 3

Source: Pakistan Economic Survey 1997-98, Government of Pakistan, Finance Division, EconomicAdvisor’s Wing, Islamabad.

While the availability ofirrigation water has beenreduced, the requirementof water at the farm levelhas increased due toincreased deposits of saltson the top soil and theconsequent need forleaching

Chart 3 Average Annual Growth Rates of Major Crops (1980-97)

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.001980-81 to 1989-90 1990-91 to 1996-97

2.38

3.34

Ave

rage

Ann

ual G

row

th (

%)

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 7

absolute yield decline of between 10 to16 per cent during the twenty-firstcentury.17 With a 2.8 per cent populationgrowth, even a decline of 5 per cent inyield per acre associated with globalwarming, could mean serious fooddeficits for Pakistan. It is, therefore,necessary to develop heat resistantvarieties of food grains.

The current ineffectiveness ofagriculture research and poor diffusionamongst farmers is a cause for concern.This is particularly so in a situationwhere future agriculture growth andlabour absorption will have to dependmore on input efficiency than onenlargement of irrigated acreage andinput intensification which were themajor sources of agriculture growth inthe past.

(e) One of the most important constraintsto sustainable growth in the crop sectoris the degradation of soils, resultingfrom improper agricultural practicessuch as: (i) lack of crop rotation andthe resultant loss of humus in the topsoil; (ii) stripping of top soil andresultant loss of fertility associated withover grazing; (iii) water erosion alonghill sides and river banks due to cuttingdown of trees and depletion of naturalvegetation. According to one estimate,over 11 million hectares have beenaffected by water erosion and 5 millionhectares by wind erosion.18

II.2 T HE WATER CRISIS

As Sandra Postel has argued19 a key lessonof history is that while irrigation has been apowerful tool of human advancement for7,500 years, yet improper management ofwater resources has caused most irrigationbased civilizations, from Mohenjo-Daro toancient Mesopotamia, to perish. As thepeople of Pakistan stand at the threshold ofa new millennium, the question is: Shall ourfate be any different? In this section we shallidentify the key features of Pakistan’s watercrisis so that we may take the stepsnecessary to survive and prosper.

II.2.1 Irrigation and Agriculture: Perhapseven more than in the period of the Mohenjo-Daro civilization, irrigation today is vital tosustaining Pakistan’s agricultural productionand the economy as a whole. Irrigated land

supplies over 90 per cent of agriculturalproduction, while agriculture in turn fulfillsmost of the country’s food requirements,contributes 26 per cent of the GDP andemploys 54 per cent of the labour force.Agriculture is also a source of raw materialsfor major domestic industries particularlycotton products which account for 80 percent of the value of exports.

Even though irrigation is the life bloodof Pakistan’s agriculture and indeed itseconomy, yet successive governments in thepast have allowed Pakistan’s irrigation anddrainage systems to deteriorate to a criticallevel.

Poor maintenance has resulted in thegradual deterioration in the canal irrigationsystem whose carrying capacity of water hasbeen reduced due to lack of adequate de-silting and crumbling of canal banks.Delivery efficiency (from the canal head tothe root zone of crops) is now as low as 35to 40 per cent.20 The annual diversion ofwater from the rivers into the surfaceirrigation system is about 93 million-acrefeet out of which only about 37 million-acre feet actually reaches the root zone ofcrops. The remaining 56 million-acre feet islost to canal seepage, spillage, breaches andwatercourse losses.

Loss of such a large part of the surfacewater not only deprives farmers of waterfor crops but also contributes to waterlogging and salinity.

Chart 4 Wheat: Ave. Annual Growth Rates of Output & Yield/Acre(1960-1996)

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

4.43

3.18 3.30

2.06 2.331.81

OutputYield/Acre

7.42

4.38

Ave

rage

Ann

ual G

row

th R

ate

(%)

1960

-61

to19

69-7

0

1970

-71

to19

79-8

0

1980

-81

to19

89-9

0

1990

-91

to19

96-9

7

8 POVERTY, GROWTH AND GOVERNANCE

II.2.2 Elements of the Water Crisis:21 Someof the major problems of irrigation inPakistan may be identified as follows:

• Water Scarcity due to InadequateReservoir Capacity

Pakistan’s river flows are highly seasonal(85 per cent of annual flows are in thesummer season). Yet Pakistan does nothave adequate reservoir capacity in itsirrigation system to store waters at peakflows. Consequently cropping intensity isexceptionally low. (For example out ofthe 16 million hectares of irrigated landonly 5.7 million hectares, 35 per cent aredouble cropped).

• Low Delivery Efficiency of Irrigation

Due to poor maintenance, the averagedelivery efficiency is only 35 to 40 percent from the canal head to the root zone,with most of the losses occurring in thewatercourses. This huge loss of surfacewater is a major factor in creating waterlogging and salinity. A significantproportion of the water lost through suchseepage from the irrigation system flowsinto saline groundwater reservoirsthereby making it impossible for re-useby tubewell irrigation. Since Pakistan’sagriculture depends almost completely onirrigation, in the face of increasingshortages of water in the future,improvement in the delivery efficiencyof irrigation is crucial to sustainingagricultural production.

• Problem of Drainage, Water Loggingand Salinity

The surface drainage problem of theIndus Plain is inherent in its flattopography, and the associated lack ofnatural drainage channels and poroussoils. This problem is compounded byconstruction of roads, railways and floodembankments without adequate provisionin the design to facilitate natural drainageflows. Under these circumstancesirrigation without adequate drainageleads to rising water tables and hencesalinity and water logging. Therefore itis vital for sustainable agriculture toconstruct adequate drainage systems forthe removal of excess water and salt from

the soil. During the 1960s a number ofSalinity Control and ReclamationProjects (SCARPs) were undertaken.Despite these efforts about 30 per cent ofthe Gross Commanded Area (GCA) iswater logged and 14 per cent is saltaffected.

• Inequitable Distribution of IrrigationWater

Contrary to the assumption in the originaldesign of the irrigation delivery system,in reality, water does not reach users atthe tail end of the system. This is to alarge extent due to reduced carryingcapacity of canals resulting frominadequate maintenance. Illegal pumpingfrom canals by big landlords who are ableto bribe or pressurize the local irrigationdepartment into silence, adds to theinequality of distribution.

• Inadequate Operation and Maintenanceof the Irrigation System

Pakistan’s irrigation and drainagesystems have been deteriorating becauseof inadequate maintenance. This is partlydue to inadequate budgetary allocationsfor this purpose associated with financialmismanagement of successive govern-ments since the 1990s. Perhaps equallyimportant is the deterioration ofinstitutions responsible for maintenanceof the irrigation system. The gap betweenoperations and maintenance (O&M)expenditure requirements and recoveriesthrough water charges, has now reached57 per cent for Pakistan as a whole, andover 80 per cent for NWFP andBalochistan.

II.3 T HE CRISIS IN INDUSTRY

Pakistan’s manufacturing sector has twostructural weaknesses which constrain itslong term growth and its capacity togenerate adequate export earnings: (1) Sincethe last four decades the structure of themanufacturing sector has failed to achievesubstantial diversification into non-traditional, high value added industries.Even in 1990-91, after three decades ofindustrial growth, textiles and foodindustries still contributed 40.4 per cent ofvalue added in the manufacturing sector,

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 9

compared to 48.5 per cent in 1959-60. (Seechapter 2, Annexure Table 3). Lack ofdiversification is even more acute in exports.As Annexure Table 4, chapter 2 shows,textile and related exports constituted 50 percent of total exports in the decade 1988-99,compared to 30 per cent in the earlier decade1960-70. Furthermore, the textile industryitself is concentrated in the low value addedend of the product spectrum, which hasrelatively low growth, and low exportprospects in the global market. (2) Thetextile industry has since the 1960s sufferedfrom inefficiency and a dependence onvarious forms of government protection. Forexample if value added in the manufacturingsector is measured at world prices itscontribution to GDP is much smaller thanappears to be the case in official statistics.Earlier in the 1960s, in terms of world pricesthe textile industry was estimated to havenegative value added, even though textilemanufacturers were earning large profits inrupee terms, due to various forms ofprotection and government subsidies.22

However, even in 1990-91 when some ofthe market distortions had already beenremoved, more than 30 per cent of valueadded could still be ascribed to protection.23

The concentration of the manufacturingsector in the low value added end of textileindustry has given Pakistan’s exports astructural propensity for slow growth. It hasalso subjected exports to declining terms oftrade on the one hand and induced atendency for low industrial wage rates onthe other.

The fact that the problem of low realwages of industrial workers as well asPakistan’s chronic balance of paymentsproblem (hence dependence on foreigncapital) are both rooted in the structure ofindustry, raises the following question: Whyhas Pakistan’s manufacturing sector failedto diversify so far, into high value addedand dynamic new industries? The answerperhaps lies in the nature of governance inPakistan on the one hand and the historicalnature of Pakistan’s entrepreneurial elite onthe other. These issues are explored in theensuing chapter 2.

The current crisis in the large scalemanufacturing sector, lies in the sharp slowdown in growth: While historically it wasgrowing at 8 per cent per annum, during the1980s, it fell to 5.5 per cent in the 1990sand is now growing at less than 3 per cent.

The adverse effect on employment of thedeclining growth rate of output has beenaccompanied by a sharp decline inemployment elasticity of manufacturingoutput from 0.17 in the decade of the 1980sto minus 0.10 in the 1990s. At the sametime the efficiency of capital use in themanufacturing sector has declined (capitalproductivity declined from an index of 155.8in the early 1990s to an index of 135.6 inthe late 1990s). This implies that for giveninvestment rates the growth rate of outputwould be lower than before. Consequentlythe adverse effect on output growth of theobserved sharp decline of investment in themanufacturing sector would be accentuated.(Investment in manufacturing industries hasdeclined from 4.7 per cent of the GDP, inthe early 1990s, to 2.7 per cent of the GDPin the late 1990s.)24

Given the weaknesses in the structure ofthe manufacturing sector (indicated above),this decline has occurred due to two sets offactors that emerged in the 1990s:

(1) A changed international environmentcharacterized by: (i) Reducedavailability of cheap credit to localindustrialists as concessionary foreigncapital flows began to dry up. (ii) Achanged pattern of global demand forindustrial products with a shift to highervalue added, and knowledge and skillintensive, products. Pakistan’s industrialstructure was not positioned to respondquickly to these changed marketconditions.

(2) An erosion of the domestic frameworkwithin which investment and growth issustained. The major factors in thisregard are: (i) Sharply increasedviolence with the emergence of armedmilitant groups of religious extremists.There were frequent cases ofprofessionals, traders and entrepreneursbeing murdered and kidnapped forransom during the 1990s. The resultantsense of insecurity of life and propertywas not conducive for investment.(ii) Political instability combined withfrequent changes in the policyenvironment. (iii) Exceptionally highinterest rates and shortage of credit toentrepreneurs due to high inter-mediation costs of banks and imprudentlending by nationalized banks onpolitical grounds in the past.

The concentration of themanufacturing sector in thelow value added end oftextile industry has givenPakistan’s exports astructural propensity forslow growth. It has alsosubjected exports todeclining terms of trade onthe one hand and induced atendency for low industrialwage rates on the other

10 POVERTY, GROWTH AND GOVERNANCE

(iv) Astronomical electricity tariffs,partly due to high distribution losses byWAPDA (estimated at 25 per cent ) andpartly due to an ill-advised shift intoexpensive thermal electricity generationunits. (The per unit cost of thermalpower generation in Pakistan is Rs.4.75per unit, compared to only Rs.0.75 perunit for hydro electric power). (v) Lackof facilities for training skilled personsespecially in the high skill sectors suchas electronics and software develop-ment. (vi) An inadequate technologicalbase through which industry canrespond in a flexible way to changingpatterns of demand. (vii) During thedecade of the 1990s, there was anadverse policy environment in whichthe tariff structure and export incentiveswere distorted against entrepreneurswho were seeking to improve qualityand productivity for export growth.(viii) In a number of cases low qualityand cheap counterfeit copies of brandedPakistani manufactured products havebeen imported into the country. Failureto stop this illegal dumping has also hada significant adverse effect onPakistan’s manufacturing industry.

Slower growth in the large scalemanufacturing sector in the 1990s wasaccompanied by slow growth in an exportsector where there was continuedconcentration in the low value added sector,which suffers from declining terms of trade.Consequently there has been continuedpressure on the balance of payments duringthe 1990s that was a constraint to the overall GDP growth.

III. THE CRISIS OF THE HUMANCONDITION

In the three decades preceding the 1990s,while Pakistan’s GDP growth rate and percapita income bore favourable comparisonwith low income countries as a whole, itssocial indicators did not. This suggests thatboth the content of GDP growth as well asof governance were lacking in humandevelopment. In the 1990s, the humancondition in Pakistan deteriorated to analarming level as the institutional structureof governance decayed rapidly. The GDPgrowth decline combined with adverse

changes in the structure of GDP, to inducea sharp increase in poverty. In chapter 2 wewill examine the inter play betweeneconomic policy, the deteriorating economicstructure and the level of GDP growth andrising poverty. In this section of chapter 1,we will describe briefly the nature of thesocial crisis with respect to the provision ofbasic services. For this study, thedisaggregated human development indiceshave been developed for the first time, forvarious provinces and districts of Pakistan.The provincial HDI will also be indicatedin this section. The state of, and trends ineducation, health and population, will bebriefly analyzed with special reference towomen. We will then describe briefly thecondition of women and children amongstthe deprived sections of society. We willalso indicate the risk to citizens of variouskinds of crimes, to illustrate the multiplepressures faced by the underprivilegedsections of society: The poverty pressure,the deprivation of basic services, and thesense of insecurity combine at the level ofthe family, to place acute emotional andpsychological pressures on human beings.

III.1 H UMAN DEVELOPMENT I NDICES:PROVINCES AND DISTRICTS

In this NHDR study for the first time inPakistan, human development indices havebeen estimated for provinces and districts.The variation in HDI between provinces anddistricts are indicative of regional disparitiesin both the level of economic growth as wellas in terms of health, education and thequality of life. (Only summary tables areprovided in the text. For more detailed tablesand method of calculation, see Annexure I).As table 4 shows, there is considerablevariation across provinces with respect toliteracy rates which vary from 51 per centin the Sindh to 36 per cent in theBalochistan. Similarly the primaryenrolment rate varies from 75 per cent inthe Punjab, to 64 per cent in the Balochistan.As a consequence while the humandevelopment index for Pakistan, as a whole,is 0.541 the provincial HDI varies from thehighest in the Punjab, at 0.557, to the lowestat 0.499 in Balochistan. Islamabad(a federally administered territory), isPakistan’s capital city, and has a greaterweight of affluent citizens in its populationwith a far better social infrastructure than in

During the decade of the1990s, there was an adversepolicy environment inwhich the tariff structureand export incentives weredistorted againstentrepreneurs who wereseeking to improve qualityand productivity for exportgrowth

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 11

any province of Pakistan. It is not surprisingtherefore that the human development indexof Islamabad is 0.612 which is higher thanthat of any of the provinces in the country.

Provincial human development indicesdisaggregated by rural and urban areas aregiven in table 4 (a). In terms of HDI rankingthe table shows that Sindh urban has thehighest rank, with an HDI of 0.659 which ishigher than for Pakistan as a whole (0.541).Punjab urban comes out second in theranking with HDI of 0.657, NWFP urbanthird with an HDI of 0.627 and Balochistanurban fourth at 0.591. It is interesting that

in terms of the rural/urban ranking ofprovinces while Sindh urban has the highestrank, Sindh rural has the lowest with an HDIof 0.456. This suggests a larger urban ruraldisparity in Sindh compared to any otherprovince. Punjab rural has the highest HDI(0.517) compared to the rural areas of anyother province.

Table 4 (b) presents district level HDIrankings of Pakistan. Jhelum has the highestHDI rank at 0.703 and Dera Bugti the lowestat 0.285. This table indicates the largedisparities in terms of human developmentbetween the districts of Pakistan.

Table 4 Disaggregated Human Development Index for Pakistan (Province-wise, 1998)

Name Literacy Enrolment Infant Immunization Real GDP per Educational Health Adjusted real HDIRatio % Ratio % Survival Ratio % capita (PPP$) Attainment Index GDP per capita

1998 1998 Ratio % 1998 1998 Index (PPP$) Index

All Pakistan 45 71 95.5 49 1715 0.537 0.82 0.272 0.541Punjab 46 75 95.4 55 1770 0.557 0.83 0.281 0.557Sindh 51 64 94.9 38 1804 0.553 0.78 0.287 0.540NWFP 37 70 96.3 54 1364 0.480 0.84 0.213 0.510Balochistan 36 64 96.4 34 1677 0.453 0.78 0.265 0.499

Islamabad 72 58 95.9 72 1743 0.673 0.89 0.277 0.612

Note:1. GDP per capita and Infant Survival Rates for Islamabad are calculated as an average of Punjab and Pakistan.2. Enrolment rate is for primary level only.3. Immunization refers to fully immunized children based on record and recall having received BCG, DPT1, DPT2, DPT3, Polio1, Polio2, Polio3, and Measles.

Source: (i) Estimation by Wasay Majid and Akmal Hussain. (ii) For data sources see Annexure 1.

Table 4 (a) Ranking of Provinces by Urban/Rural and Overall Human DevelopmentIndex

Name HDI HDI Rank

Sindh (urban) 0.659 1Punjab (urban) 0.657 2NWFP (urban) 0.627 3Balochistan (urban) 0.591 4Punjab (rural) 0.517 5NWFP (rural) 0.489 6Balochistan (rural) 0.486 7Sindh (rural) 0.456 8

Punjab 0.557 1Sindh 0.540 2NWFP 0.510 3Balochistan 0.499 4

Pakistan (Urban) 0.656 1Pakistan *0.541 2Pakistan (Rural) 0.496 3

Source: (i) Estimation by Wasay Majid and Akmal Hussain.(ii) For data sources see Annexure 1.

*Note: The all Pakistan HDI differs slightly from the figure estimated by the UNDP Human Development Report2002. This is because the district and provincial HDI estimates in the Pakistan NHDR use a proxy for lifeexpectancy in the health index based on immunization rates and infant survival rates (in the absence of district andprovincial level life expectancy figures). For details see Annexure 1 (b) Section V of this chapter.

12 POVERTY, GROWTH AND GOVERNANCE

There is also a wide variation in thehuman development indices within eachprovince. [See table 2, in annexure 1 (a)].For example in the Punjab, while Jhelumhas the highest HDI (0.703), Muzzafargarhhas the lowest (0.459). The size and overalldevelopment of a district also affects its HDIrank due to intra district variations inincome and social infrastructure. Thus, forexample Lahore has an HDI rank of 0.558compared to 0.703 for Jhelum because ofthe much greater inequality of incomes andlevel of social infrastructure available to thepoor and rich parts of Lahore districtrespectively.25

In the absence of intra district data, theaverage HDI for larger districts is pulleddown somewhat due to the larger intradistrict variation in the level of humandevelopment, compared to small districts.

Again in Sindh there is a wide variationin the level of human development with

Karachi HDI being highest, (0.618) andTharparkar the lowest (0.343).

Significantly the intra provincial disparityin district HDI is greater in the provinces ofNWFP and Balochistan where overalldevelopment is lower compared to the moredeveloped provinces of Punjab and Sindh.Thus in NWFP, Haripur has the highest HDI(0.629), and Shangla the lowest (0.332),while in Balochistan the highest rankingdistrict in terms of HDI is Ziarat (0.697)compared to the lowest ranked district ofDera Bugti (0.285). If we take the ratio ofHDI between the highest and lowest rankeddistricts of each province as an indicator ofintra provincial human developmentinequality, then the inter-district inequalityratio of Balochistan at 240 per cent is highest,followed by NWFP, at 189 per cent, Sindh at180 per cent and Punjab at 153 per cent.

The inter provincial differences withrespect to the human development index of

Table 4 (b) Ranking of Districts of Pakistan by the Human Development Index

District HDI HDI Rank District HDI HDI Rank District HDI HDI Rank

Jhelum 0.703 1 Mardan 0.519 32 Khairpur 0.449 63Ziarat 0.697 2 Lasbela 0.514 33 Thatta 0.447 64Haripur 0.629 3 Khanewal 0.513 34 Lakki Marwat 0.444 65Sheikhupura 0.621 4 Kech 0.512 35 Swat 0.442 66Karachi 0.618 5 Vehari 0.508 36 Larkana 0.435 67Abbottabad 0.598 6 Attock 0.507 37 Zhob 0.432 68Bhakkar 0.581 7 Naushahro Feroze 0.506 38 Dera Ismail Khan 0.425 69Kasur 0.577 8 Charsadda 0.506 39 Buner 0.423 70Rawalpindi 0.576 9 Bahawalpur 0.501 40 Barkhan 0.420 71Khusab 0.575 10 Pakpattan 0.498 41 Shikarpur 0.417 72Mandi Bahauddin 0.568 11 Ghotki 0.496 42 Lower Dir 0.413 73Lahore 0.558 12 Panjgur 0.496 43 Kalat 0.412 74Loralai 0.556 13 Multan 0.494 44 Sibi 0.411 75Sialkot 0.555 14 Nasirabad 0.492 45 Hangu 0.400 76Chakwal 0.545 15 Hafizabad 0.486 46 Jacobabad 0.393 77Gujrat 0.543 16 Sukkur 0.486 47 Gwadar 0.392 78Sahiwal 0.541 17 Karak 0.484 48 Killa Abdullah 0.387 79Rahim Yar Khan 0.541 18 Nawab Shah 0.481 49 Tank 0.384 80Kohat 0.537 19 Chitral 0.479 50 Awaran 0.381 81Mianwali 0.537 20 Lodhran 0.475 51 Upper Dir 0.369 82Dadu 0.535 21 Narowal 0.472 52 Batgram 0.363 83Sargodha 0.535 22 Dera Ghazi Khan 0.471 53 Bolan 0.360 84Hyderabad 0.532 23 Chagai 0.468 54 Kohlu 0.348 85Peshawar 0.531 24 Bannu 0.465 55 Kharan 0.346 86Gujranwala 0.529 25 Sanghar 0.461 56 Jhalmagsi 0.345 87Nowshera 0.529 26 Malakand 0.461 57 Tharparkar 0.343 88Jhang 0.529 27 Mansehra 0.459 58 Kohistan 0.332 89Mastung 0.528 28 Muzaffargarh 0.459 59 Shangla 0.332 90Okara 0.528 29 Badin 0.459 60 Dera Bugti 0.285 91Swabi 0.523 30 Killa Saifullah 0.455 61Mirpur Khas 0.522 31 Jaffarabad 0.454 62

Source: (i) Estimation by Umar Zafar, Wasay Majid and Akmal Hussain.(ii) For data sources, see Annexure 1 (b).

Punjab59%

NWFP19%

Sindh13%

Balochistan9%

Chart 5 Province-wise Sharein Top 31 Districtsin Terms of HDI

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 13

the districts within them, is illustrated bychart 5. It shows the province-wise share inthe top, middle and bottom strata of districtsin Pakistan with respect to HDI. In the groupof top thirty-one districts of Pakistan in termsof their HDI, Punjab districts have by far thelargest share at 59 per cent, with Sindh only13 per cent, NWFP 19 per cent andBalochistan with the smallest share at 9 per

cent. There is clearly a concentration of highranking districts of Pakistan in the Punjabprovince (in terms of HDI). Conversely inthe group of bottom thirty districts ofPakistan (in terms of HDI) Punjab has none,while Sindh has 19 per cent, Balochistan asmuch as 47 per cent and NWFP 34 per cent.In the group of middle thirty districts (interms of HDI), both Punjab and Sindh have

Province-wise Share inMiddle 30 Districts in Terms of HDI

Province-wise Share inBottom 30 Districts in Terms of HDI

Pakistan

0.700

0.600

0.500

0.400

0.300

0.200

0.100

0.000

Chart 6 Pakistan: Province-wise HDIs

HDI

Punjab Sindh NWFP Balochistan Islamabad

Province

NWFP21%

Balochistan18%

Punjab32%

Sindh29%

NWFP34%

Balochistan47%

Punjab0%

Sindh19%

Chart 7 (a) Punjab: District-wise HDIs

0.700

0.600

0.500

0.400

0.300

0.200

0.100

District

HD

I

Muz

affa

rgar

h

De

ra G

ha

zi K

ha

n

Nar

owal

Lodh

ran

Haf

izab

ad

Mul

tan

Pak

patta

n

Bah

awal

pur

Atto

ck

Veha

ri

Kha

new

al

Oka

ra

Jhan

g

Guj

ranw

ala

Sar

godh

a

Mia

nwal

i

Ra

him

Ya

r K

ha

n

Sah

iwal

Guj

rat

Cha

kwal

Sia

lkot

Laho

re

Ma

nd

i B

ah

au

dd

in

Khu

sab

Raw

alpi

ndi

Kas

ur

Bha

kkar

She

ikhu

pura

Jhel

um

–

14 POVERTY, GROWTH AND GOVERNANCE

Chart 7 (b) Sindh: District-wise HDIs

0.700

0.600

0.500

0.400

0.300

0.200

0.100

District

HD

I

Tha

rpar

kar

Jaco

baba

d

Shi

karp

ur

Lark

ana

Tha

tta

Kha

irpur

Bad

in

San

ghar

Naw

ab S

hah

Suk

kur

Gho

tki

Na

ush

ah

ro F

ero

ze

Mirp

ur K

has

Hyd

erab

ad

Dad

u

Kar

achi

–

Chart 7 (c) NWFP: District-wise HDIs

Sha

ngla

Koh

ista

n

Bat

gram

Upp

er D

ir

Tank

Han

gu

Low

er D

ir

Bun

er

De

ra I

sma

il K

ha

n

Sw

at

La

kki

Ma

rwa

t

Man

sehr

a

Mal

akan

d

Ban

nu

Chi

tral

Kar

ak

Cha

rsad

da

Mar

dan

Sw

abi

Now

sher

a

Pes

haw

ar

Koh

at

Abb

otta

bad

0.700

0.600

0.500

0.400

0.300

0.200

0.100

District

HD

I

Har

ipur

–

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 15

relatively high shares, 32 per cent and 29 percent respectively, while NWFP has 21 percent and Balochistan 18 per cent.

III.2 S OCIAL I NDICATORS IN THE SOUTH

ASIAN CONTEXT : THE LINKAGE WITH

ECONOMIC GROWTH AND POVERTY

Even though the indicators for health,education and population have improved inPakistan, yet as table 5 shows, they are stillfar worse than for low income countries, ingeneral, and for some of the other SouthAsian countries, in particular. For exampleinfant mortality rate in Pakistan was 91 per1000 live births in 1998, compared to 68for low income countries, 70 for India and16 for Sri Lanka. Similarly child mortalityrate (under 5 years) is as high as 120 per1000 for Pakistan compared to 83 for India,18 for Sri Lanka and 107 for low incomecountries as a whole. In terms of percentageof population with access over sanitationPakistan at 30 per cent comes out better thanIndia (16 per cent), worse than Sri Lanka,(52 per cent) but better than low incomecountries as a whole (24 per cent).

The primary school enrolment rate inPakistan (62 per cent) again is below India(77 per cent), Sri Lanka (100 per cent) andthe average for low income countries (76 percent). This is to some extent due to the fact

that public sector expenditure on educationas a percentage of GNP is significantlybelow its South Asian neighbours (India andSri Lanka) as well as the average for lowincome countries.

The average population growth rate at 2.5per cent (over the period 1990-99), issubstantially higher than India (1.8 per cent),Sri Lanka (1.2 per cent) and even theaverage for low income developingcountries (2 per cent).

In terms of the Human DevelopmentIndex (UNDP Human Development Report2001) also show that Pakistan lags behindIndia and Sri Lanka. The HDI for Sri Lanka(0.741) is substantially higher and HDI forIndia only slightly higher (0.577) than thatof Pakistan (0.499).

Pakistan appears to have done badly interms of human development and reasonablywell in terms of GDP growth rates over aprotracted period (1950 to 1990). This isindicative of inadequacies in the content ofgrowth as much as in the conduct ofgovernance. The capacity of economicgrowth to benefit the lower income groupswas severely constrained by a highlyunequal distribution of productive assetsreinforced by the government’s economicpolicy.

Regressive tax structures, subsidies,politically motivated bank credit by

Chart 7 (d) Balochistan: District-wise HDIs

0.700

0.600

0.500

0.400

0.300

0.200

0.100

–

District

HD

I

Der

a B

ugti

Jhal

mag

si

Kha

ran

Koh

lu

Bol

an

Aw

aran

Kill

a A

bd

ulla

h

Gw

adar

Sib

i

Kal

at

Bar

khan

Zho

b

Jaffa

raba

d

Kill

a S

aifu

llah

Cha

gai

Nas

iraba

d

Pan

jgur

Kec

h

Lasb

ela

Mas

tung

Lora

lai

Zia

rat

16 POVERTY, GROWTH AND GOVERNANCE

nationalized banks and implicit rents servedto accentuate income inequality, distortprivate sector investment decisions andreduce the employment generationcapability of GDP growth. In effect, Stateresources were used to enrich a narrow eliterather than to build the infrastructure ofhealth, education and human developmentfor a broad based and sustainable economicgrowth. Such policies ended up in loweringGDP growth itself during the 1990s andintensifying poverty and unemployment toa crisis point. The relationship betweengovernment policy, the adverse structure ofGDP growth and poverty is examined inhistorical perspective in the next chapter 2of this Report.

As Pakistan faces a crisis of humandevelopment exacerbated by a protractedperiod of slow GDP growth, it may be timeto recognize that initiatives in health andeducation can play an important role inalleviating poverty and accelerating GDPgrowth. Paul Streeten et al. have shown in

an important study of eighty countries thatimprovements in literacy for example havemade a considerable contribution toeconomic growth.26 Similarly improvedhygiene, sanitation and preventive healthcare can lead to reduced frequency ofdisease, reduced cost of medical treatmentand increased productivity and incomes ofpoor households. Our NHDR/PIDE 2001survey shows that almost ninety workingdays per year on average are lost due toillness in poor households. The high cost ofmedical treatment combine with loweredearnings following illness, to intensifypoverty (see chapter 3).

III.3 E DUCATION

III.3.1 Literacy: The literacy rate forPakistan as a whole increased significantlyfrom 33.3 per cent in 1990 to 46.4 per centin 1999, although it is still below even SouthAsian standards. According to estimates bythe Social Policy and Development Centre

Table 5 Pakistan’s Human Development Compared with India and Sri Lanka

Pakistan India Sri Low IncomeLanka Countries

Health

Infant Mortality Rate (Per 1,000 Live Births) Year 1998 91 70 16 68

Child (Under 5) Mortality Rate (Per 1,000) Year 1998 120 83 18 107

Prevalence of Child Malnutrition (% of Children Under 5)Years 1992-98 38 38

Male 61 62 71 59Life Expectancy at Birth (Years) Year 1998

Female 63 64 76 61

Access to Sanitation (% of Population) Years 1990-96 30 16 52 24

Education

Net Enrolment Ratio at Primary Level (% of Relevant Age Group)Year 1997 62* 77 100 76

Public Expenditure on Education (% of GNP) Year 1997 2.7 3.2 3.4 3.3

Population

Average Annual Population Growth Rate (%) Years 1990-99 2.5 1.8 1.2 2.0

Total Fertility Rate (Births per Woman) Year 1998 4.9 3.2 2.1 3.1

Contraceptive Prevalence Rate (% of Women Ages 15-49)Years 1990-98 24 41 24

Human Development Index

Human Development Index, Year 2002 0.499 0.577 0.741

Source: (i) World Bank, World Development Report 2000/2001: Attacking Poverty.(New York, Oxford University Press, 2001).

(ii) UNDP Human Development Report 2002.*For the year 1996.

Improved hygiene,sanitation and preventivehealth care can lead toreduced frequency ofdisease, reduced cost ofmedical treatment andincreased productivity andincomes of poor households

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 17

Chart 8 Primary School Enrolment

TotalFemaleMale

120

100

80

60

40

20

0

Pakistan India Sri Lanka Other Low IncomeCountries

Enr

olm

ent

Rat

e (%

)

1960

1996

1960

1996

1960

1996

1960

1996

Chart 9 Comparison of Social Development in Health Between Pakistan andother Low Income Countries (%)

PakistanIndiaSri Lanka

140

120

100

80

60

40

20

0Infant

Mortality Rate

Low IncomeCountries

Child (Under 5)Mortality Rate

Life Expectancy(Males)

Life Expectancy(Females)

Chart 10 Adult Literacy Rates: Comparison of Pakistan with Other Low IncomeCountries (1960, 1996)

19601996

100

90

80

70

60

50

40

30

20

10

0Pakistan

15

38

75

85

28

91

23

50

India Sri Lanka Other Low IncomeCountries

Adu

lt Li

tera

cy R

ate

(%)

18 POVERTY, GROWTH AND GOVERNANCE

(SPDC) the literacy rates for both males andfemales respectively have increased duringthe 1990s, although the gender gap by 1999is still quite high with the literacy rate formales being 58.3 per cent and for females33.5 per cent.27

The Asian Development Bank hasanalyzed the literacy age profile for urbanand rural areas respectively by gender. Itshows that the literacy increases inverselywith age in both urban and rural areas andthe gender gap in literacy rates declines withdeclining age groups. In urban areas thefemale literacy rate increases with fallingage groups at a much faster rate than formales so that the gender disparity which isquite high in the 60 plus age group is almosteliminated in the age group 10 to 14 yearsold. In the rural areas literacy increasesinversely with age for both men and women.However, the gender gap which is the largestfor the age group 20 to 24, (40 percentagepoints), declines to 33 percentage points forthe age group 15 to 19 and falls further to22 percentage points for the age group 10 to14. Inspite of the declining genderdisparities of literacy rates in the youngerage groups it is still unacceptably high.

It appears that the gender gap ineducation exists not only because of thereluctance of some parents to send girls toschool but perhaps more important becauseof the non availability of appropriate schoolfacilities for girls and women in both urbanand rural areas. Making educationalfacilities available to girls and women at arelatively faster pace is likely tosignificantly reduce the gender gap inliteracy rates.28 The evidence suggests thatgiven the small proportion of school goingchildren attending school, unless thispercentage is sharply increased the overallliteracy rates will not rise substantially inthe foreseeable future. Equally important,there are 40 million adult illiterates todaywith the numbers likely to increase sharply

in view of the fact that 29 per cent of thechildren today will not go to school.Therefore unless adult literacy is increasedquickly through large-scale informaleducation programmes particularly forwomen, the government’s target of 90 percent literacy will not be achieved in the nexthalf century.

III.3.2 Education: It may be a cause forconcern that inspite of multi-billion dollarSocial Action Programme (SAP) the grossprimary enrolment rate during 1990s has infact declined from 73 per cent in 1991 to 71per cent in 1999. At the same time the netenrolment rate declined from 46 to 42 percent for the period.29 Although the gendergap in the gross enrolment rate (GER)appears to have been reduced, yet thisreduction in gender disparity in GER ismainly due to declining enrolment rate forboys. Thus while the GER for girls hasincreased slightly over the period 1991-99,from 59 to 61 per cent the GER for boysfell substantially from 87 to 80 per cent.

It is also noteworthy that the rural urbandisparity in gross enrolment rates haswidened during the decade of the 1990s. Therural urban disparity in enrolment rates forgirls increased slightly. (For example therural urban disparity in GER for girls was40 percentage points in 1991 and increasedto 42 percentage points by 1999). However,for boys the growth in rural urban disparitywas much greater with the gap being 14percentage points in 1991 and increasing to20 percentage points by 1999 (see table 6).It is clear from this evidence that inspite ofthe commitment to primary educationclaimed by successive governments in the1990s, apart from a small increase in GERfor girls, there has been no significantprogress in this regard: The situation has infact deteriorated as the national primaryschool enrolment rates have declined andurban rural disparities in GER havewidened.

In Pakistan low gross enrolment rates areaccompanied by relatively high drop outrates from school, thereby exacerbating theproblem of low education coverage. Thepercentage of children in the 10 to 18 yearsage group who drop out of school beforecompleting primary education declinedslightly during the decade but is still quitehigh at 15 per cent. A positive improvementis that the gender disparity in the drop out

Table 6 Gross Primary Enrolment Rate—1991 and 1999%

1991 1999Overall Boys Girls Overall Boys Girls

Pakistan 73 87 59 71 80 61

Urban 92 97 87 94 95 92Rural 66 83 47 63 75 50

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 19

rates narrowed from 5 percentage points in1991 to 1 percentage point in 1999.However, the urban rural gap in the dropout rates has widened over the decade.

The NHDR 2001 Survey shows that oneof the key factors which determines theability of a poor household to pull out ofpoverty is whether or not the family has asecond earner. It may be important to notethat according to our survey data, themagnitude of the second earner’s incomeand therefore his/her ability to pull thefamily out of poverty, is closely co-relatedwith the educational status of the secondearner (see chapter 3). Therefore, given theactual and perceived importance ofeducation in determining the futureeconomic status of a present low incomehousehold, parents of even relatively lowincome families are keen to send theirchildren to school. High drop out rates occuroften because the household is facingadversity and gets pushed into such acutepoverty that it is forced to send the childrento work for a pittance rather than continuewith education. Given the high probabilityof illness in low income families and thehigh cost of medical treatment suchadversity often takes the form of a familymember falling sick and the consequentdescent of the household into debt anddeepening poverty (see chapter 3).

Other factors inducing parents towithdraw children from school includeabsence of teachers from governmentschools or such low standards that theparents feel that the opportunity cost ofsending the children to school is higher thanthe perceived benefits of schooling.According to PIHS 1998-99 data, there is aco-relation between household income andschool drop out rates. For example 47 percent of the children from the poorest quintiledropped out before completing primaryeducation as compared to 23 per cent fromthe richest quintile.

Apart from the poor coverage ofeducation there is a serious problem withthe quality of education imparted to studentsnot only with respect to the curricula butalso the quality of instruction. A study bythe World Bank on the Punjab provinceillustrates the problem of low educationalattainment even within the existing lowstandards. For example in 1999 only 41 percent of public school students in the Punjabwho took the matriculation examination

obtained a passing grade. In view of the factthat only 16 per cent of the age group of15-19 years reached grade 10 at school, sucha low pass percentage should be a cause forconcern.

There is an observed tendency of anincreasing percentage of students registeringin private schools rather than governmentschools. For example the share of primaryschool enrolment in government schools fellfrom 86 per cent in 1991 to 75 per cent in1999.30 This increase in the role of privateschools in the provision of primaryeducation may be due as much to the higherquality of private schools as thedeterioration in the quality of education andthe management of government schools.

III.4 H EALTH

III.4.1 Disease, Health Care and Poverty:Three factors account for 60 per cent of theburden of disease in Pakistan, whenmeasured in terms of life years lost:(i) Communicable infectious diseases.(ii) Reproductive health problems.(iii) Nutritional deficiencies.31 Inspite of thefact that all three of the factors arepreventable as well as treatable, theincidence of disease and mortality remainshigh. This is indicative of high levels ofpoverty (causing poor nutrition, andunhygienic living conditions within thehousehold). Equally important is thecontinued severe lack of preventive andcurative health infrastructure. The seriouslyinadequate preventive measures includesanitation, safe drinking water, adequatereproductive health care facilities for womenand food safety regulations with respect toboth raw and cooked food available outsidethe household.

The curative health care system hasexpanded substantially during the lastdecade. For example, the population perdoctor has fallen from 2082 in 1990 to 1529in the year 2000, and the population pernurse has fallen from 6374 to 3732 over thesame period. The fact that inspite of thisexpansion the incidence of disease remainshigh points to both inadequate coverage andpoor quality. According to the NationalHealth Survey of Pakistan there is a highprevalence of ill health particularly amongstwomen. For example in rural areasprevalence of fair plus poor health forfemales above 25 years is about 75 per cent,

High drop out rates occuroften because the householdis facing adversity and getspushed into such acutepoverty that it is forced tosend the children to workfor a pittance rather thancontinue with education

There is a serious problemwith the quality ofeducation imparted tostudents not only withrespect to the curricula butalso the quality ofinstruction

20 POVERTY, GROWTH AND GOVERNANCE

while for males in the same age group it isabout 45 per cent.32 The high prevalence ofdisease is also indicated by the fact thatvisits to a health care provider per personaged 5 years and above, is as high as 6 peryear. An increasing proportion of the healthcare is now being provided by the privatesector.33

Malnutrition is a major problem inPakistan and is an important underlyingfactor in ill health and morbidity. Forexample for children, protein energymalnutrition is an underlying cause of deathin about one-third of all deaths below5 years of age. For women inadequate intakeof energy, protein and micronutrients,compounded by high fertility andunhygienic living conditions associated withpoverty, are major factors in the highprevalence of disease. For children, womenand men, malnutrition leads to impairedimmunity and high susceptibility toinfection.

The data from the survey conducted forthis report (NHDR/PIDE 2001), suggeststhat the high prevalence of disease amongstthose who are slightly above the povertyline is a major factor in pushing them intopoverty. Those who are already poor getpushed into deeper poverty as the result ofloss of income and high medical costsresulting from illness. The data show thaton average 65 per cent of the extremely poorwere ill at the time of the survey and theyhad on average suffered from their currentillness for ninety-five days (see chapter 3).Our survey data show that the poorpredominantly go to private allopathicmedical practitioners. Many of them arepoorly trained and have grossly inadequatediagnostic facilities. Consequently when thepoor fall ill they suffer for a protractedperiod and get locked into a high cost sourceof medical treatment, which erodes whateverfew assets they have, and pushes them intoindebtedness and deeper poverty (seechapter 3).

III.4.2 Infant mortality rates, Immunizationand Poverty: Infant mortality rates havedeclined over the decade of the 1990salthough they are still high compared toother low income countries. The infantmortality rate (IMR) in Pakistan declinedfrom 122 per 1000 live births in 1991 to 89per 1000 live births in 1999. The IMR formales was 93 per 1000 live births and for

females 85 per 1000 live births. Health datasuggest that infants born to the leasteducated mothers have twice the risk ofdying within the first year after birthcompared to more educated women.34

However, it is noteworthy that since thepercentage of uneducated women is muchhigher amongst poor households, infantmortality rates may be correlated not simplywith the educational status of the motherbut also with poverty and hence the inabilityof the mother to get adequate nutrition, prenatal and post natal care.

The critical determinant of an infant’ssurvival and subsequent health is thenutrition status and health care received bythe mother. In Pakistan where 40 per centof the women are anemic and almost 80 percent deliver at home without trainedassistance, it is not surprising that bothinfant mortality and maternal morbidityassociated with pregnancy are amongst thehighest in Asia. (Maternal mortality ratesare 300 to 400 per 100,000 live births).

Although the government has not beenable to achieve its immunization target rateof 90 per cent, there has been a significantimprovement in the immunization rate overthe decade 1991 to 1999. The percentage ofchildren between 12 and 23 months whowere fully immunized increased from 37 percent to 49 per cent. The immunization ratesin children improved for both genders aswell as rural and urban areas. According toPIHS data there is a strong correlationbetween income levels of household andimmunization rates. For example, 75 percent of the children in the upper incomequintile were fully immunized as againstonly 25 per cent in the lowest incomequintile.

III.4.3 Female Health and Mortality: AnneG. Tinker35 in her study on women’s healthin Pakistan points out that Pakistan togetherwith a number of other Asian countries isone of the few countries in the world wheremen outnumber women (108 men for every100 women). She argues that this ratio ismainly due to relatively high mortality ratesof young girls and women in the child-bearing age. Also the mortality rate offemales in the age group 1 to 4 is 66 percent higher for girls than boys, suggestinggender discrimination at an early age.Similarly the mortality rate for women inthe peak child bearing age group (20 to 29),

The data from the surveyconducted for this report(NHDR/PIDE 2001),suggests that the highprevalence of diseaseamongst those who areslightly above the povertyline is a major factor inpushing them into poverty

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 21

was more than double the rate during thelowest life time risk period (ages 10 to 19),which indicates poor maternal healthservices.36

Inspite of a substantial increase inimmunization rate, maternal pre natal andneonatal rates have remained relativelystagnant. More than half of infant mortalityand 45 per cent of under 5 mortality inPakistan occurs during the first month oflife. According to Anne G. Tinker thesedeaths are ‘primarily the result of poormaternal health and nutrition, inadequatecoverage of pregnant women with tetanustoxoid immunization and complications atdelivery’.

Malnutrition which is widespreadamongst the poor, affects adult women morethan men. At least 40 per cent of womenand 21 per cent of men are anemic. Adultwomen consume less iron than men inPakistan even though their requirement isthrice as high as men. Similarly pregnantwomen receive only 87 per cent of therecommended calories, lactating mothersonly 74 per cent and the protein intake forwomen is about 85 per cent ofrecommended levels.37 Such malnutritionhas inter generational implications forhealth, since malnourished mothers face thelikelihood of low birth weight babies whooften grow up into children with abnormallylow height, weight, deficient learningcapabilities and susceptibility to disease.(See section III.8 on children). In caseswhere the babies are girls, on reaching childbearing age they are pre-disposed to givingbirth to babies with poor health in the nextgeneration.

III.5 P OPULATION

In this section we will briefly examine theproblem of Pakistan’s high populationgrowth rate and its linkages with health andpoverty. The issue of slowing down thepopulation growth rate to achievedemographic stability over the next halfcentury will be highlighted in the context ofthe government’s recently announcedPopulation Sector Perspective Plan.

III.5.1 Population Growth, Poverty andHealth: Pakistan’s population at the last(1998) census was 132.4 million whichrepresents a quadrupling of the populationsince independence in 1947. With an inter-

censal population growth rate of 2.6 percent, as many as three million people arebeing added to the population every year. Interms of its contribution to the growth ofthe world population, Pakistan will havesurpassed China and will be second only toIndia by the year 2035.

Poverty, in so far as it is an underlyingfactor in high fertility rates, contributes to ahigh population growth rate. At the sametime, a rapidly growing population in turnaccentuates poverty. For example, duringthe process of economic development inPakistan as the mortality rate decline occursquicker than the fertility rate decline in poorhouseholds, income differentials betweenpoor and non-poor households increase.38

Poverty, especially the adverse health andsocio-economic status of poor women isaccentuated as marginal households withgiven incomes bear the burden of a largernumber of children. The consequentconstriction of food consumption results inincreased malnutrition, greater susceptibilityto disease, and hence reduced productivityand intensified poverty.39 With 40 per centof children and 45 per cent of women in thechild-bearing age (15 to 49 years) sufferingfrom malnutrition, not only is the health andproductivity of the existing populationadversely affected, but also that of futurepregnancy outcomes. As our NHDR/PIDESurvey data shows (see chapter 3), themajority of poor households are sufferingfrom ill health, with a high cost of medicaltreatment. Illness according to our surveydata is a major trigger point that pusheshouseholds into deeper poverty. Thus inPakistan high fertility rates, high populationgrowth rates, ill health and poverty arelinked in a vicious cycle. One of the pointsat which it can be broken is through publicaction to rapidly reduce fertility rates.Unless this is done urgently there will be anunmanageable increase in the number ofyoung persons deprived of education, healthand employment opportunities. This couldplace overwhelming pressures on the socialfabric and the State.

III.5.2 Achieving Demographic Stability:Pakistan has a relatively young population,with 41 per cent being below age 15, and asmuch as 20 per cent of the population in theage group 15 to 24, who would sooncontribute to population growth. This is thepopulation momentum, influenced by past

The adverse health andsocio-economic status ofpoor women is accentuatedas marginal householdswith given incomes bear theburden of a larger numberof children

In Pakistan high fertilityrates, high populationgrowth rates, ill health andpoverty are linked in avicious cycle

22 POVERTY, GROWTH AND GOVERNANCE

fertility patterns which could generate arelatively high population growth rate for anumber of decades. According to a mediumlevel variant of population projection, if thetotal fertility rate of (TFR) of 5 children perwoman were to decline to 2.4 children perwoman, Pakistan’s population growth ratecould decline to 1.4 per cent by 2023, withthe total population reaching 212 million.40

Such an outcome requires continuedprogress in reducing fertility rates, increasesin age of marriage for females, and broadbased population planning and developmentefforts. The government in July 2002announced a population policy, which aimsat an even more ambitious target than thatimplied in the medium variant projection. Itaims to reach a replacement fertility levelof 2.1 children per family and a totalpopulation of 204 million by the year 2023.This is to be achieved through an energeticand systematic family planning programme

integrated with a reproductive healthprogramme using the infrastructure andoutreach of both the Ministry of Health andthe Ministry of Population Welfare.

The government plans to achieve thelong-term objective of populationstabilization, by reaching a number ofmedium term targets. These include anincrease in the contraceptive prevalence ratefrom the present 30 to 57 per cent in 2012,sustaining the increase in age of marriageof girls, fulfilling the existing high unmetneed for family planning (33 per cent), andincreasing family planning programmecoverage from the present 65 to 100 percent by 2010.

The government’s Population SectorPerspective Plan seeks to achieve thesequantitative targets through a number ofprogramme interventions which include:(a) Contribute to improved health, andeconomic conditions of women by enablingthem to avoid ‘too many children, tooearly, too late and too close together’.41

(b) Involve males as partners and makefamily planning service at low cost and ofhigh quality, accessible to couples.(c) Encourage current users to be continuoususers and reach out to younger couples withinformation and choice of spacingmethods.42

Even if the ambitious population targetof a replacement fertility rate of 2.1 childrenper family is achieved by 2023, Pakistan’spopulation will continue to grow for anotherfour decades or so, due to the populationmomentum. This points to the need forsystematic and energetic public actioncombining government with NGOs to beundertaken and maintained so that the aimof population stabilization in the next fiftyyears can be achieved.

III.6 T HE CRISIS OF POVERTY

Poverty has increased sharply during the1990s. In terms of the calorific norm43 thepercentage of population below the povertyline increased from 26.6 per cent in 1992-93to 32.2 per cent in 1998-99 (see table 7-a).44

Similarly, estimates in terms of the povertygap (which captures the increase in povertyof individual poor households) and in termsof the severity of poverty (which capturesthe shift of poor households from arelatively better off to a relatively worse offcategory), both indicate a worsening of the

High Population Growth, Poverty and Illness:A Vicious Circle

High FertilityRates

High PopulationGrowth Rate

High Infant Mortalityand Lower age of

marriage

For given GDP increase, lower increase inper capita income.

With given fiscal resources, largerpercentage of population without

adequate health care, sanitation andprimary education

Deeper Poverty

Lowered Productivity andhigher cost of medical

treatment per household

Poverty

High Frequency ofillness

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 23

poverty situation during the 1990s (seetable 7-a).

Not only has poverty increased but theinequality in the distribution of income inPakistan has also increased significantly(table 7-b). Income inequality measured interms of the Gini index for Pakistan as awhole has increased from 26.85 in 1992-93to 30.19 in 1998-99 (see table 7-b). In urbanareas, income inequality which wasrelatively higher to start with, has increasedmore sharply compared to rural areas (seetable 7-b). For example the Gini index forurban areas of Pakistan has increased from31.7 in 1992-93 to 35.96 in 1998-99. In ruralareas it has increased from 23.89 to 25.21.

As poverty and inequality increased,unemployment and under-employmentshould also be expected to have increasedsharply. This is due to the fact that whileGDP growth has declined during the 1990s,there has also been a decline in employmentelasticities, labour productivity and realwages in both agriculture and industry (seeTable 7 in chapter 2). According to thegovernment,45 about 0.5 million persons,which is 40 per cent of all new entrants tothe labour force, are added to the ranks ofthe unemployed every year.

While an adverse change in the level andstructure of economic growth was a crucialfactor in increasing poverty, equallyimportant was the deterioration in theinstitutions of governance. Due to pooreconomic management by the government,both the level of development expenditureand the efficiency of its use declined.46

Annual development expenditure hashistorically played a significant role inbuilding infrastructure and generatingsecondary multiplier effects on GDP andemployment. In the period 1980 to 1999,development expenditure fell from 40 percent of total government expenditure in1980-81 to 13.5 per cent in 1999-2000. Theadverse effects of this trend on the GDPgrowth was accentuated by the growinginefficiency of the development expenditureinduced by politically motivated projectsand wide spread corruption.47 These trendsmay have been significant factorsunderlying the phenomenon of deterioratinginfrastructure, decelerating growth in theGDP and accelerating poverty.

Deterioration in the institutions ofgovernment that were responsible forproviding public goods and services, meant

that there was an inadequate coverage andquality with respect to services such ashealth, sanitation, drinking water, educationand transport.

As the quality of basic health units andgovernment hospitals declined, the poorwere forced to either shift to expensiveprivate medical services (thereby gettinglocked into debt dependence) or not havingeffective access to health services at all (seeanalysis of NHDR/PIDE Survey results inchapter 3). Similarly even at the end of thedecade of the 1990s, 37 per cent of thepopulation did not have access over safedrinking water and 61 per cent of thepopulation did not have sanitation facilities.With the decline in municipal services many

Table 7 (a) Incidence of Poverty during the 1990s

Poverty Index 1992-93 1993-94 1996-97 1998-99HIES HIES HIES PIHS

Head-count 26.6 29.3 26.3 32.2

Poverty Gap 4.5 5.5 4.5 6.9

Severity of poverty 1.2 1.5 1.2 2.2

Source: Federal Bureau of Statistics, April 2001.

Table 7 (b) Income Inequality (Gini Index) during the 1990s

Region and Province 1992-93 1993-94 1996-97 1998-99HIES HIES HIES PIHS

Pakistan 26.85 27.09 25.85 30.19

Urban areas 31.70 30.70 28.77 35.96

Rural areas 23.89 23.45 22.65 25.21

Source: Federal Bureau of Statistics, April 2001.

GDP growth has declinedduring the 1990s, there hasalso been a decline inemployment elasticities,labour productivity and realwages in both agricultureand industry

25

20

15

10

5

Hea

d C

ount

Chart 11 Incidence of Poverty During the 1990s

35

30

01992-93 1993-94 1996-97

Year

▲◆

Head Count

Poverty GapSeverity of Poverty

8

7

5

4

3

2

1

0 Pov

erty

Gap

/Sev

erity

of

Pov

erty

◆

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◆

◆

▲

▲▲ ▲

6

1998-99

24 POVERTY, GROWTH AND GOVERNANCE

of those who do get piped drinking waterfind it unsafe. Those amongst the rural poorwho are deprived of safe drinking water,and the urban poor who are unable to affordexpensive bottled drinking water ordomestic water treatment appliances, oftenfall sick from water-borne diseases. (OurNHDR/PIDE Poor Communities Survey2001 shows that about 65 per cent of thepoor were sick at the time of theinterview).48

Lack of access over education is anotherimportant factor in accentuating poverty.The NHDR/PIDE Poor Communities Survey2001 shows that a key determinant ofwhether or not a household is able to pullout of poverty is the extent to which asecond earner can contribute to familyincome. The evidence shows that the incomeearning capability of the second earner isclosely co-related with her/his education.

We have argued in this section that theslow growth and the adverse structure ofthe GDP, as well as weaknesses in theinstitutions responsible for delivering basicservices, may have been important factorsin the sharply increasing poverty, asindicated by various head count estimates.Yet the poor are not isolated heads to bemerely counted. This UNHDR is differentfrom that of most earlier studies on povertybecause of the following postulates: Thepoor exist as living communities who arelocked into a structure of power which keepsthem dependent on the landlord, the moneylender and the local state officials. At the

same time the local markets are mediatedby the local elites who give the poor unequalaccess over both the input and outputmarkets. The poor thus face a structure ofmarkets, state and official institutions, whichdiscriminates against their access overresources, public services, and the processof government decision making.49 Theevidence presented in chapter 3, providessupport to these propositions.

III.7 W OMEN , POVERTY , ACCESS AND

AUTONOMY

A national survey generating genderdisaggregated poverty data is required fora systematic gender analysis of theprocesses of poverty, and the specificdeterminants of the economic burden onpoor women. However, scattered evidencethat is available suggests that due tounequal access of women over productiveresources and prevailing gender normswithin traditional households, women beara disproportionately higher burden ofpoverty: Gender discrimination in accessover markets, institutions and resourcesconstrain women from overcomingpoverty. At the same time lack ofautonomy within the household restrainsthem from increasing and consumingincome from even the existing very limitedmarket opportunities. These issues basedon the available evidence will be brieflydiscussed in this sub-section.

III.7.1 Poverty and the Double Burden onWomen: Poor women in Pakistan have adouble burden: the poverty burden and theburden of gender bias against them in socialand economic life. This gender bias isreflected in national income statistics whichfail to adequately account for the economiccontribution of women. It is reflected alsoin household income and expendituresurveys, which fail to record gender specificdistribution of income and consumptionwithin the household. This is so inspite ofthe fact that females constitute 47 per centof the rural population. Amongst theeconomically active persons in agriculturalhouseholds, 42 per cent are women.Evidence of women’s economic activitiesin rural areas comes from district andprovincial village level studies. Thesestudies show that the rural Pakistani womenare not only completely responsible for time

The poor are not isolatedheads to be merely counted

The poor exist as livingcommunities who arelocked into a structure ofpower which keeps themdependent on the landlord,the money lender and thelocal state officials

Chart 12 Income Inequality (Gini Coefficient) During the 1990s

40

35

30

25

20

15

10

5

01992-93 1993-94 1996-97 1998-99

Year

Gin

i Coe

ffici

ent

PakistanUrban AreasRural Areas

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 25

and energy consuming household chores,but are also major contributors to the ruraleconomy in three sub sectors: cropproduction, livestock production and cottageindustry.50 A survey conducted by the BaraniAgricultural Research and DevelopmentProject in five districts of NWFP shows that82 per cent of women participate inagricultural work. They spend 45 per centof their time on agricultural activities andare responsible for 25 per cent of theproduction of major crops and 30 per centfor food.51

In the case of livestock related work, asurvey of Barani areas in the Punjab andthe NWFP found that out of fourteenlivestock production operations covering acomplete range of activities, women haveprimary responsibility for at least eight andare active in the other six.52 In someactivities, such as making ghee, andhandicraft products manufactured bywomen often on a piece work basis,including embroidery, tailoring, weaving,leather work, pottery, ceramics and foodprocessing, women have exclusiveresponsibility. A sample survey of Baraniareas found that returns from the sale ofanimal products by women constitute onaverage 13 per cent of the total householdincome. Similarly a household survey ofrural working women carried out inforty-two villages of the Punjab showedthat 55 per cent of the total respondentswere doing cotton embroidery, 20 per centof women were making straw products and8 per cent were making mats and baskets.It is clear therefore that women play a vitalrole in the process of agricultureproduction, the manufacture of off farmproducts, performing household tasks,caring for children, and cooking andcarrying fuel and water. Yet compared totheir male counterparts, they have aninferior social status and a poorer accessover services such as health, education,transport, police, and administrative andjudicial services. As poverty has increased,persistent inadequacy of basic services andrising violence by religious extremists havecombined to intensify the pressure onwomen. As Khawar Mumtaz points out,women from poor households today aresubject to not only the stress fromeconomic deprivation but also:‘loneliness…, violence and fear ofviolence, depression and resignation…’.53

III.7.2 Gender Discrimination and MarketAccess: Due to gender discriminationagainst women in work roles as well associal restrictions on mobility, women havea relatively poorer access over education,skill training and health facilities as well asover labour markets. Consequently theability of women to access productiveresources, increase their income, improvetheir health and social status is more limitedcompared to men. The lack of access overincome earning opportunities is reinforcedby lack of control over the utilization oftheir earned income within the household.For example a recent research study showsthat while women in many poor ruralhouseholds are making a substantialcontribution to family income (16 to 25 percent), their control over intra householdconsumption decisions is relativelyrestricted.54

III.7.3 Lack of Access over Education andSkill Training: This is indicated by the factthat female literacy in Pakistan is over 29per cent compared to 55 per cent for men.There are only 10 vocational colleges forwomen, compared to 162 for men and inhigher education institutions, women formonly 28.9 per cent of the student body in 26public sector universities.55

III.7.4 Lack of Access over HealthFacilities: This is indicated by the fact that47 per cent of girl children are fullyimmunized (compared to 52 per cent ofboys) and over 40 per cent of the adultwomen in the country suffer from anemia.Moreover, households of middle and lowerincome groups spend considerably less onwomen than on men in the event of illnessand only 20 per cent of women are assisted,by a trained provider during delivery,resulting in not only high infant mortalityrates but onset of chronic post natalinfections in the case of mothers. Finallyinformation and services to prevent andcontrol reproductive tract infections(including transmission of HIV) and tocombat gender based violence areunavailable on any significant scale.56

III.7.5 Gender Discrimination in LabourMarkets: Women’s participation in thelabour market is adversely affected by theprevalence of traditional gender role norms,restrictions on women’s mobility and

Women from poorhouseholds today aresubject to not only thestress from economicdeprivation but also:‘loneliness…, violence andfear of violence, depressionand resignation…’

26 POVERTY, GROWTH AND GOVERNANCE

occupational segregation. Consequentlyfemale labour force participation rates inremunerative employment in Pakistan as awhole, are extremely low at 13.7 per centcompared to 70.4 per cent for men. There isalso evidence (from a sample survey in ruralPunjab) that of the women in farmhouseholds who participate in the labourforce, as many as 63.5 per cent are engagedin unpaid work, while in landless ruralhouseholds, of the women participants in thelabour force, 34 per cent are engaged inunpaid labour. The data show that due toprevailing seclusion norms, only womenfrom the poorest rural households work inthe public space for remuneration and evenhere their returns are meager since they arerelegated to low paid farm labour.

III.7.6 Women’s Work Patterns, UnpaidWork and Women’s Autonomy: Zeba Satharand Shahnaz Kazi57 in their study of tenrural regions of the Punjab have shown that

while women are predominantly employedin agriculture and livestock, in a largeproportion of cases the work is unpaid. Thepercentage of unpaid farm labour for womenvaries considerably across regions. In thecase of agriculture production, thepercentage of unpaid farm work for womenis as high as 56.9 per cent in the Baraniareas, falls sharply to 17.3 per cent in thesemi irrigated areas, and falls further to 12.9per cent in the irrigated areas of SouthernPunjab (see Table 8). Amongst other factorsthere are two reasons why unpaid farm workfor women in the Barani (rain-fed) areas isso high: (i) In these areas the data show thatin the sub-group of landowning householdsnearly 84 per cent of the female respondentswere working on their family farmcompared to 23 per cent of men.58 Giventhe low yield per acre in Barani (rain-fed)areas, the men traditionally seekemployment in the military services andtrade sector in rural areas. (ii) At a more

Table 8 Patterns of Female Work Participation by Regions

Barani Semi- Peri- Central Southernirrigated Urban Punjab Punjab

All ActivitiesLabour force participation rate 75.7 63.4 40.2 66.5 80.9

Unpaid work 61.1 41.6 13.7 29.6 16.6Paid work 14.6 21.8 26.5 36.9 64.3

Agriculture and Livestock ActivitiesAgricultural production 60.4 26.7 5.9 31.5 46.5

Unpaid work on own farm 56.9 17.3 2.0 17.2 12.9Wage workers 3.5 9.4 3.9 14.3 33.6

Livestock production 66.0 57.4 28.4 57.7 56.0Non-earning workers 60.4 46.5 17.6 34.5 41.9Earning income 5.6 10.9 10.8 23.2 14.1

Non-Agricultural Income Earning ActivitiesWork outside the home – informal 2.4 3.5 5.9 7.9 3.7Work outside the home – formal 2.1 – – – –Home-based income earning activities 4.5 9.4 15.7 7.9 38.2(N) (288) (202) (102) (203) (241)

Source: Zeba Sathar and Shahnaz Kazi, PIDE 1997.

Table 9 Women’s Earnings by Principal Activity and Days Worked

Mean Income (Rs.) Mean days worked

Agricultural labour 2015 84Earnings for livestock production 5197 137Non-agricultural informal sector work 4667 161

Teachers 27411 166Home-based income earning activities 3148 109All income earning work 3541 101

Source: Zeba Sathar and Shahnaz Kazi, PIDE 1997.

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 27

general level, Barani agriculture with awheat-pulses cropping pattern, offers feweropportunities for wage employmentcompared to the irrigated regions of centraland Southern Punjab. In the latter regions,production of cotton and vegetables, whichare more labour intensive and where womenare traditionally hired for cotton picking andvegetable weeding, there is greater demandfor female wage labour.

While agriculture and livestock are thepredominant source of women’s employ-ment, home based income earning activitiesare also important. Such activities engage15.7 per cent of women participants in thelabour force, while in Southern Punjab thefigure rises to 38.2 per cent.59

The Sathar and Kazi study points out thatpaid employment outside the home is mainlyundertaken by women in such low incomehouseholds that seclusion norms cannot beobserved due to economic pressures. In thecase of women from landowning families(over 12 acres) seclusion norms are adheredto a greater extent, and here the majorsource of income for women is sale oflivestock products and home based incomeearning activities.

As table 9 shows the return to women’semployment are so low that even though onaverage they work 101 days a year theiraverage daily income at US$0.15 (Rs.3400per year), per day is far below thesubsistence level. The mean earnings arehighest for teachers, and lowest foragricultural wage workers.

An important question investigated forthe first time in the Sathar and Kazi study isthe control over the income earned bywomen. As table 11 shows, women engagedin home based income earning activities areable to keep their earnings to a greater extentcompared to female agricultural wagelabourers. For example, in the formercategory about 73 per cent keep all theirearnings, and 91 per cent have a say in howtheir income is spent compared to 44.4 percent and 75.9 per cent respectively in thecase of female agricultural wage labourers(see table 11).

In examining the issue of women’sautonomy, a range of decision making areaswithin the household were investigated.These included decisions regarding health,education, marriage of children, foodpurchase, purchase of household goods,

livestock and the issue of women’semployment outside the home. The evidencebroadly shows that in intra householddecisions related with children and foodpurchase, over 50 per cent of the womenreported participation. However on the issueof women’s work outside the home, only38.5 per cent of the women reportedparticipation in the decision, and for othereconomic issues related with purchases, thefigure was less than 21 per cent.

It is significant that paid employment andwomen’s contribution to family incomeemerge as the most important determinantsof women’s intra household decisionmaking authority.

III.8 C HILDREN , POVERTY AND HEALTH

HAZARDS

The area that is Pakistan today has been thecrucible of different civilizations since thelast 2,500 years: It has been influenced bythe Europeans, West Asia, Central Asia andSouth Asia. It therefore has not only a richcultural heritage but also a rich genetic base

Table 10 Contribution of Women’s Earnings to Household Income byTotal Household Income Quintiles

Total Household income Respondent’s earnings as %quintiles of total household income

I 24.7II 14.4III 16.6IV 14.1V 10.2

Source: Zeba Sathar and Shahnaz Kazi, PIDE 1997.

Table 11 Women’s Control of their Earnings by Selected Employmentand Socio-Economic Indicators

% Who keep all % Who have a say howtheir earnings their earnings are spent

irrespective of whokeeps them

All 52.3 81.9

Type of Income Earning Activity

Farm Labour 44.4 75.9Livestock production 42.3 78.5Non-agricultural work – informal 56.3 87.5Non-agricultural work – formal 66.7 88.9Home-based income earnings activities 73.1 91.3

Source: Zeba Sathar and Shahnaz Kazi, PIDE 1997.

Paid employment andwomen’s contribution tofamily income emerge asthe most importantdeterminants of women’sintra household decisionmaking authority

28 POVERTY, GROWTH AND GOVERNANCE

which imparts to every generation ofchildren an unusual intellectual and physicalpotential. Yet poverty and lack of basicservices have deprived a large proportion ofPakistan’s children of the opportunities ofopening their eyes to the world througheducation, or walking upon it firm of limband hopeful of heart.

III.8.1 Children and Health: Children inPakistan from lower income families face ahigh risk of disease and death, sufferstunting and wasting of the body associatedwith widespread malnutrition and areobliged to work for a living, some times inhazardous occupations. Here they not onlywork long hours and face a wide range ofdiseases and injuries, but are alsooccasionally subjected to physical beatingand sexual abuse.

Out of every 1,000 children who surviveinfancy, 123 die before the age of 5. Ofthose who survive, a large proportion sufferfrom malnutrition which leads to impairedimmunity and higher vulnerability toinfections. The National Health Survey ofPakistan60 shows that between 30 per centand 40 per cent of children in Pakistan (6.2to 8.3 million children) suffer from stunting(i.e. low height for their age). Similarly over14 per cent (2.9 million) suffer from wasting(i.e. low weight for height). As many as 44per cent of rural children and 35 per cent ofurban children are underweight (low weightfor age). All three of these measures ofmalnutrition (stunting, wasting andunderweight) make the children susceptibleto repeated infectious diseases. The evidenceshows, for example, that about 38 per centof the children (between 5 to 14 years ofage) in the rural areas and about 25 per centof the children in the urban areas (5 to 14years of age) have ill health (poor to fair).Thus a large proportion of children aresuffering from malnutrition and associatedfrequent illness. Consequently, they have animpaired ability to learn and play, so crucialto the creative experience of childhood. Theability of children in Pakistan to acquire aneducation is constrained not only by theirmalnutrition and the resultant illness but alsoby the limited opportunities of education:As many as 38 per cent of the children donot get enrolled in primary educationbecause of lack of schools and teachers.

Of those children who come from poorfamilies and are unable to go to school, many

are engaged in working for a living.According to the Planning Commission therewere in 1991 as many as eight million61

working children in the 10 to 14 years agegroup. A large number of these are workingin hazardous occupations, even thoughemployment of such children is forbiddenunder the Employment of Children Act of1991. We will discuss in this section thehazards faced by such children.

III.8.2 Hazards at Work Place—Agriculture:Since the statistics on child workers reflectmainly the numbers in wage employment,child workers in the agricultural sector donot find an adequate place in quantitativeestimates. Yet children working alongsidetheir families in agricultural operations suchas seed bed preparation, fodder cutting, ricetransplanting, weeding and harvesting mayconstitute the majority of working childrenin Pakistan. Such children are increasinglyexposed without protective devices to toxicsubstances in pesticides.62 There is nowevidence that indiscriminate use ofpesticides many of which are banned in theadvanced industrial countries are responsiblefor growing health hazards in developingcountries. For example, although developingcountries account for only one sixth of thepesticides users, the rate of poisoning thereis thirteen times as great as in some of thedeveloped countries.63

Another dimension of the hazards towhich rural child workers are exposed,arises out of the production conditions inagriculture: The traditional ties ofdependence of poor peasants on landlordsin large parts of the Punjab and Sindh havebeen reinforced by cash indebtednessfollowing the ‘Green Revolution’.64 Childrenof poor peasant families are often subjectedto extra economic coercion. They are inmany cases made to work without moneywages, as domestic servants in thelandlord’s manor where they are frequentlysubjected to humiliation, beating and abuse.

III.8.3 Hazards at Work Place—Industry:While the problem of unemployment ofadult workers in the informal sector isgrowing, an increasing number of familiesunder poverty pressure are sending theirchildren to work in the urban informalsector. The reason is that even though childworkers are extremely poorly paid, theirwages are a significant contribution to

Children in Pakistan fromlower income families facea high risk of disease anddeath, suffer stunting andwasting of the bodyassociated with widespreadmalnutrition

Children in hazardousindustries not only worklong hours and face a widerange of diseases andinjuries, but are alsooccasionally subjected tophysical beating and sexualabuse

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 29

family income. The first survey on childworkers in Pakistan was a small samplesurvey in Lahore conducted in 1985.65 Thesurvey showed that (on average a childworker was paid Rs.322 per month in 1986)and this constituted 13 per cent of the familyincome. In the case of children working inhazardous industries like for exampleconstruction where the average cash wageof child workers is higher and the totalfamily income lower, the percentagecontribution of the child workers wage tofamily income is 42 per cent.66

The poorer the family the greater themarginal significance of money income, andtherefore the greater the pressure to sendchildren into even hazardous industries. Onthe other hand employers in the informalsector find it profitable to hire child workerssince they can be paid a wage below thelegal minimum of Rs.2,500 per month fixedfor adults.

In the urban and semi-urban areas, mostof the working children are employed insmall scale unregistered establishments inthe informal sector where the employers can

easily evade the legislative protectionsgranted to working children with respect toprotection against hazardous occupationsand working hours. While the number ofchildren in the large-scale formal sector mayhave declined, yet even here child workpersists to a significant extent by means ofthe ‘Contract System’. Under this systemchildren remain employees of a contractorin the informal sector while actually

Table 12 Percentage of Child Workers Reporting Hazards by Type of Hazard

Hazard %

Health and Safety Hazards resulting from intrusion of workplace onto the road1 8.2Dangerous Building Structure2 11.1Unsafe Electrical Fittings3 3.0Unsafe Use of Equipment4 3.6Acute Air Pollution5 30.1Handling Toxic Chemicals without protective devices6 5.0Using unsafe Steel Cutting Procedure 0.3Intense Heat and Glare 7.7Danger of Falling into furnaces which lack protective devices 1.7Unhygienic Food at Workplace 8.1No protection against Welding Sparks 2.6Excessive Working Hours7 9.0Drain Water spread across Workplace Floor 2.3Uncovered Manhole on premises, cement, dust and/or Wood Scrap at factoryfloor where child workers eat food 7.3

Source:Akmal Hussain: Field Survey on Child Workers in Construction and Construction-related Industries,September 1992.Notes:1. Includes injuries/deaths caused to child workers by passing vehicles in cases where these workers are employed

in open air workshops which intrude onto metalled roads.2. Includes weak building structure, broken stairs, weak roofs.3. Includes open switches, electric wires hanging near the workers, naked wires, electric sparks.4. Includes protruded cutting edges, absence of safety devices on machines.5. Includes high levels of carbon monoxide, unburnt carbon particles in the air, silica particles in the air (in tiles

factories), toxic solvent vapours from paints, dyes and thinners, sulphur compounds in varnish solvents used infurniture manufacture, corrosive acid fumes and cyanide in the air in electroplating units, carcinogenic fumes ofvinyl chloride gas (a degraded product of PVC moulding).

6. Toxic dyes, pigments, plasticizers, dryers, acids, mercaptans, acrylic and vinyl resins, used in furniture, paintsand plastic moulding units.

7. More than 10 hours of continuous work.

Chart 13 Number of Casualties Reported During Previous Year

Furnishing White WashingTiles Cement

Construction Steel Window Manufacture Electrification

677752

16064 111 125 60

30 POVERTY, GROWTH AND GOVERNANCE

working in larger industries, as a device toavoid the law.67

A study by Nishtar Medical College,Multan examined twenty-six smallestablishments in Lahore and showed thatall of them were employing one or morechildren under 15 years of age. In mostcases these work places posed severalhazards to the health of the child workersincluding respiratory diseases such aspneumonia, tuberculosis and silicosis,ophthalmic disorders, mental retardation,damage to various body organs and cancer.68

The ILO study by Akmal Hussain in1992 was the first systematic attempt atunderstanding the nature and the extent ofhazards faced by child workers in theconstruction and related industries. Theseare perhaps not only growing more rapidlybut have far greater hazards than any otherset of occupations in which children areemployed. The study is based on a fieldsurvey of child workers in 200 small-scaleestablishments in Lahore. Since this studyis based on a sample survey in one largecity, it cannot be used to drawgeneralizations at the national level. (Anational level survey of children inhazardous industries perhaps needs to beconducted). However, it may be illustrativeof the conditions prevailing in some of theother urban centers of Pakistan.69

The data show that there were fourteendifferent kinds of hazards at the workplacewith air pollution being by far the hazardmost frequently reported by the respondents(30 per cent) (see Table 12). Air pollutionincludes high levels of carbon monoxide,unburnt carbon particles and silica particlesin the air (in tiles manufacture), toxicsolvent vapours from paints, dyes andthinners, sulphur compounds in varnishsolvents used in furniture manufacture,corrosive acid fumes and cyanide in the air,and carcinogenic fumes of vinyl chloridegas. This table shows that in terms offrequency, air pollution at workplace isfollowed by dangerous building structuresat the workplace (reported by 11.1 per centof the respondents), and excessive workinghours (9 per cent). It is noteworthy thatwhere accidents occur they usually happennear the end of the work day when the childworker has low concentration and poor bodycoordination due to acute fatigue. So thecasualties reported due to hazards such asinsufficient light, or proximity of worker to

badly insulated electricity wires, may becausally linked with this fatigue factor.Handling toxic chemicals, intensive heat andglare and uncovered manholes in theworkplace are also reported by a significantpercentage of total respondents interviewed(see table 12).

Annexure II, Table 1 presents the numberof casualties reported in each industry dueto various hazards. It is important to notethat casualties are mainly injuries, andrespondents reported that individual childworkers underwent repeated injuries duringa year.

Annexure II, Table 2 synthesizes the dataon hazards and resultant casualties in eachindustry by constructing a standardizedLethality Index for each category of hazards.Similarly, a standardized Danger Index forindustries has been constructed to show howdangerous each category of hazards is interms of its weight in that industry.

Annexure II, Table 4 presents thepercentage of child workers reporting sexabuse in each industry and in each agegroup. In the case of tiles, cement,furnishing and construction, between 11 percent to 15 per cent of the respondents (inthe respective industries) report sex abuseby their employer. In the case ofelectrification, steel windows and whitewashing, the prevalence of sex abuse is at alower level, ranging from 2 to 4 per cent.

Employer violence, like sex abuse, isprevalent to a significant extent although itvaries considerably between industries (seeAnnexure II, Table 5).

The images of children at work underthe scorching sun on building sites or indark sweat shops lit up by welding sparks,have persisted for two generations. There isa danger of relegating the problem to thedeadly realm of ‘normalcy’. Yet behindthese apparently unchanging images therehas been a rapid increase in the number ofchild workers employed in dangerousoccupations in the informal sector. At thesame time, as we have shown in this section,a whole range of new hazards have emergedfor child workers: toxic chemicals whichthey handle, and carcinogenic fumes whichthey breathe, leading to disease anddeformity of body and mind. Behind thefacade of normalcy, both the scale andintensity of the problem of child labour havereached alarming levels. It is time for policymakers as well as the community to

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 31

understand and act to arrest this mutilationof a new generation. For specific policies toaddress the problem, see chapter 5.

III.9 S OCIAL DISTRESS

As poverty levels rise, unemploymentincreases and access to basic services suchas health, housing and education continuesto remain grossly inadequate, poorhouseholds face acute distress. This distressis intensified by a number of additionalfactors: while malnutrition particularlyamongst children from poor families makesthem increasingly susceptible to infectiousdiseases, at the same time unhygienicenvironmental conditions for the provisionof food increase the risk of disease.70 Yet,due to grossly inadequate public healthservices, the poor are obliged to turn toexpensive private medical services. Distressof extremely poor families associated withsending their children to hazardous work isintensified by injuries and death caused tothe children at work places (see precedingSection III.8 of this chapter).

The distress of poor families resultingfrom injury, disease and death of theirchildren in hazardous work is furtherintensified by a variety of crimes and humanrights violations. Such privations aresuffered by citizens, in general, and sociallyvulnerable poor households, in particular.These range from murder, rape and childabuse to kidnapping of children for sale.Table 14 gives province-wise figures ofselected human rights violations in Pakistanfor the year 2000, based on data providedby the Human Rights Commission ofPakistan. The data show that in the Punjabprovince there were 2,144 crimesperpetrated against citizens, 307 inthe Sindh province, 88 in the NWFPand 11 in Balochistan. These figuresmay be biased downward since theyare based only on those crimes whichare reported in various newspapersin each district. An unknown numberof crimes do not get registered atpolice stations and even a largernumber do not get reported in thepress. Nevertheless these figures areindicative of the vulnerability ofcitizens to violent crimes. All thesedistress factors combine to place

family members under acute mental andemotional strain.

It is not surprising, therefore, that for thefirst time in Pakistan a new phenomenon isbeing reported in the press: Poverty relatedsuicides. While the data on suicides isinadequate and is not systematicallyreported either by government agencies orNGOs, nevertheless we have been able tocompile from press reports, data on povertyrelated suicides for the year 1999. Whilethis data cannot be taken to be representativeof the country as a whole, it is illustrativeof the problem and enables us to apprehend,no matter how inadequately, the intenseemotional experience of poverty on the onehand and the poignant sense ofresponsibility that mothers and fathers feeltowards their children and their relatives.Table 13 shows that there were a total of652 poverty related suicides in poorhouseholds. Of these as many as 475 werethe result of family tensions related witheconomic pressure. One hundred and fifty-two suicides were the result of the mentalstress of unemployment and twenty-five theresult of pressures related with ill health.The gender wise description of suicidessuggests that women in poor householdstake the brunt of mental pressure.

Even this limited evidence indicates theremarkable dignity of the poor, their senseof family responsibility and deep humanityillustrated by taking sick family members toeven unaffordable medical facilities, paid forwith loans (see chapter 3). Violation of thissense of dignity by brutal economic pressureand humiliating crimes against their family,some times drive the poor to suicide.

Chart 14 Human Rights Violations in PakistanNumber of Persons Affected in 2000

Note: Gross under reporting is likely in isolatedareas and provinces.

PunjabSindhNWFPBalochistan

2144

3071188

32 POVERTY, GROWTH AND GOVERNANCE

Table 13 Number of Poverty Related Suicides by Cause, by Social Group and Gender in 1999

Middle Class Poor ClassReported Cause Male Female Total Male Female Total All

Family tensions related with economic pressure 64 13 77 220 255 475 552

Mental stress related withunemployment/underemployment 21 0 21 152 0 152 173

Mental stress resulting from economic pressuresassociated with ill health 5 4 9 17 8 25 34

Total 90 17 107 389 263 652 759

Source: Compiled from news reports in the daily Jang, Various issues, 1999.

Table 14 Human Rights Violations in Pakistan for the Year 2000.Province-wise Breakdown of the Number of Persons Affected*

Province Name Murder Kidnapping Rape Burn Sexual Child Abuse, TotalCases Harassment Selling & Violations

Kidnapping

Punjab Province 605 590 467 223 132 127 2144Sindh Province 184 53 14 47 2 7 307NWFP Province 71 10 2 4 0 1 88Balochistan Province 11 0 0 0 0 0 11

Total Violations(by type of violation) 871 653 483 274 134 135 2550

Source: Human Rights Commission of Pakistan, Lahore.

*Note: The data is collected by the Human Rights Commission of Pakistan’s Head Office in Lahore. The source of the data is National and local dailynewspapers. The format of the collected data is the number, nature, and place of violation/s per day. This format was converted to represent an annual figure foreach District for each nature of violation for this study. The data is for the period 01/01/2000 to 31/12/2000.

CONCLUSIONS

In this chapter we have given a briefsnapshot picture of the multi faceted crisisof finance, economy and society. There hasbeen an unprecedented increase in povertyand unemployment. The acuteness of theeconomic condition of poor households, isreinforced by extremely inadequate accessover basic services such as primaryeducation and health, particularly forwomen. We have indicated that the problemof poverty and lack of access over basicservices is related with adverse changes inthe structure of the economy and pooreconomic management by successivegovernments in the past. We have alsoindicated some of the structural features inboth the financial crisis as well as the crisis

in the real economy. Unless these structuraland institutional problems are addressed,growth is likely to remain slow and unstable,leading to still greater poverty in the future.

The impact of the crisis of poverty isparticularly acute on the most vulnerablesections of society: Women and children.The suffering of women is intensified asthey face social discrimination, genderinequality in the access over basic services,employment and income. The data we havepresented in this chapter show that adisturbing proportion of poor children facemalnutrition, and consequently increasedsusceptibility to disease. At the same timegrowing numbers of them instead of goingto school are going to work in hazardousoccupations where they are subjected tophysical injuries and sexual abuse.

THE MULTIFACETED CRISIS OF ECONOMY AND SOCIETY 33

Poor households faced with hunger,frequent illness and seeing their childrenbeing physically and mentally mutilated, areconfronted with the added distress ofviolence, kidnapping and theft due to thepoor law and order situation.

It is clear therefore that in facing thismultifaceted crisis of the human condition,the inter-related dimensions of the economy,institutions and governance would have tobe simultaneously addressed. In thesubsequent chapters we will analyze thedynamics of the crisis in terms of thesedimensions to identify the policy actions thatcan be undertaken to overcome it.

NOTES

1. All figures in this para estimated from variousissues of the Economic Survey, GOP, EconomicAdvisor’s Wing, Finance Division.

2. A Debt Reduction and Management Strategy,Summary Report, GOP, March 2001, Table 2,p. 12.

3. Ibid., Table 1, p. 10.4. Ibid., p. 7.5. Ibid., Table 2, p. 11.6. Ibid.7. See, Hafiz Pasha: ‘Fifty years of Public Finance in

Pakistan: A Trend Analysis’, in Shahrukh RafiKhan (ed.), Fifty Years of Pakistan’s Economy:Traditional Topics and Contemporary Concerns,OUP, 1999, p. 207, Table 2.

8. Overcoming Poverty: The Report of the TaskForce on Poverty Eradication, May 1997.

9. See, Section II.1 (b).10. This is elaborated in chapter 2.11. This is elaborated in chapter 3.12. See, Akmal Hussain, Employment Generation,

Poverty Alleviation and Growth in Pakistan’sRural Sector: Policies for Institutional Change.Report prepared for the International LabourOrganization, Country Employment PolicyReview, Pakistan, ILO/CEPR, March 1999.

13. Akmal Hussain, ILO/CEPR, op. cit., p. 4.14. For a more detailed discussion, see: Akmal

Hussain, ILO/CEPR, pp. 5-18.15. Interim Poverty Reduction Strategy Paper,

Government of Pakistan, November 2001, p. 23.16. Mark W. Rosegrant and Robert Evenson:

‘Agricultural Productivity Growth in Pakistan andIndia: A comparative Analysis’, presented atPakistan Institute of Development EconomistsNinth Annual General Meeting, Islamabad, 1993.

17. If atmospheric carbon is doubled, the averagesummer temperatures in Pakistan are expected toincrease by 1.5 C to 4.5 C (base average of 2.5 C),over the next seventy years. This could lead to adecline in wheat yields from 10 per cent to 60 percent, depending on the type of wheat seed, plantingtime, related atmospheric/weather conditions. SeeQureshi, Ata and Iglesias, Implications of GlobalClimate Change for Pakistan Agriculture: Impacts

on Simulated Wheat Production, Climate Institute,Washington, DC USA, 1992.

18. Alim Mian and Yasin Mirza: Pakistan SoilResources, National Conservation Strategy, SectorPaper IV, Environment and Urban AffairsDivision, with IUCN, 1993.

19. Sandra Postel, Pillar of Sand: Can the IrrigationMiracle Last?, W.W. Norton & Company (July1999), New York.

20. Pakistan: A Strategy for Sustainable AgriculturalGrowth, World Bank Report No. 13092 Pak,November 1994.

21. The discussion on problems of Pakistan’s irrigationin this sub-section is drawn from: PakistanIrrigation and Drainage: Issues and Options, WorldBank Report No. 11884-PAK, World Bank,25 March 1994.

22. See, chapter 2 for a detailed discussion of thisissue.

23. See, A.R. Kemal, ‘Patterns and Growth ofPakistan’s Industrial Sector’ p. 162 in ShahrukhRafi Khan (ed.), Fifty Years of Pakistan’sEconomy: Traditional Topics and ContemporaryConcerns, Oxford University Press, Karachi, 1999.

24. Nomaan Majid, op. cit., Table A7, p. 103.25. For larger districts like Lahore (and Karachi in

Sindh) therefore further disaggregation of HDI forsub-districts would be necessary, which existingdata does not permit.

26. Paul Streeten et al., First Things First: MeetingBasic Needs in Developing Countries, New York,Oxford University Press, 1981. Pages 46-47 citedin S.J. Burki, Pakistan: Fifty Years of Nationhood,Vanguard, Lahore, 1999.

27. Social Development in Pakistan, Annual Review2002, Social Policy and Development Centre,Oxford University Press, Karachi 2002, p. 206.

28. Asian Development Bank, Poverty in Pakistan,July 2002, pp. 19-20.

29. Ibid., p. 21.30. Asian Development Bank, op. cit. p. 22.31. Asian Development Bank, Poverty in Pakistan,

op. cit., p. 26.32. National Health Survey of Pakistan, Pakistan

Medical Research Council, Federal Bureau ofStatistics, Pakistan and the Department of Healthand Human Services, USA, 1998, p. 127.

33. Ibid., p. 2.34. Naqvi and Zareen, Poverty in Pakistan: Review of

Recent Literature. South Asia Poverty Reductionand Economic Management Unit, The WorldBank, Islamabad.

35. Anne G. Tinker, Improving Women’s Health inPakistan, Human Development Network, TheWorld Bank, 1998.

36. Anne G. Tinker, op. cit. p. 6.37. Anne G. Tinker, op. cit. p. 8.38. Population Sector Perspective Plan 2012, p. V.39. Data from the NHDR/A.I. Hamid Spot Survey

2001 shows that large family size is one of thefactors which accentuate poverty in low incomefamilies. It can be argued that the relatively largerfamily size in poor households makes them morevulnerable to economic shocks resulting frommedical expenses following illness in the family,or bad harvests. (For a discussion on therelationship between the impact of sickness andthe process of poverty creation see chapter 3).

34 POVERTY, GROWTH AND GOVERNANCE

40. Interim Population Sector Perspective Plan 2012,Government of Pakistan, February 2002, p. 6.

41. Ibid., p. vii.42. Ibid.43. The calorific norm is translated into monthly per

equivalent adult expenditure of Rs.682 in 1998-99crisis.

44. Inter-temporal comparison of household incomeand expenditure survey data (HIES) is somewhatcompromised by the fact that the sample size in1990-91 was much smaller than in subsequentyears and also the average household sizesparticularly in the lowest expenditure categoriesare higher in the 1998-99 PIHS compared to theHIES during 1992-93 to 1996-97. However, thesequalifications not withstanding the generalconclusion that poverty has increased substantiallyduring the decade of the 1990s is robust and issupported by other poverty studies using differentpoverty lines and methodologies (See, Poverty inPakistan: Vulnerabilities, Social Gaps, and RuralDynamics, World Bank Report, 31 May 2002).

45. Pakistan Interim Poverty Reduction Strategy Paper(I-PRSP), Government of Pakistan, November2001, p. 7.

46. A Debt Burden Reduction and ManagementStrategy, op. cit., p. 1.

47. For a detailed discussion of this issue, seechapter 2.

48. See, Table 25, in chapter 3 of this Report.49. For a more detailed discussion of this approach

see, Akmal Hussain, ‘Pro-Poor Growth,Participatory Development and Decentralization,Paradigms and Praxis’, in P. Wignaraja andS. Sirivardana, Pro-Poor Growth and Governancein South Asia, Zed Press, London (forthcoming),Part-III.

50. World Bank, Women in Pakistan: An Economicand Social Strategy, 1990.

51. Cited in Akmal Hussain, Poverty Alleviation inPakistan, Vanguard Books, 1994, p. 17.

52. World Bank, Women in Pakistan, op. cit.53. Khawar Mumtaz, ‘Poverty: The Gender

Perspective’, Research Input for the UNHDR 2002.54. Zeba A. Sathar and Shahnaz Kazi, Women’s

Autonomy, Livelihood and Fertility, PIDE, 1997.55. See, Poverty in Pakistan, Asian Development

Bank, July 2002.56. See, Anne G. Tinker, Improving Women’s Health

in Pakistan, Human Development Network, TheWorld Bank, Washington, DC, May 1998.

57. Zeba Sathar and Shahnaz Kazi in a recent studybased on a sample survey of rural communities inten Punjab districts, have for the first time,systematically investigated the patterns ofwomen’s employment and issues of women’semployment. This sub-section draws on their work.

Zeba Sathar and Shahnaz Kazi, Women’sAutonomy, Livelihood and Fertility, PIDE, 1997.

58. Ibid.59. Ibid.60. See, National Health Survey of Pakistan –

1990-94, Pakistan Medical Research Council,Health Profile of the People of Pakistan, Published:1998.

61. This figure even for 1990 is an under estimatesince it does not take account of working childrenin the age group 14 to less than 15. A revisedestimate to take account of this bias is 8.65 millionchildren in the year 1990. Assuming a 2.8 per centpopulation growth rate with the percentage ofworking children remaining constant (thepercentage should be expected to because ofsharply increasing poverty during the 1990s), thenumber of working children in the year 2001 maybe approximately 12 million.

62. See, Akmal Hussain, ‘Women, Environment andDevelopment’. Paper presented to the Centre forResearch and Management, Islamabad, 12February 1991.

63. Catherine Canfield, ‘Pesticides Exporting Death’,New Scientist, 16 August 1984.

64. For a detailed analysis of this issue see, AkmalHussain, ‘Technical Change and SocialPolarization in Rural Punjab’, in Strategic Issuesin Pakistan’s Economic Policy, ProgressivePublishers, Lahore, 1988.

65. Akmal Hussain, ‘Economic Growth, Poverty andthe Child’, Paper presented at the HarvardConference on Who speaks for the Child, HarvardUniversity, Cambridge, Mass, 11-12 August 1986.

66. See, Akmal Hussain, ‘Child Workers inconstruction and related industries in Pakistan’,ILO/ARTEP, Geneva, 1 October 1992 (Mimeo).A summarized version was published in theJournal of Lahore School of Economics, Volume 2No.2, July-December 1997.

67. Situation Analysis of Children and Women inPakistan, UNICEF, 1992, p. 84.

68 Study by Nishtar Medical College, Multan, citedin Discover the Working Child, 1990, UNICEF,Islamabad.

69. The study may also be useful in that it developeda methodology for estimating the lethality indexof each kind of hazard faced by working childrenand also for a standard danger index of industrywith varying composition of hazard types.

70. The NHDR/PIDE 2001 Poor Communities Surveyshows that as many as 65 per cent of poorrespondents were sick at the time of the interview.These findings are corroborated by the NationalHealth Survey of Pakistan – 1990-94, PakistanMedical Research Council, Health Profile of thePeople of Pakistan, 1998.

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 35

CHAPTER 2

ECONOMIC POLICY, ECONOMICSTRUCTURE AND POVERTY

Photograph by Keith Stanley

There is always another death to diebeyond the death you know

Always another door of scarsopening into another room

√ RUMI13th Century Sufi Poet

(Translation, Lawrence Harvey)

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 37

CHAPTER 2

Economic Policy, Economic Structure andPoverty

INTRODUCTION

In chapter 1, we identified the elements ofthe crisis of the human condition inPakistan. In this chapter we attempt toexplain this crisis through a historicalanalysis of the impact of economic policyon the structure of the economy, as itdeveloped a tendency for increasing povertyand loan dependence. These processesaccelerated during the 1990s and began tobe manifested in terms of acute poverty,sharp slow down in the GDP growth,unsustainable fiscal deficits and intensepressures on governance. The analysis inthis chapter therefore focuses on the patternof growth, fiscal deficits and povertycreation in the context of the economicpolicy of various regimes in the period 1958to 1999.

I. THE AYUB REGIME 1958-69:ECONOMIC GROWTH,INEQUALITY AND THE ROOTSOF FINANCIAL DEPENDENCE

The economic strategy undertaken by theAyub regime, while it accelerated GDPgrowth, sharply accentuated inter-personaland inter-regional economic inequalities. Inthis section, we will briefly examine the

economic policies of the Ayub regime toindicate how an economic structure emergedin this period that was to lock Pakistan’seconomy into a narrow and inefficientindustrial base, slow export growth andincreasing loan dependence in the next fourdecades.

Following the Korean boom in 1953, thegovernment introduced a policy frameworkfor inducing the large profits of traders injute and raw cotton to flow into themanufacturing sector. This was donethrough a highly regulated policy frameworkfor import substitution industrialization inthe consumer goods sector. The policycombined tariff protection for manufacturersof consumer goods together with directimport controls on competing imports. It hasbeen estimated that the average rate ofeffective protection was as high as 271 percent in 1963-64, and fell to 125 per cent in1968-69.1 This enabled the emergingindustrial elite to make large profits fromthe domestic market without thecompetitive pressure to achieve higherlevels of efficiency and an exportcapability.

During the 1960s import substitutionindustrial growth in the consumer goodssector, was more systematically encouragedby the government. This was done by meansof high protection rates to domestic

The economic strategyundertaken by the Ayubregime, while it acceleratedGDP growth, sharplyaccentuated inter-personaland inter-regionaleconomic inequalities

558

0.87

306.

13

357

0.73

3126

.27

336

1.14

29 30.8

6

174

5028

.67

0.33

Chart 1 Period Averages of Exports of Various Commodity Groups as a % ofTotal Exports of Pakistan

Agricultural,Food and LiveAnimalsIntermediateGoodsCapitalGoods

Rest

Textile &RelatedGoods

1960-70 1973-77 1978-87 1988-99

60

50

40

30

20

10

0

38 POVERTY, GROWTH AND GOVERNANCE

manufacturers of consumer goods, cheapcredit, and direct import controls oncompeting imports. At the same time, therewas removal of import controls (establishedearlier in the 1955) on industrial rawmaterials and machinery. In addition tovarious forms of protection, new incentiveswere offered for exports. These included theBonus Voucher Scheme, tax rebates, taxexemptions and accelerated depreciationallowances to increase post tax profits.

The Bonus Voucher Scheme enabledexports of certain manufactured goods toreceive in addition to the rupee revenue oftheir exports, bonus vouchers equivalent toa specified percentage of the foreignexchange earned. The vouchers could besold in the market (to potential importers)for a price usually 150 to 180 per cent abovethe face value. Thus, the exporter not onlyearned the rupee revenues from exports butalso an additional premium through sale ofthe bonus vouchers.

The Bonus Voucher Scheme essentiallyconstituted a mechanism for enablingdomestic manufacturers to earn large rupeeprofits on exports which brought no gain tothe economy in terms of foreign exchange.Soligo and Stern2 estimated that during the1960s, Pakistan’s main industries (wheninput costs and output values are bothmeasured in dollar terms) were producingnegative value added.

It has been argued that the phenomenonof negative value added in industry was animportant reason why during the 1960s,despite import substitution and large exportvolumes, foreign exchange shortagespersisted.3 He suggests that this set the‘mould’ for Pakistan’s narrow export base(concentration on low value added end oftextiles) and the debt problem, that remainstill today. For example (see Chart 1), theshare of the traditional textile in industry intotal exports far from falling, in factincreased from 30 per cent in the decade ofthe 1960s to 50 per cent in the decade of the1990s.

In a broader perspective, it can be arguedthat the government through a range ofprotection measures and concessions in the1960s, enabled the emerging industrial eliteto make large rupee profits from domesticand export sales, without the marketpressures to diversify into high value addedindustries or to achieve internationalcompetitiveness. Thus, the experience of the

1960s is illustrative of the nature of bothgovernment and the economic elite. In thepursuit of securing its power base, thegovernment by means of subsidies,manipulation of tariffs and the exchange ratemechanism, transferred rents to theindustrial elite. This reinforced the traditionbound propensity of the economic elite forrisk aversion, lack of innovative dynamismand dependence on governmental patronage.

The economic policies and processesduring the 1960s, illustrate the sociologicalpropensity of the ruling elite to seek rentsfrom government which in turn reinforcedits power through such patronage. Thesesociological propensities are rooted in theregion’s history stretching back to theeighteenth century (see box titled:Government Patronage and Rent SeekingElites: A Longer Historical View). Thesetendencies persisted in varying degrees forthe next four decades. Yet they were at aneconomic cost that became a growingburden on an increasingly fragile economy:It has been estimated for example that evenin 1990-91 by which time the rates ofeffective protection had been considerablyreduced, the increase in the share ofmanufacturing attributable to protectionamounted to 5 per cent of GNP.

As we have seen, the government duringthe 1960s adopted a deliberate policy ofconcentrating national income in the handsof the upper income groups.4 The economicbasis of this policy was the assumption thatthe rich save a larger proportion of theirincome and hence a higher national savingsrate could be achieved with an unequaldistribution of income (the target savingsrate being 25 per cent of GDP). In practicewhile the policy of distributing incomes infavour of the economic elite succeeded, theassumption that it would raise domesticsavings over time failed to materialize.Griffin points out for example that 15 percent of the resources annually generated inthe rural sector were transferred to the urbanindustrialists and 63 to 85 per cent of thesetransferred resources went into increasedurban consumption.5 Far from raising thedomestic savings rate to 25 per cent, theactual savings rate never rose above 12 percent.6

The failure of the economic elite to saveout of their increased income resultedduring the 1960s, in a sharp increase in therequirement of foreign aid. According to

The government through arange of protectionmeasures and concessionsin the 1960s, enabled theemerging industrial elite tomake large rupee profitsfrom domestic and exportsales, without the marketpressures to diversify intohigh value added industriesor to achieve internationalcompetitiveness

The phenomenon ofnegative value added inindustry was an importantreason why during the1960s, despite importsubstitution and largeexport volumes, foreignexchange shortagespersisted

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 39

official figures, gross foreign aid inflowsincreased from US$373 million in 1950-55to US$2,701 million in 1965-70. The rapidincrease in foreign aid was accompaniedby a change in its composition from grantsto higher interest loans.7 Consequently, thedebt-servicing burden rose dramatically.Debt servicing as a percentage of foreignexchange earnings was 4.2 per cent in1960-61 and increased to 34.5 per cent by1971-72. The magnitude of this figure didnot fall for the next three decades and bythe year 2000, it was even higher at 40 percent.

Given the policy of re-distributingincomes in favour of the rich, it is notsurprising that by the end of the 1960s asmall group of families with inter-lockingdirectorates dominated industry, bankingand insurance in Pakistan. In terms of valueadded 46 per cent of the value added in thelarge scale-manufacturing sector originatedin firms controlled by only forty-threefamilies.

In banking, the degree of concentrationwas even greater than industry. For example,seven family banks constituted 91.6 per centof private domestic deposits and 84.4 percent of earning assets. Furthermore, StateBank compilation of balance sheets of listedcompanies indicates that the family bankstended to provide loans to industrialcompanies controlled by the same families.8

The insurance industry, although smaller insize than banking, also had a high degree ofconcentration of ownership. The forty-threeindustrial families controlling 75.6 per centof the assets of Pakistani insurancecompanies tended to favour industrialcompanies owned by the same group.9

The major industrial families andentrepreneurs were a fairly closely-knitgroup. Not only did many of them havecaste and kinship relations, but alsomembers of the families tended to sit oneach other’s boards of directors. Forexample about one-third of the seats on theboards of directors of companies controlledby the forty-three families were occupiedby members of other families within theforty-three.

Not only were the forty-three familiesdominating industry, insurance and banking,but also had considerable power overgovernment agencies sanctioning industrialprojects. PICIC (Pakistan Industrial Creditand Investment Corporation) was the agency

responsible for sanctioning large-scaleindustrial projects. Out of the twenty onedirectors of PICIC, seven were from theforty three leading industrial families andwere actively involved in the public sectorfinancial institutions that directly affectedtheir private economic interests.

During the process of rapid economicgrowth of the 1960s, while an exclusive andhighly monopolistic class was amassingwealth, the majority of Pakistan’s populationwas suffering an absolute decline in itsliving standards. For example, the per capitaconsumption of foodgrain of the poorest 60per cent of Pakistan’s urban populationdeclined from an index of 100 in 1963-64to 96.1 in 1969-70. The decline was evengreater over the same period in the case ofthe poorest 60 per cent of rural population.In their case, per capita consumption offoodgrain declined from an index of 100 in1963-64 to only 91 in 1969-70.10 There wasan even larger decline in the real wages inthe industry: Griffin suggests that in thedecade and a half ending in 1967, real wagesin the industry declined by 25 per cent.11 AnILO/SAAT study has estimated that in1971-72, poverty in the rural sector was soacute that 82 per cent of rural householdscould not afford to provide even 2,100calories per day per family member.12

In an economy where there weresignificant differences in the infrastructurefacilities available in the different provinces,there was a tendency for investment basedon private profitability to be concentrated inthe relatively developed regions.Consequently, regional disparities wouldtend to widen over time. This is in fact whathappened in the case of Pakistan. ThePunjab and the Sindh provinces, which hadrelatively more developed infrastructure,attracted a larger proportion of industrialinvestment than the other provinces. InSindh, however, the growth in income wasmainly in Karachi and Hyderabad. Thus,economic disparities widened not onlybetween East and West Pakistan, but alsobetween the provinces within West Pakistan.

During the 1960s, the factor whichaccelerated the growth of regional incomedisparities within what is Pakistan today wasthe differential impact of agricultural growthassociated with the so-called ‘GreenRevolution’. Since the yield increaseassociated with the adoption of high yieldvarieties of foodgrain required irrigation,

During the process of rapideconomic growth of the1960s, while an exclusiveand highly monopolisticclass was amassing wealth,the majority of Pakistan’spopulation was suffering anabsolute decline in its livingstandards

40 POVERTY, GROWTH AND GOVERNANCE

and since the Punjab and the Sindh had arelatively larger proportion of their areaunder irrigation, they experienced muchfaster growth in their incomes, compared tothe Balochistan and the North West FrontierProvince.13

In a situation where each of the provincesof Pakistan had a distinct culture andlanguage, the systematic growth of regionaldisparities created acute political tensions.Addressing these tensions required agenuinely federal democratic structure withdecentralization of political power at theprovincial level.14 Only such a polity andlarge federal expenditures for thedevelopment of the under-developed regionscould ensure the unity of the country. In theabsence of such a polity, the growingeconomic disparities between provincescreated explosive political tensions.

The failure to conduct an effective landreform in Pakistan has resulted in acontinued concentration of landownership inthe hands of a few big landlords. Thus, in1972, 30 per cent of total farm area wasowned by large landowners (owning 150acres and above). The overall picture ofPakistan’s agrarian structure has been thatthese large landowners have rented out mostof their land to small and medium-sizedtenants (i.e., tenants operating below twenty-five acres).

In an earlier doctoral study it was shownthat given this agrarian structure, when the‘Green Revolution’ technology becameavailable in the late 1960s the largerlandowners found it profitable to resumesome of their rented out land for self-cultivation on large farms using hired labourand capital investment. Consequently therewas a growing economic polarization ofrural society.15 While the landlords’ incomesincreased, those of the poor peasantrydeclined relatively, as they faced a reductionin their operated farm area and in manycases growing landlessness.16 For examplein the case of farms in the size class 150acres and above, the increase in the farmarea during the period 1960 to 1978,constituted half their total farm area in 1978.In terms of the source of increase, 65 percent of the increase in area of large farmscame through resumption of formerly rentedout land. That this resumption wasaccompanied by growing landlessness of thepoor peasantry is indicated by the fact thatin the period 1960 to 1973 about 0.8 million

tenants became landless wage labourers. Ofthe total rural wage labourers in Pakistan in1973, as many as 43 per cent had enteredthis category as the result ofproletarianization of the poor peasantry.17

The polarization of rural society andincreased landlessness of the poor peasantrywas associated with increased peasantdependence in the face of rural markets foragricultural inputs and outputs that weremediated by large landlords. In the pre‘Green Revolution’ period, the poor tenantrelied on the landlord simply for the use ofthe land but used the government’s canalwater, his own seeds and animal manure. Inthe post ‘Green Revolution’ period however,since the political and social power of thelandlord remained intact, the peasant beganto rely on the landlord for the purchase ofinputs. (For example, HYV seeds, chemicalfertilizers, pesticides, the landlord’s tube-well water, for a seasonally flexible supplyof irrigation, and credit). Thus in many(though not all) cases, the dependence ofthe poor peasant intensified with thecommercialization of agriculture in thesense that now his very re-constitution ofthe production cycle annually depended onthe intercession of the landlord. At the sametime due to the reduction in his operatedarea following land resumption, the tenantwas obliged to complement his income byworking as a wage labourer part of the timeat a wage rate below the market rate indeference to the landlord’s power.(Conversely, the landlord’s management ofthe owner cultivated section of his land wasfacilitated through this tied source of laboursupply). These phenomena persist till today.(They were first analyzed by Akmal Hussainin a doctoral study 1980,18 and currentempirical evidence is provided in chapter 3,Section-IV). Finally, the peasant’s incomewas further constricted as he was obliged tosell a large part of his output at harvest timewhen prices were low (in order to pay backloans for input purchase). Near the end ofthe year, when he ran out of grain, he had topurchase his remaining consumptionrequirements at high prices from the market.19

Thus the ‘commercialization ofagriculture’ in a situation where landlordsand the local power structure controlledmarkets for inputs and outputs, brought newmechanisms for the reproduction of ruralpoverty, although overall agriculturalgrowth accelerated. As we will see, the high

While the landlords’incomes increased, those ofthe poor peasantry declinedrelatively, as they faced areduction in their operatedfarm area and in manycases growing landlessness

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 41

rate of agricultural growth of the Ayubperiod could not be sustained in subsequentyears. Yet, the mechanisms of reproducingrural poverty that had emerged in thisperiod, persisted over the next four decades.They are analyzed with supportive fieldsurvey data in chapter 3.

II. THE BHUTTO REGIME 1973-77:INVESTMENT, GROWTH ANDTHE BUDGET DEFICIT

One of the most important initiatives of theBhutto regime was the nationalization in1972 of forty-three large industrial units inthe capital and intermediate goods sectorssuch as cement, fertilizers, oil refining,engineering and chemicals. Just three yearslater the government nationalized thecooking oil industry and then flour milling,cotton ginning and rice husking mills.

While the first set of nationalizationsimpacted the ‘monopoly capitalists’, thesecond set of nationalizations in 1976 bycontrast hit the medium and small sizedentrepreneurs. Therefore, nationalization inthe Bhutto regime cannot be seen in termsof state intervention for greater equity.Rather the rapid increase in the size of thepublic sector served to widen the resourcebase of the regime for the practice of thetraditional form of power through statepatronage.20

Let us now briefly indicate theimplications of the economic measures inthis period on investment, growth and thebudget deficit. Private investment as apercentage of GDP in the Bhutto period(1973/74 to 1977/78) declined sharply to 4.8per cent compared to 8.2 per cent in thepreceding period 1960/61 to 1972/73 (seeTable 1). The nationalization of heavyindustries shook the confidence of theprivate sector and was a factor in thedeclining investment. The trend may havebeen reinforced by a second set of measuresduring the Bhutto regime. These included adevaluation of the exchange rate whichplaced large and small scale industry at parwith respect to the rupee cost of importedinputs (i.e., the indirect subsidy provided tolarge scale manufacturing industry throughan overvalued exchange rate, waswithdrawn). At the same time, directsubsidies to manufacturing weresignificantly cut down, import duties on

finished goods were reduced and anti-monopoly measures along with pricecontrols were instituted. It is not surprisingthat domestic manufacturers who had beenbred on government support, responded byfurther reducing investment.

It may be pertinent to point out here thatthe decline in private sector manufacturingas a percentage of the GDP, had alreadybegun eight years before the Bhutto period,after the 1965 war.21 Therefore, while thenationalization and subsequent economicmeasures cannot be said to have caused thedecline in private investment, they certainlyintensified it.

The decline in private sector investmentin the post 1965 period as a whole, (asopposed to its sharp deceleration during thenationalization phase), can be attributed22

to three underlying factors: (i) foreigncapital inflows fell sharply after the 1965war, (ii) the manufacturing sector in asituation of declining domestic demand wasunable to meet the challenge of exports dueto high production costs in traditionalindustries, and (iii) entrepreneurs did notdiversify into non traditional industrieswhere there was considerable growthpotential. Thus, the declining trend inprivate sector manufacturing investment inthe post-1965 period, a trend that persistedright into the 1990s, can be said to berooted in certain sociological features thatcharacterized most of Pakistan’sentrepreneurial elite: (a) its reliance onforeign savings rather than its own thrift,(b) its dependence on state patronage andsubsidies of various kinds, and (c) itstradition bound nature, risk avoidance andin many cases lack of innovativeness forbreaking new ground.

Table 1 Period Averages of Gross Investment* as a % of GDP

Average During GFCF (Total) as GFCF (Private) as GFCF (Public) as% of GDP % of GDP % of GDP

(Current Prices) (Current Prices) (Current Prices)

1960-1973 15.28 8.21 7.261973-1978 15.50 4.79 10.711978-1988 16.77 7.10 9.661988-1993 17.95 9.22 8.731993-1998 16.31 9.32 7.361998-2000 13.26 8.10 5.31

Source: Economic Survey, Government of Pakistan (GOP), Economic Advisor’s Wing, FinanceDivision, Various Issues.Note: *GFCF is Gross Fixed Capital Formation.

The rapid increase in thesize of the public sectorserved to widen theresource base of the regimefor the practice of thetraditional form of powerthrough state patronage

42 POVERTY, GROWTH AND GOVERNANCE

We find that unlike manufacturinginvestment, the decline in the total privatesector investment as a percentage of theGDP was more than compensated by anincrease in the total public sectorinvestment. Thus the overall investment/GDP ratio during the Bhutto period reached15.5 per cent, which was slightly higherthan in the preceding period (see Table 1).Yet, despite an increase in the totalinvestment/GDP ratio, the growth rate ofGDP declined compared to the precedingperiod (as Table 2 shows, GDP growthduring the Bhutto period was about 5 percent compared to 6.3 per cent in the earlier1960-73 period). This is indicative of adecline in the productivity of investment(i.e., an increase in the incremental capitaloutput ratio). The question is what causedthe decline in the capacity of investment togenerate growth? The answer lies in thefact that not only was most of theinvestment in the period emanating fromthe public sector, but that a large proportionof this investment was going intounproductive spheres: Defence and publicadministration were the fastest growingsectors of the economy (11.4 per cent)while the commodity producing sector wasgrowing at only 2.21 per cent during theperiod. Even in the productive sector, thelion’s share of the public investment wentinto the Steel Mill project beginning in1973. The project using an obsolete Sovietdesign, involved a technology that was bothcapital intensive and inefficient.Consequently, the tendency of decliningproductivity of investment wasexacerbated.

Even in the existing manufacturingindustries in the public sector while someindustries showed good profits to start with,there was a sharp decline in the rates ofreturn on investment, due to a combinationof poor management of existing units andimproper location of new units on politicalgrounds.23 Thus, the lowering of GDPgrowth despite an increase in investment inthe Bhutto period occurred because of twosets of factors: (a) concentration of publicsector investment in the unproductivesectors of defence and administration, and(b) economically inefficient investmentdecisions in the public sector industriesbased on political considerations, withrespect to technology choice, geographiclocation, and production management.

Let us now briefly discuss theimplications of economic measures of theZ.A. Bhutto regime for the budget.

The problem of the government’sdependence on financial borrowing as wehave indicated, started in the Ayub period,when the obligation of maintaining a largemilitary and bureaucratic apparatuscombined with the imperatives of providinghuge subsidies to both agriculture andindustry: For agriculture in the form ofsubsidized inputs (water, fertilizer,pesticides) as part of the elite farmerstrategy; for industry in terms of explicitand implicit subsidies such as an over-valued exchange rate, subsidized credit andtax incentives to an industrial sector that wasinefficient and lacked export compe-titiveness.

In the Z.A. Bhutto period, budgetdeficits widened further as expenditures ondefence and administration increasedsharply. Higher defence expenditures werepart of Bhutto’s policy of refurbishing thedefence establishment in the hope ofwinning it over after his hand pickedappointment of General Ziaul Haq as theArmy Chief. Large expenditures ongovernment administration arose mainlyout of Bhutto’s decision to build new paramilitary institutions such as the FederalSecurity Force which he expected to bepersonally loyal to him.24 He also enlargedand re-structured the bureaucracy throughthe policy of ‘lateral entry’ which enabledloyalists outside the civil services cadre tobe appointed at the upper and middleechelons. Bhutto’s attempt to build ademesne of patronage within the stateapparatus had huge financial consequences.For example, defence expenditure as apercentage of GDP increased from 2.7 percent in 1965 to 6.7 per cent in 1974-75.Similarly general administration as apercentage of GDP increased from 1.1 percent in 1964-65 to as much as 1.8 per centin 1974-75.25

Apart from the increased expenditures ondefence and administration, the budget wasadditionally burdened by the losses of thepublic sector industries. The deficits in theseindustries were generated by their poorperformance on the one hand and the pricingpolicy on the other. Nationalized units underofficial pressure to suppress price increasesdespite rising costs, were recovering notmuch more than their operating costs.

Apart from the increasedexpenditures on defence andadministration, the budgetwas additionally burdenedby the losses of the publicsector industries

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 43

Consequently, internally generated fundscould finance only 7 per cent26 of theinvestment undertaken, thereby necessitatingheavy borrowing from the government.

As government expenditures increased,the ability to finance them from tax revenuewas constrained by two factors: (a) The slowdown in the GDP growth, and (b) thegovernment’s inability to improve thecoverage of direct taxation. Consequently,the deficit increased rapidly. Thegovernment attempted to control the risingbudget deficit by reducing subsidies onconsumption goods and increasing indirecttaxation. However, even these measuresfailed to reduce the budget deficit in theface of rising current expenditures. Somonetary expansion was resorted to,resulting in accelerated inflation.

The financial constraint following thelarge non development expenditures,severely restricted the funds available fordevelopment, and hence enfeebled the twoinitiatives that were designed to benefit thepoor: the National Development VolunteerProgramme (NDVP) and the Peoples WorkProgramme. The former aimed at providingemployment to the educated unemployedand the latter to generate employment forthe rural poor through labour intensiveprojects. Both programmes weremarginalized due to budgetary constraints.27

III. THE ZIA REGIME 1977-89:ECONOMIC GROWTH AND THEPRELUDE TO RECESSION

The rapidly growing debt servicing burdentogether with a slow down of GDP growthand government revenues that had occurredat the end of the Bhutto period would haveplaced crippling fiscal and political

pressures on the Zia regime but for twofactors: (a) the generous financial supportreceived from the West, and (b) theacceleration in the inflow of remittancesfrom the Middle East which increased fromUS$0.5 billion in 1978 to US$3.2 billion in1984. These remittances not only easedbalance of payments pressures, but alsopotential political pressures, directlybenefiting about 10 million people,predominantly in the lower middle class andworking class strata.28

As it was, the easing of budgetarypressures together with good harvests andthe construction and consumption boomsassociated with Middle East remittances,helped stimulate economic growth. As table2 shows, GDP growth increased from about5 per cent during the Z.A. Bhutto period,i.e. (1973-77) to 6.6 per cent during the Ziaperiod (1978-88). The data show that thisacceleration in the GDP growth was inducedto some extent by increased investment: Thegross fixed capital formation as a percentageof the GDP increased from 15.5 per cent inthe Bhutto period to 16.8 per cent in the Ziaperiod (Table 1).

There was a strategic shift from the‘socialist’ policies of nationalization, andthe large public sector in the Bhutto period,to denationalization and a greater roleassigned to the private sector in the growthprocess. In this context the Zia regimeoffered a number of incentives to theprivate sector such as low interest credit,duty free imports of selected capital goods,tax holidays and accelerated depreciationallowances. These inducements combinedwith high aggregate demand associatedwith consumption expenditures fromMiddle East remittances, and increasedinvestment in housing, created a favourableclimate for new investment. Private sector

Table 2 Period Averages of the Percentage Share of Selected Macro-Economic Indicators in the GDP of Pakistan

Average During Real GDP Domestic Average Exports Trade Workers DebtGrowth % Savings as Export as % of Balance as Remittances Servicing as

(Market Prices) % of GDP Growth % GDP % of GDP as % of GDP % of GDP

1960-1973 6.26 12.99 16.19 4.57 –5.11 — 1.281973-1978 4.99 7.29 10.31 8.79 –7.27 — 2.041978-1988 6.6 8.15 14.33 9.59 –8.66 7.71 2.441988-1993 4.92 12.99 9.19 13.01 –5.00 4.54 3.021993-1998 3.14 14.98 5.15 13.50 –3.99 2.55 3.481998-2000 4.17 — 0.16 13.69 –2.33 1.71 2.55

Source: Economic Survey, Government of Pakistan (GOP), Economic Advisor’s Wing, Finance Division, Various Issues.

44 POVERTY, GROWTH AND GOVERNANCE

gross fixed investment increased from 7.1per cent of the GDP in the Bhutto periodto 9.2 per cent in the Zia regime (seeTable 1). The public sector gross fixedcapital formation as a percentage of theGDP however declined slightly from 10.7per cent in the preceding period to 9.7 percent in the Zia period. The data on themanufacturing sector is also consistent withthese findings and show a substantialacceleration in the growth of overallmanufacturing from 5.5 per cent in the1970s to 8.21 per cent in the 1980s (seeAnnexure Table 1). In terms of thecomposition of investment in the largescale manufacturing sector as table 3shows, there appears to be a significantacceleration in the investment in theintermediate and capital growth sectors,whose percentage share in the totalmanufacturing increased from about 43 percent at the end of the Bhutto period toabout 50 per cent in the mid-1980s. (Theshare fell again in the late 1980s and1990s). This is consistent with the boom inthe construction sector and the secondarymultiplier effects in the intermediate andcapital goods sectors.

Although the GDP growth rate during theZia period did increase, yet this highergrowth rate could not be expected to bemaintained because of continued poorperformance of three strategic factors thatsustain growth over time: (i) The domesticsavings rate continued to remain below 10per cent compared to a required rate of over20 per cent. (ii) Exports as a percentage ofGDP continued to remain below 10 per centand did not register any substantial increase(see Table 2). (iii) Inadequate investment insocial and economic infrastructure. Asdefence and debt-servicing expenditureincreased, the Annual DevelopmentProgramme (ADP) through which much ofthe infrastructure projects were funded,began to get constricted. As table 4 shows,ADP expenditure as a percentage of GDPfell from an average of 7.4 per cent in theZ.A. Bhutto period, to 6.2 per cent in theZia period.

It is not surprising that when the cushionof foreign loans and debt relief waswithdrawn at the end of the Afghan War,the underlying structural constraints to GDPgrowth began to manifest themselves: Debt-servicing pressures resulting from the low

Table 3 Total Investments in Various Industries as a Percentage of Total Investment in All Industries in the LargeScale Manufacturing Sector of Pakistan*

Years Investment in All Investment in Investment in Textile Investment in allConsumer Goods Intermediate & & Related Goods other Industries

Capital Goods

1964-65 22.7 25.2 41.1 11.11966-67 28.7 30.8 37.3 3.11970-71 31.8 27.3 38.0 2.91976-77 31.2 22.1 17.9 28.81977-78 23.6 43.2 23.7 9.61982-83 18.0 49.7 21.5 10.71983-84 24.5 57.2 17.9 0.31987-88 29.4 21.8 37.4 11.41990-91 28.7 24.6 44.4 2.2

Source: Census of Manufacturing Industries, FBS, Statistics Division, GOP. Various Issues.

Notes:1. The CMI data represents only the large scale manufacturing sector in the economy.2. The compilation of CMI data is conducted through mail enquiry supplemented by field visits. The questionnaires are issued to the factories as per list of

manufacturing establishments maintained on the basis of monthly statements of registrations and cancellations received from the provincial ChiefInspectors of Factories, Directorates of Labour Welfare of the Provinces.

3. Large scale manufacturing industries are those which employ twenty workers or more on any one given day of the year for manufacturing activity.4. Investments here refer to all fixed assets consisting of land and building, plant and machinery and other fixed assets which are expected to have a

productive life of more than one year and are in use by the establishment for the manufacturing activity.5. Investments for a year include additions made during the year minus any sales of fixed assets during that year. These consist of, both Pakistan made and

imports, and assets made for own use.

* Data refers to the figures obtained from the industries/establishments included in the census and does not represent the figures as a whole for the economyof Pakistan.

When the cushion of foreignloans and debt relief waswithdrawn at the end of theAfghan War, the underlyingstructural constraints toGDP growth began tomanifest themselves

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 45

savings rates, high borrowings and balanceof payments deficits related with low exportgrowth and poor infrastructure, combined topull down the GDP growth into a protractedeconomic recession in the 1990s.

IV. THE DEEPENING CRISIS 1989-99:ECONOMIC GROWTH, EMPLOY-MENT AND POVERTY IN THEDECADE OF THE 1990s

During the decade of the 1990s, politicalinstability, the use of public office forprivate gain and the worsening law andorder situation perhaps had a significantadverse effect on private investment andGDP growth. Yet these factors merelyaccentuated the tendency for declininggrowth that was rooted in structural factors,which were manifest even in the 1980s.The failure of successive governments inthis period to address the deterioratinginfrastructure and the emerging financialcrisis further exacerbated the unfavourableenvironment for investment. As table 1shows, total investment (as a percentage ofGDP) declined from 17.9 per cent in theperiod 1988-93 to 16.3 per cent in theperiod 1993-1998. The decline in theoverall investment was due to the fact thatwhile the private sector investment did notincrease (it remained around 9 per cent),

the public sector investment declinedsharply from 8.7 per cent at the end of the1980s to 5.3 per cent at the end of the1990s. The decline in the public sectorinvestment was to an extent due to‘budgetary constraints’: successivegovernments being unable to reduce theirunproductive expenditures chose instead toreduce development expenditure which fellfrom an average of 7.4 per cent of GDP inthe Z.A. Bhutto period (1973-77) to only3.5 per cent of GDP in the last NawazSharif regime, 1997-98 to 1999-2000 (seeTable 4). By contrast, chart 3 shows thatunproductive expenditure on governmentremained at a high level.

The sharp decline in the investment andthe GDP growth for such a protracted periodin the 1990s though unprecedented inPakistan’s history, had nevertheless beenpredicted. A study in 1987 argued that thehigh growth experience of the precedingthree decades may not be sustainable in the

Table 4 ADP as a Percentage of GDP (Period Averages)

Average During ADP as a % of GDP

1972/73 to 1976/77 7.41977/78 to 1986/87 6.241987/88 to 1996/97 4.261997/98 to 1999/2000 3.5

Source: Economic Survey, GOP, Economic Advisor’s Wing, Finance Division, Various Issues.

Chart 2 Development Expentiture (ADP) as a Percentage of GDP in Various Periods

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

1972/73-1976/771977/78-1986/87

1987/88-1996/971997/98-1999/2000

3.50%

4.26%

6.24%

7.40%

46 POVERTY, GROWTH AND GOVERNANCE

next decade due to structural constraintsrooted in the deteriorating infrastructure,low savings rates and slow export growth:‘…if present trends continue, we may befaced with the stark possibility that highGDP growth may not be sustainable overthe next five years…’ (Emphasis added).29

While GDP growth declined during the1990s (from 6.3 per cent in the 1980s to 4.2per cent in the 1990s), employment growthhas continued to remain at a low level of2.4 per cent since the 1980s. This indicatesthat the employment problem persistedduring the 1990s. At the same time thegrowth of labour productivity declined (seeTable 5), which would be expected to pushreal wages downwards. The availableevidence shows that this is indeed whathappened in the 1990s: An ILO studysuggests that real wages of casual hiredlabour (which is the predominant form ofhired labour in Pakistan) declined in bothagriculture and industry, during the 1990s.30

An examination of the evidence onemployment elasticities in various sectorsshows that the employment elasticity in themanufacturing sector declined sharply from

0.17 in the 1980s to minus 0.10 in the 1990s,while in agriculture it declined only slightly.However, employment elasticities inconstruction and trade increasedsubstantially over the two decades (seeTable 6). This evidence of decliningemployment elasticities in agriculture andmanufacturing when combined with theevidence of declining output growth in thesetwo sectors, suggests a crisis of employmentand poverty emerging during the 1990s.31

Our NHDR/PIDE 2001 survey shows thatsupplementary income contributed throughwage employment of a second member oflow income agricultural households wascritical in pulling the household just abovethe poverty line (see chapter 3). The factthat there were slower economic growthrates, declining employment elasticities andfalling real wages in both agriculture andindustry during the 1990s, had an importantimplication for the mechanism of povertycreation: It meant that increasingly, thesecond family members of households onthe margin of poverty could not get adequatewage employment. This could have been asignificant factor in pushing increasingnumbers of households into poverty.

A second important dimension of thedynamics of poverty creation in this periodwas located in the increased fluctuations inagricultural output which was pointed outin the study by Akmal Hussain.32 The studyindicates that under conditions of declininginput productivity, when higher input/acreis required to maintain yields, thesubsistence farmers with fewer resources arelikely to suffer a greater than averagedecline in yields compared to large farmers.At the same time, due to lack of savings tofall back on, they are relatively morevulnerable to bad harvests under conditionsof unstable growth.33 Consequently, slowerand more unstable growth during the 1990scould be expected to be accompanied bygrowing poverty and inequality. As table 7in chapter 1, shows, this is precisely whathappened during the 1990s: The Ginicoefficient, which is a measure of the degreeof inequality, increased from 26.85 in1992-93 to 30.19 in 1998-99 (Table 7-b inchapter 1). Similarly the percentage of thepopulation below the poverty line (calorificintake basis) was 26.6 per cent in 1992-93,and increased to 32 per cent in 1998-99(Table 7-a in chapter 1).

Table 5 Growth of GDP, Employment and Productivity in TwoDecades

%

Growth 1980s 1990s

1. GDP Growth 6.3 4.2

2. Employment Growth (Total) 2.4 2.4(i) Agriculture 1.9 1.6(ii) Manufacturing 1.4 –0.4

3. Productivity Growth (Total) 3.9 1.8(i) Agriculture 2 1.7(ii) Manufacturing 7 4.6

Source: Nomaan Majid, Pakistan: An Employment Strategy, ILO/SAAT, December 1997 (Mimeo),Table A5, p. 58.

Table 6 Employment Elasticities of Output by Sectors in Two Decades%

Employment Elasticity 1980s 1990s

Agriculture 0.49 0.48Manufacturing 0.17 –0.10Construction 1.05 1.81Electricity & Gas –0.39 0.32Transport 0.48 0.14Trade 0.37 1.22

Source: Nomaan Majid, Pakistan: An Employment Strategy, ILO/SAAT, December 1997 (Mimeo),Table A5, p. 48.

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 47

CONCLUSIONS

In this chapter we have analyzed investment,growth and poverty in historical perspective.The purpose was to understand theemergence of the process of increasingpoverty, the tendency for loan dependenceand slow GDP growth.

The Ayub regime was characterized byeconomic policies that induced acute socialand regional economic disparities. We sawhow the mechanisms of rural povertyobservable today,34 were rooted in theincreased peasant dependence on thelandlord, and asymmetric markets for inputsand outputs that resulted from a particularform of agricultural growth during the Ayubperiod. The analysis also showed how thetendency for the economy’s loandependence so manifest today, may haveoriginated in the policies of the Ayubregime. The government by providing statesubsidies locked the economy into anindustrial structure which was dominated bylow value added industries, incapable ofgenerating adequate foreign exchange forthe country.

The structural constraints to fiscal spacewere exacerbated as successive governmentsengaged in financial profligacy, andallocation of state resources based onconsiderations of political patronage ratherthan economic efficiency. Nationalization ofindustries during the Z.A. Bhutto period

enlarged the domain of power and patronagefor the regime. However, the consequentgrowing losses of nationalized units laid thebasis of subsequent fiscal hemorrhaging ofthe government. The sharply rising budgetdeficits during the Z.A. Bhutto period wereaccentuated by a huge increase inexpenditures on the State apparatus.

During the Zia regime State funds weredirected for unproductive political purposesinstead of urgently needed investment in themaintenance of the irrigation system andtechnical training of the human resourcebase. Consequently, when the cushion offoreign financial assistance was withdrawnafter the Afghan war, investment and growthdeclined, budget deficits increased sharply,and poverty intensified.

During this period, the structure of GDPgrowth also underwent further adversechanges as both capital and labourproductivity fell sharply, together withdeclining employment elasticities. Areduction in capital productivity lead toslower growth, while reduction in labourproductivity lead to falling real wages. Asboth GDP growth and real wages fell,poverty tended to increase. This tendencywas reinforced by declining employmentelasticities. Thus bad governance andassociated adverse changes in the structureof the economy, in this period, laid the basisfor a rapid increase in poverty andunemployment.

Chart 3 Expenditure on Government* Compared to Development Expenditure (Percentage of GDP)

* Government: Government expenditure on defense andgeneral administration.

ADP

Expenditure onGovernment*

40

35

30

25

20

15

10

5

0

1980

-198

1

1982

-198

3

1984

-198

5

1986

-198

7

1988

-198

9

1990

-199

1

1992

-199

3

1994

-199

5

1996

-199

7

1998

-199

9

Per

cent

age

of G

DP

48 POVERTY, GROWTH AND GOVERNANCE

Initial Propositions

An important structural factor thatunderlies the current economic crisis is thetradition bound nature of the economicelites, their failure to diversify exports, andtheir proclivity to seek rents from thegovernment based on a patron-clientrelationship. Equally important is a crisisof governance which is characterized bywide spread corruption and a weakinstitutional structure for overcomingpoverty and sustaining economic growth.The dynamic inter-play betweeninstitutions, economic growth and povertyis analyzed in chapter 2. In this box wewill indicate the historical origin of theproclivities of the economic elites andweaknesses of governance within a longerterm perspective.1

Why, and from which segment of itshistoricity, should it be assumed thatculture, society, psyche and deeper-rootedvalues in Pakistan have changedsignificantly enough to rearrange the pre-existing ‘ordering of things’? Could it bethat the arrangements are coded throughmodernized terminology, whereas thecontent and substance have remainedtraditional?

A number of propositions, arising fromthe above questions, can be put forward.Hence, at a more empirical level, the lackof change can translate into anaccommodation of the upper social levelswith arrangements that are traditional andeven atavistic. The ruling elite of thecountry could not only have adjusted itselfto the old order, but in its core values andactions could continue to represent anduphold the old order.

Emphatic manifestations of thisresistance to change may have come fromanother theme having a major bearing onhuman development in this region. This hasbeen the cycles of political response to theemerging forces of the market economy,which in recent history has been a mostpowerful force in the dissolution of the oldorder. These responses can be traced to theeighteenth century (agrarian revolts), thelate nineteenth century (the LandAlienation Act), the entire colonial period(emergence of a hydraulic society), themid-twentieth century (communal conflictand national independence) and the 1970s(nationalization). In the process, thePakistani world has not been transformedas it was in Europe. Indeed, over time,these permutations have led to a tendencytowards retention of traditional structures,

Box 1 Government Patronage and Rent Seeking Elites: A Longer Historical View

underlying formally modern institutions ofpolitics and market economy.

The initial colonial goal was theincorporation into a supportive mode of alargely militarized and autonomouspeasantry, and a newly arisen rural elite,which were the legacy of eighteenthcentury Punjab. The process of agriculturalcolonization then created an even strongeralignment with rural elites and upperpeasant groups.

At an even more significant level, theopening of the new agrarian frontierretarded the prospects of bourgeoishegemony. This was because the landedelite that had emerged in the late Mughalperiod and strengthened during the Britishrule, began to dominate electoral politicsin post independence Pakistan.

An industrial class emerged in Pakistanthrough the 1950s and 1960s. Yet, thebehavioural culture of the industrial elite,might well have remained non-market andmercantilist. Deeply rooted was the rent-seeking behaviour, the reliance on anti-competitive policy interventions, and theretention of patron-client relationships.

The study of not only colonial, but evenpre-colonial, processes and structures canhelp to identify continuities into themodern period. These can in turn help usto better understand the political, economicand social configurations in the contem-porary period.

The Rural Elite and the Transition fromMughal to British Rule

Only in the Punjab (and perhaps in theareas of western India overrun by theMarathas), were the upper echelons of thesocial hierarchy extensively displaced2

during the extended transition from theMughal to the British empire. The growingmomentum of peasant uprisings in theeighteenth century culminated, after thecollapse of the Mughal control, in thevirtual physical effacement of the old ruralelite. The upper village groups, orlandholding segments of the peasantry,were in the forefront of this armedrebellion. These peasant war bands,ultimately asserted autonomous controlover land and political authority. The rebelleadership emerged as a new class ofsuperior landholders, later to beacknowledged as such, and even as nativeprincely states, by the British.

The causes of the agrarian uprisings ofthe eighteenth century also throw

instructive insights into humandevelopment issues in this region. Theyappear to have been essentially caused byeconomic pressures from excessiverevenue demands, and the purportedeconomic parasitism, of the Mughalmilitary-administrative structure.3 TheMughal ‘peace’ had over time expandedthe numbers of intermediaries, fulfilling noreal productive function, but exercisingliens at numerous levels on rent andrevenue extractions. The Mughal court andruling elites were themselves engaging inunsustainable levels of conspicuousconsumption, leading to an ‘agrariancrisis’, and subsequently to increasinglysuccessful retaliation from upper peasantand zamindar groups. The breakdown inthe relationship between the Mughal stateand the local agrarian order led to acollapse of the state itself. This was alesson, not lost on the British, and perhapsnot properly grasped by the fledglingPakistani state.

Having thrown off the old ruling order,the upper peasantry consolidated itsautonomous position, while its leadersemerged as a new agrarian elite. Evidenceof the displacement of the older Mughalperiod elite comes from Britishdocumentation such as the DistrictGazetteers and Griffin and Massy’s tome,Chiefs and Families of Note in the Punjab.4

Hardly any families identified at the districtlevel as of elite status, and worthy ofdescription in these documents, had suchantecedents prior to the late eighteenthcentury.5

The Landed Elite, Military andBureaucracy during the Raj

The strategic directions of colonial policyare best understood when compared withother parts of South Asia. In the Britishperiod there occurred a further consolidationof the agrarian hierarchy in the area thatlater came to constitute Pakistan. (‘ThePakistan area’). In Sindh, the Britishpursued the policy of retaining the agrarianelite, and accommodated large landholderfamilies, the so-called waderas, into the newarrangements. In the Punjab, the effacementof the old elite in the previous century hadalready ‘rationalized’ the problem ofintermediaries. The incorporation of thepeasant landholding lineages and newlyarisen zamindars took place throughrevenue settlements, which also formalizedtheir proprietorship over land.

ECONOMIC POLICY, ECONOMIC STRUCTURE AND POVERTY 49

Further bonding in the latter decades ofthe nineteenth century occurred with theupper Indus basin being converted into alogistical base for the ‘great game’ strategyagainst the Russian empire in central Asia.This region became a major recruiting areafor the British Indian army, and for forcesoperating in many other parts of the Britishempire.

Such processes led to the furtherconsolidation of the agrarian hierarchy inthe ‘Pakistan area’. The militaryrecruitment took place almost exclusivelyfrom landholding lineages, which were alsothe revenue payers and were accordedproperty rights.

By 1900 the British adopted a quiteremarkable piece of legislation in thePunjab, which further protected theposition of agricultural owners. This wasthe Alienation of Lands Act, under whichlists of ‘agricultural castes’ were drawn upfor each Punjab district; and non-agriculturists were prohibited frompurchasing land from these castes.

The Act of 1900 was followed by otherpro-agriculturist legislation, amelioratingthe threats to mortgaged land. Indeed,during the depression of the 1930s severallarge estates were brought under directadministrative protection, through theCourt of Wards, as they moved towardsheavy indebtedness and insolvency, owingto the downturn in agricultural prices andrents. Had the British not overtlysafeguarded these large landholdings, thepolitical economy of Pakistan might wellhave been quite different.

The most far-reaching and historicallyimportant form of cooperation betweendominant agrarian groups and the colonialstate occurred through the development ofcanal irrigation, and the process ofagricultural colonization that accompaniedit in the late nineteenth century. Thisopening of a new agrarian frontier broughtabout radical changes in the economy andecology of the Indus basin, and created thefoundations of the existing Pakistaneconomy.

In the agricultural colonizationschemes, the British once again chose asgrantees of land those who wereexclusively from the ‘agricultural castes’.

The military and bureaucracy were theother institutions strengthened through thenew canal economy. Large areas of canalland were devoted for military usage.Extensive land grants were made to armypensioners and world war veterans, in aform of tangible resource gratification thatno other part of British India was able tomatch.

The more pervasive hold of the militaryover economic resources undercolonialism, and the more binding nexusbetween military service, social authorityand state power, served as a precursor tothe direct exercise of political control bythe military in Pakistan after 1947.

The civil bureaucracy also emergedwith greater authority. Canal irrigationcreated a truly hydraulic society in theIndus basin, in which water, the scarce andvital resource, was under administrativecontrol. Not only was the cultivator moredependent on the government than underrain-fed agriculture, but the centralizednature of gravitational flow irrigationfurthered the dependence of the citizen onthe State. However, all did not need to beequally obedient. The more powerfullandholders were able to manipulate andbribe the local officials to divert water totheir lands, either out of turn or in unfairproportions. The power of public officewas tempered, and indeed delegitimized,by private vice.

The state of Pakistan as it emerged in1947, inherited various institutions of theState, structures of power, economy andbehavioural proclivities in the economicelites. These historical attributesprofoundly impacted on issues of equityand exclusion, just as much as theyinfluenced economic policies.6

After independence the triad of military,bureaucracy and landlords, greatlystrengthened in the hydraulic society of theIndus basin, continued to exerciseinordinate influence over public andeconomic affairs. The issue that arises hereis whether the strong rent-seeking modelestablished in colonial political economywas to replicate itself in the new state. Theconcentration of power created a notdissimilar environment for decision-making. The British had consolidated arecent elite, through a sharing of militaryand agrarian resources with intermediaries.The Pakistani state endeavoured tomaintain existing stakeholders, essentiallythrough the patron-client nexus and thediversion of state resources. It also beganto constitute a new elite, in the commercialand industrial spheres, but again throughresource transfer mechanisms (For ananalysis of this phenomenon see chapter 2).In both the colonial and post-colonialcases, rent seeking behaviour, rather thanincome and wealth generating capabilities,appears to have been the critical impulse.The result could be an inability to achievecompetitive efficiency, which became anendemic constraint to export diversi-

fication, economic growth, and financialstability during the five decades afterindependence.

NOTES

1. This box is based on the research paperpresented by Professor Imran Ali, for theUNHDR.

2. The Punjab experienced a greater degreeof social change than other areas, wherethe transition from Mughal rule appearedto be more ‘orderly’. When some decadeslater the British were expanding into theformer provinces of the Mughal empire,they encountered successor kingdoms ruledby none other than the descendents offormer Mughal viceroys and governors.These regional entities had assumedindependence as the empire receded,providing a large degree of continuity inthe social structure. Under the rulinglineages, the agrarian hierarchy remainedlargely undisturbed, with no majoreffacement or turnover in the position ofrural magnate elements. Lower levels ofthe social structure, both urban and rural,also failed to achieve any significant breaksin the traditional patterns of caste and classhierarchy. Thus changes in socialrelationships, the power structure andeconomic organization, were minimal, andmajor continuities remained in the extendedtransitions from the Mughal to the Britishrule.

3. See, T. Raychaudhuri, ‘The MughalEmpire’, in Cambridge Economic Historyof India (Cambridge, Cambridge UniversityPress, 1982), Vol. I, pp. 172-92.

4. For a discussion of the eminent families ofthe Punjab, by districts and princely states,see, L.H. Griffin and C.F. Massy, Chiefsand Families of Note in the Punjab, 2 vols.(Lahore, 1940).

5. One of the most spectacular examples,albeit from a part of Punjab now in India,came from the Phulkian war band. This wasnamed after a Sidhu Jat peasant called Phul,whose descendents in British times ruledthe princely states of Patiala, Nabha andJind, and the fiefs of Bhadour, Maloudhand Badrukhan. Other Sidhu Jat familiesestablished the state of Faridkot, the jagirsof Kaithal and Arnauli, and a large numberof smaller fiefs. The ruling family ofKapurthala State were descended from theSikh war band leader, Jassa Singh, whobelonged to the lowly caste of Kalal, orliquor producers. The ruling family ofBahawalpur State emerged from the upperpeasant Daudpotra caste. In Griffin andMassy’s book case after case is describedof an elite that had recently risen fromupper peasant ranks.

6. See, D.A. Low (ed.), The Congress andthe Raj (New York, 1977).

50 POVERTY, GROWTH AND GOVERNANCE

NOTES

1. Dr A.R. Kemal, ‘Patterns of Growth in Pakistan’sIndustrial Sector’, in Shahrukh Rafi Khan (ed.),Fifty Years of Pakistan’s Economy, OUP, Karachi,p. 165.

2. Soligo, and J.J. Stern, ‘Tariff Protection, importssubstitution and investment efficiency’, ThePakistan Development, 1965, p. 249-70.

3. Sikander Rahim, ‘Myths of EconomicDevelopment’, Lahore School of Economics,Occasional Paper No.10, February 2001.

4. ‘It is clear that the distribution of nationalproduction should be such as to favour the savingssectors’, Government of Pakistan, PlanningCommission, The Third Five Year Plan, 1965-70,Karachi, p. 33.

5. K. Griffin, ‘Financing Development Plans inPakistan’, in K. Griffin and A.R. Khan, Growthand Inequality in Pakistan, Macmillan, London,pp. 41-42.

6. Ibid., p. 133.7. For example, during 1950-55 grant and grant type

assistance constituted 73 per cent of total foreignaid. By 1965-70, this type of assistance haddeclined to only 9 per cent of total foreign aid.See: Economic Survey, Government of Pakistan,Finance Division, Islamabad, 1974, p. 133.

8. L.J. White, Industrial Concentration andEconomic Power in Pakistan, Princeton UniversityPress, p. 63.

9. Ibid., pp. 74-75.10. N. Hamid, ‘The Burden of Capitalist Growth, A

study of Real Wages in Pakistan’, PakistanEconomic and Social Review, Spring 1974.

11. K. Griffin and A.R. Khan, op. cit., pp. 204-205.12. S.M. Naseem, Rural Poverty and Landlessness in

Asia, ILO Report, Geneva, 1977.13. Naved Hamid and Akmal Hussain, ‘Regional

Inequalities and Capitalist Development’, PakistanEconomic and Social Review, Autumn 1974.

14. Akmal Hussain, ‘Civil Society Undermined’, inStrategic Issues in Pakistan’s Economic Policy,op. cit., p. 374.

15. This was first established on the basis of fieldsurvey data and census data by Akmal Hussain,‘Impact of Agricultural Growth on changes in theAgrarian Structure of Pakistan, with specialreference to the Punjab Province’, D.Phil. Thesis,University of Sussex 1980. Also see, AkmalHussain, Strategic Issues in Pakistan’s EconomicPolicy: Technical Change and Social Polarizationin Rural Punjab, Chapter 4, ProgressivePublishers, June 1988.

16. See, Akmal Hussain, D. Phil Thesis, op. cit.17. See, Akmal Hussain, Strategic Issues in Pakistan’s

Economic Policy, op. cit., p. 187.

18. See, Akmal Hussain, D. Phil Thesis, op. cit.19. For a more detailed analysis of the new squeeze

on poor peasant incomes, see, Akmal Hussain,‘Technical change and Rural Polarization’ inStrategic Issues in Pakistan’s Economic Policy,op. cit., pp. 150-156.

20. Omar Noman, The Political Economy of Pakistan,op. cit., p. 79.

21. See, A.R. Kemal, ‘Patterns of Growth in Pakistan’sIndustrial Sector’, in Shahrukh Rafi Khan (ed.),Fifty Years of Pakistan’s Economy, OUP, Karachi1999, p. 158.

22. Ibid., p. 158.23. Omar Noman, The Political Economy of Pakistan,

op. cit., p. 80.24. For a more detailed discussion on the nature of

changes within the state structure see, A. Hussain,Strategic Issues in Pakistan’s Economic Policy,op. cit., pp. 378 and 379.

25. Hafiz Pasha, p. 209, Table-3.26. Omar Noman, op. cit., p. 82.27. Omar Noman, op. cit., p. 122.28. As many as 78.9 per cent of emigrants to the

Middle East were production workers, see, Jillaniet. al., Labour Migration, PIDE, Research ReportNo. 126.

29. Akmal Hussain, Strategic Issues in Pakistan’sEconomic Policy, Progressive Publishers, Lahore1988. Introductory Essay: Is Pakistan’s GrowthPath Sustainable?, p. xviii.

Declining growth in the next decade could bepredicted because: ‘…the strategic variables andsectors through which growth is sustained overtime seem to show a declining trend: For examplethe growth rate of fixed investment, the domesticsavings rate, the growth rate in the value ofexports, and finally the weight of the commodityproducing sectors in the economy…’, AkmalHussain, op. cit., p. 4.

30. Nomaan Majid, ILO/SAAT, op. cit., pp. 34, 35.31. Agriculture and manufacturing have historically

absorbed the bulk of the employed labour force inPakistan. For example in 1969-70, 72.6 per centof the total employed labour force was employedin these two sectors. By the mid-nineties thispercentage fell, but was still over 60 per cent.

32. Akmal Hussain, ‘Employment Generation, PovertyAlleviation and Growth in Pakistan’s Rural Sector:Policies for Institutional Change’. The studyanalyses the structural factors that slowed downagricultural growth and increased its variabilityfrom year to year.

33. Ibid., p. 4.34. The mechanisms of poverty are analyzed in

chapter 3 on the basis of the NHDR/PIDE 2001Survey.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 51

CHAPTER 3

THE STRUCTURE OF POVERTY AND THE PROCESS OFPOVERTY GENERATION

Photograph by Sami-ur-Rehman

Now my being is caught in a vice,Like sugar cane in the cane crusher,The challenge is to still remain true

√ MIAN MUHAMMAD BAKHSH19th Century Sufi Poet

(Translation)

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 53

CHAPTER 3

The Structure of Poverty and the Process ofPoverty Generation

I. INTRODUCTION: A CONCEPTUALAND EMPIRICAL PERSPECTIVEON POVERTY

The poor in Pakistan like all human beingshave a creative potential. Yet, by beingdenied the minimum of food and basicnecessities, such as health, education andemployment opportunities, they are renderedincapable of actualizing their humanpotential.1

In understanding this constraint to humandevelopment, the poor in Pakistan cannotsimply be seen as individuals with certainadverse ‘resource endowments’, makingchoices in free markets. Poverty occurswhen the individual in a fragmentedcommunity is locked into a nexus of power,which deprives the poor of their actual andpotential income. The poor face markets,state institutions and local power structures,which discriminate against access of thepoor over resources, public services andgovernance decisions which affect theirimmediate existence.2

Most studies on poverty in Pakistanhave examined the problem simply in termsof measuring the number of people belowcertain poverty lines. However, if povertyis to be overcome, what may now beimportant is to understand the processes ofpoverty creation and to identify points ofintervention in the process through whichthe poor can be enabled to overcomepoverty on a sustainable basis. In thepursuit of this objective, the NHDR studyfor the first time undertook to establish anew data set to be able to conduct ananalysis of the mechanisms through whichpoverty is perpetuated and the possibleroutes out of it. Any data set containsinformation within certain specificclassifications. The particular classi-fications emerge from the questions posed.The NHDR data set is new, simply becausethe underlying questions have not been

asked before. Some of the questions raisedare: How do distorted markets for inputsand outputs of goods and services result inthe loss of the actual or potential incomeof the poor? If this is indeed the case thenwhat is the magnitude of the income loss?How do local structures of power withrespect to landlords, local administrativeofficials, and institutions for the provisionof health, credit and dispute resolution,deprive the poor of their income, assets andthe fruits of their labour? who are the poor,what kind of occupations and institutionsare they engaged in, and what are theconstraints to increasing their incomes?; towhat extent are urban poor engaged inmicro enterprises, and what are theproblems that prevent an increase in theirprofitability?; where do the poor borrowfrom and how do they use their loans?;finally, how do the poor finance theirbudget deficit? Almost every study onpoverty in Pakistan shows that theconsumption level of a large proportion ofhouseholds fall below certain calorificnorms. However they fail to ask, whenincomes of the poor fall below theirminimum consumption levels, how isconsumption financed? The mode offinancing consumption in excess of theirincome levels has a strong bearing on thefuture income levels and the probability ofeither moving out of poverty or fallingdeeper into it. In the pursuit of thesequestions it is hoped to develop for the firsttime an understanding of the dynamics andconcrete nature of poverty, rather thanmerely its magnitude. These broadquestions specified by Akmal Hussain werethe basis of the survey.

The survey was conducted by A.R.Kemal and his team at PIDE. Since thepoor exist not as isolated individualsbut as family households living incommunities, no matter how fragmented,therefore the survey focused on eliciting

Poverty occurs when theindividual in a fragmentedcommunity is locked into anexus of power, whichdeprives the poor of theiractual and potentialincome.

The poor face markets,state institutions and localpower structures, whichdiscriminate against accessof the poor over resources,public services andgovernance decisions whichaffect their immediateexistence

54 POVERTY, GROWTH AND GOVERNANCE

information from eight poor communitiesin seven carefully selected districts. Thestudy is called the NHDR/PIDE PoorCommunities Survey of Pakistan 2001.Since this is a sample survey of sevendistricts of Pakistan it cannot be claimedthat it is representative of the entirecountry. However, systematic and carefulselection of poor communities from allprovinces of the country provides a richsource of data to examine the factorsresponsible for poverty generation.

The survey design for data collection onthe eight communities is discussed inAnnexure-I of this chapter. However, it maybe pertinent to point out here that the surveywas focused on poor communities.Consequently, the non-poor category in theincome classes shown in the ensuing tables,refers not to affluent people but those whoare ‘not so poor’. The average annualhousehold income of the non-poor beingonly four times that of the poor is onaverage still only Rs.123,273 (US$2,055 peryear). In section-II, poverty levels andmodes of financing consumptionexpenditure in the eight poor communitiesare examined. In section-III, theimplications of the employment status andeducation level of the earning members ofthe household for its ability to pull out ofpoverty are discussed. In section-IV, ananalysis is presented, of how local powerstructures and distorted markets for inputsimpact the process of poverty creation.Apart from this, the process of income lossto the poor resulting from distorted marketsfor farm output is analyzed and itsmagnitude estimated. In section-V, thenature of disputes which the poor areundergoing and the erosion of incomesassociated with existing forms of disputeresolution are briefly discussed. In section-VI, the data on the health of the poor isanalyzed to show how vulnerability of lowincome groups to disease and associatedmedical expenses could be a major factor inpushing non poor households into povertyand poor households into extreme poverty.In section-VII, the employment status of thenon-farm households with respect to microenterprises is examined and the problemsrelated with their functioning withassociated implications for poverty arespecified. In section-VIII, the role ofcorruption, credit and indebtedness in thepoverty process are examined.

II. POVERTY AND MODES OFFINANCING CONSUMPTION

The basic difference between the extremelypoor and the poor categories is that in theformer, the total annual household income(Rs.15,350) is substantially less than thefood consumption requirement (Rs.18,497),while in the latter the annual total householdincome (Rs.40,566) is sufficient to fulfill thefood consumption requirement, although notenough to fulfill the total consumptionrequirements (excluding durables)(Rs. 41,092). Therefore the distinguishingfeature between these two classes of thepoor is that the extremely poor are obligedto use loans for food consumptionrequirements, while those in the poorcategory do not have to do so. Similarly inthe extremely poor category the totalconsumption requirements (excludingdurables) (Rs.23,722) is greater than theannual total household receipts includingtransfers and remittances received. In thepoor category, by contrast, the total receipts(Rs.45,818) are greater than the totalconsumption requirements. In the non-poorcategory, annual total household income isnot only enough to fulfill food consumption,but also more than enough to finance totalconsumption (excluding durables).

The extremely poor, whose incomes andreceipts fall below the poverty line, tend touse loans and sale of assets to increase theirconsumption level. Since availability ofloans to the extremely poor is constrainedand they often do not have substantial assets,they suffer from extreme nutritionaldeficiencies. Total available resources of theextremely poor are 84.0 per cent of thepoverty line.

In urban areas, the total householdincomes of the extremely poor and the poorof Rs.30,266 and Rs.53,830, were only 39.5and 70.9 per cent of the poverty line,respectively. In the rural areas, householdincome levels of the extremely poor and thepoor are 21.6 and 61.9 per cent of thepoverty line, respectively.

Transfers, especially the remittances,supplement considerably the total income ofboth the extremely poor and the poorcategories. For the extremely poor,remittances account for 16 per cent and totaltransfers 20.9 per cent, and for the poor,remittances account for 4.2 per cent andtotal transfers 5.3 per cent of the total

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 55

receipts. Despite the large transfers thecurrent receipts of the extremely poor fallshort of their consumption levels by 35 percent and they have to resort to credit andsale of assets to finance their meagerconsumption levels. As much as 17 per centof total consumption of the poor is financedthrough credit and 5 per cent through thesale of land. Even though the poor onaverage spend less than the total receipts,yet a large number of households amongstthem do use credit and proceeds from thesale of assets to finance their consumption;10 per cent of the consumption of the pooris financed through net credit and 2 per centthrough the sale of assets. The deficitbetween food consumption requirements andtotal household receipts of the extremely

poor is much higher in the rural areas thanin urban areas.3

The pattern is observed in all thecommunities covered in the survey. Thehighest level of poverty is observed inLahore urban and Khuzdar where 93.5 and91.3 per cent of the households were poorand the minimum in Lahore rural where 66.9per cent of the households were poor (seeTable 3). While the poverty levels have beenhigh across all the areas, the abject povertylevels do differ. For example both inKarachi and Lahore urban, the average levelof income of the poorest has been 5 to 6times that of the rural areas. Even moreimportant, it is the inequality of incomeswithin the community that underliespoverty; average incomes of the richest

Table 1 Average Household Income, Receipts and Total Available Resources

Extremely Poor Poor Non-Poor Total

PakistanTotal Household Income 17,397 41,093 115,690 42,972Total Receipts of the Households 20,170 43,925 123,273 46,506Total Resources available to the Households 25,184 52,624 147,382 56,079Total Consumption by the Households 24,152 41,764 85,217 41,330Food Consumption by the Households 19,041 32,381 62,325 31,599

UrbanTotal Household Income 30,266 53,830 110,804 51,007Total Receipts of the Households 30,691 54,207 110,894 51,370Total Resources available to the Households 33,030 57,000 114,061 54,024Total Consumption by the Households 28,740 44,562 63,002 40,354Food Consumption by the Households 23,465 36,229 49,200 32,612

RuralTotal Household Income 12,495 35,704 116,992 39,918Total Receipts of the Households 16,162 39,575 126,574 44,657Total Resources available to the Households 22,195 50,773 156,267 56,860Total Consumption by the Households 22,405 40,580 91,141 41,701Food Consumption by the Households 17,356 30,753 65,824 31,214

Source: NHDR/PIDE Survey 2001.

Table 1 (a) Average Household Income, Receipts, and Total Available Resources by Economic Status

Economic Total Household Other Total Receipts Net Credit Total Food TotalStatus Income (including) Transfers H.H. income during Available Consumption Consumption

Imputed Rent (excluding + Transfers Last Year Resources Excludingand Profit) (Remittances) Received + Durables

Remittances

Extremely Poor 15,350 684 21,738 3,998 24,547 18,497 23,722Poor 40,566 456 45,818 4,800 51,165 32,203 41,092Non-Poor 106,100 1,078 118,492 10,886 132,798 57,794 78,790Average 42,972 666 — 5,639 56,079 31,599 41,330

Source: NHDR/PIDE Survey 2001.

56 POVERTY, GROWTH AND GOVERNANCE

10 per cent of the households in the eightcommunities is 16.1 times that of the poorest10 per cent of the households.4

Transfers take various forms such asboarders and lodgers, zakat from government,zakat and ushr from private sector andremittances from within and outside Pakistan.Boarders and lodgers, (i.e., households whoearn rental income from those who stay on a‘paying guest’ basis), is most commonamongst the extremely poor who accountedfor 63.1 per cent of all households providingthe boarding and lodging facility; 31.8 percent were poor and 4.5 per cent were non-

poor. However, the boarding and lodgingsupplemented the incomes of the extremelypoor to the extent of only Rs.7,904. Suchsupplementary income in the case of the poorand the non-poor is Rs.18,364 and Rs.65,000respectively. Another aspect of significancein the case of boarders and lodgers is that itis more common in rural areas than in urbanareas.

Zakat, ushr, fitrana and nazrana,(different forms of charity), have been quitesignificant for both the extremely poor andthe poor. The two most important aspectsthat emerge from the analysis are that theassistance from charity in the private sectoris three times that in the public sector, andthat the non-poor are also recipients ofgovernment zakat indicating the widespreadcorruption generally alleged in this sphere.The extremely poor accounted for 66.7 percent of government zakat recipients, whichrises to more than 80 per cent in the case ofprivate sector zakat recipients.

The remittances constitute a majorsupplement to their incomes but mainly inrural areas. The proportion of thehouseholds that received remittances isalmost evenly distributed amongst all thethree categories of households. Remittancesare received from both within and outsidePakistan. Pension and gift receivinghouseholds have been relatively fewespecially among the poor because theyrarely have government jobs or pensions[see Annexure-3 (b)].

Since remittances constitute a majorsupplement to household incomes, anypolicy that helps in increasing theremittances could be quite potent in poverty

Table 2 Transfers and Financing of Consumption (Proportion)

Extremely Poor Non-Poor TotalPoor

All PakistanRemittances/Total Receipts 0.12 0.05 0.07 0.08Other transfers/Total Receipts 0.04 0.01 0.01 0.02Consumption/Total Receipts 1.24 0.96 0.74 1.02Net Credit/Consumption 0.14 0.13 0.15 0.14Land Sale/Consumption 0.05 0.03 0.04 0.04

UrbanRemittances/Total Receipts 0.00 0.00 0.00 0.00Other transfers/Total Receipts 0.02 0.00 0.00 0.00Consumption/Total Receipts 0.95 0.83 0.59 0.83Net Credit/Consumption 0.07 0.06 0.04 0.06Land Sale/Consumption 0.00 0.00 0.00 0.00

RuralRemittances/Total Receipts 0.20 0.08 0.08 0.13Other transfers/Total Receipts 0.05 0.01 0.01 0.03Consumption/Total Receipts 1.44 1.04 0.76 1.13Net Credit/Consumption 0.18 0.17 0.16 0.17Land Sale/Consumption 0.07 0.05 0.05 0.06

Source: NHDR/PIDE Survey 2001.

Table 3 Poverty Levels, Incomes and Receipts in Various Communities

Poverty Mean Income Ratio of Mean Total Receipts Ratio ofLevels Poorest Richest Richest to Poorest Richest Richest to

(%) Poorest Poorest

Karachi 83.1 17,900 129,007 7.2 19,225 129,123 6.7Badin 85.0 3,902 130,957 33.6 6,430 130,957 20.4Mirpur Khas 96.7 4,187 183,162 46.1 4,969 193,162 38.9Muzaffar Garh 86.1 8,259 161,211 19.5 14,081 169,196 12.0Lahore Urban 93.5 21,233 110,895 5.2 22,142 110,895 5.0Lahore Rural 66.9 10,023 178,298 17.8 77,200 190,042 11.0Dir 80.1 2,197 182,103 82.9 28,909 194,392 6.5Khuzdar 91.3 4,061 92,945 22.9 5,345 92,945 17.4Total 83.7 8,764 140,972 16.1 14,448 147,679 10.2

Source: NHDR/PIDE Survey 2001.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 57

reduction. The characteristics of migrants,therefore, can be rather helpful in devisingemigration policy. The young, males andmarried persons, form the bulk of migrants.Since as much as 73.9 per cent of themigrants were illiterate or had just primaryeducation, their earnings have been ratherlow; the non-poor migrants earn morebecause of their better human resources [seeAnnexure-3 (c)].

III. POVERTY ALLEVIATION ANDNUMBER OF EARNERS IN THEHOUSEHOLD

The number of earners in a household isone of the major determinants of the incomelevel and the probability of falling belowthe poverty line. The key factor thatdetermines whether a poor household shiftsout of poverty or moves deeper into povertyis the share of household income contributedby the second earner. As table 4 shows thepercentage share of the second earner inhousehold income is 13.4 for the poorcategory. When this share increases thehousehold enters the category of non-poor(17.8 per cent) and when it fallssubstantially (4.0 per cent) the householdbecomes extremely poor.

The low levels of income of theextremely poor and the poor, and the lowprobability of getting employed arereflective of their low human resourcedevelopment. This is also manifested in thefact that as many as 83.4 per cent of theextremely poor and 73.5 per cent of the poorare illiterate and another 7.6 and 13.9 percent in the two categories of poor,respectively, have merely primaryeducation. Only 2.3 per cent of theextremely poor and 3.5 per cent of the poorhave higher level of education and they arepoor because of their inability to get a job.

The women in the sample contribute only4 per cent to the incomes of the households.(see Table 6). This is mainly because of thefact that only earned money income isconsidered and also because the womenfrom poor households due to asymmetriesin market access, get very low wages. Theyare also unable to work much of the timedue to frequent illness. The share of womenin household income of the poor and theextremely poor is higher than theircontribution in the non-poor segment of thepopulation. Whereas the share in thehousehold income of women in the non-poorhouseholds in the urban areas is higher, inthe rural areas it is even smaller.

Besides education, productivity dependson learning by doing, on the job trainingand experience. Whereas there is not muchvariation in the period of experience, (eachcategory has 14 to 16 years of experience),it has been their low level of education andlack of improvement in skills that isresponsible for the low levels of productivityand incomes. The proportion of persons whogot on the job training is rather small in thecase of the extremely poor. Moreover, thepoor do not have sufficient work; numberof hours worked is relatively much lowerfor the poor and the extremely poor (seeTable 7).

As we have mentioned above, the shareof household income contributed by the

Table 4 The Incomes of the Principal and Second Earners

Extremely Poor Non- TotalPoor poor

Total earned income 15,339 35,550 96,109 36,685Major earner income 14,608 29,566 69,447 29,652Second earner income 617 4,759 17,119 4,983share of major earner (%) 95.2 83.2 72.3 80.8share of second earner (%) 4.0 13.4 17.8 13.6

Source: NHDR/PIDE Survey 2001.

Table 4 (a) Percentage of Second Earners within Each Economic Category by Education Level

Economic No Education Upto Primary Middle Matric Higher TotalStatus (%) (%) (%) (%) (%)

Extremely Poor 81.4 13.4 1 1 3.1 100Poor 77.5 10.9 4.7 4.4 2.5 100Non Poor 58.9 14.4 8.7 8.7 9.1 100

Source: NHDR/PIDE Survey 2001.

The key factor thatdetermines whether a poorhousehold shifts out ofpoverty or moves deeperinto poverty is the share ofhousehold incomecontributed by the secondearner

58 POVERTY, GROWTH AND GOVERNANCE

Table 5 The Education Levels of the Various Sections of Population

Average of Sample Extremely Poor Non-Poor TotalPoor

All PakistanEducation Level of Major Earner (%) (%) (%) (%)

No education 83.4 73.5 50.3 73.6Primary 7.6 13.9 14.6 11.6Middle 3.6 4.2 10.7 5.0Matric 3.1 5.0 11.0 5.2Higher education 2.3 3.5 13.4 4.6

Education Level of Second EarnerNo education 84.0 78.5 51.4 70.9Primary 10.6 11.4 15.7 12.6Middle 2.1 4.5 9.5 5.7Matric 1.1 3.5 11.4 5.6Higher education 2.1 2.1 11.9 5.1

Pakistan (Urban)Education Level of Major Earner

No education 83.2 82.8 68.1 81.2Primary 7.0 8.1 16.7 8.6Middle 3.7 5.4 5.6 4.7Matric 2.0 1.7 2.8 2.0Higher education 4.1 2.0 6.9 3.4

Education Level of Second EarnerNo education 94.7 88.9 71.2 86.0Primary 2.6 6.5 9.6 6.6Middle 2.6 3.3 5.8 3.7Matric — 1.3 5.8 2.1Higher education — — 7.7 1.6

Pakistan (Rural)Education Level of Major Earner

No education 83.4 69.4 45.5 70.5Primary 7.9 16.4 14.0 12.8Middle 3.5 3.7 12.1 5.1Matric 3.5 6.4 13.3 6.5Higher education 1.6 4.1 15.2 5.1

Education Level of Second EarnerNo education 76.8 71.3 44.9 62.5Primary 16.1 14.8 17.7 16.0Middle 1.8 5.4 10.8 6.9Matric 1.8 4.9 13.3 7.6Higher education 3.6 3.6 13.3 7.1

Source: NHDR/PIDE Survey 2001.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 59

second earner is an important factor in thehousehold’s shifting out of poverty or beingpushed into deeper poverty. Therefore, itmay be pertinent to point out that animportant determinant of the income sharecontributed by the second earner is theeducation level of the second earner. Astable 4 (a) shows only 1 per cent of thesecond earners in the extremely poorcategory are matriculates while 4.4 per centof second earners are matriculates in thepoor category. The percentage doubles to8.7 per cent in the case of non-poorhouseholds.

Both because of the low level ofeducation as well as little improvement intheir skills, they are absorbed only in theoccupations where the productivity levels,and hence wages and incomes, are ratherlow. As much as 66.7 per cent of the majorearners in the urban areas belonging to theextremely poor are unskilled workers. In therural areas, 53.4 per cent are unskilled and30.4 per cent are agricultural workers (seeTable 8). These ratios are significantlyhigher than that in the case of the poor, andeven higher when compared to the non-poor.The mobility of workers across variousoccupations seems to be low. Vocationaltraining and apprenticeship programmes toimpart training to the workers after theprimary education may therefore be helpfulin reducing poverty levels.

Whereas education level amongst thepoor and extremely poor is rather low, thereare some highly educated persons in thecategories of the poor and the extremely

poor households. Amongst the educatedyouth, 78.5 per cent of the extremely poorand 60.0 per cent of the poor wereunemployed. They have been so

Rehman-ud-Din, Village Shah Alam Baba,District Dir: Rehman-ud-Din’s family hasmoved out of poverty. His father, who diedtwenty years ago, was an Imam in the localmosque. He depended upon the grainreceived as charity from the community.Rehman has been a hard worker since hischildhood. In the morning, he used to go toschool and in the afternoon he worked in thefields. When his father died he was quiteyoung. He continued his education and workin the field. He was able to complete his MAalthough his mother had to sell their land tofinance his education.

Rehman was lucky in getting employmentin the forest department as a forest officer.Rehman worked hard and got rapid promotion.

Box 1 Moving out of Poverty

At present the government has given him ahouse and a car. His salary is sufficient for hishousehold needs. Although he does not live inthe village he is an active member of the jointfamily and he visits his mother and brothersonce a week.

Rehman’s mother says that her family cameout of poverty due to her son’s education andhard work. She never lost courage after thedeath of her husband. Now she is contendedwith life and she has no more wishes exceptgoing for Haj. All her sons are employed.Rehman’s family is not in any dispute. In shortthis family came out of poverty due to hardwork, education and employment. Rehmanplayed the key role in pulling his family out ofpoverty.

Table 6 Contribution of Women in Total Earned Income

Average of Extremely Poor Non- TotalSample Poor Poor

All Pakistan 0.04 0.05 0.04 0.05Urban 0.01 0.03 0.07 0.02Rural 0.06 0.06 0.04 0.06

Source: NHDR/PIDE Survey 2001.

Table 7 Hours Worked, Experience, On-Job Training and SecondOccupation

Extremely Poor Non- TotalPoor Poor

PakistanNo. of hours workedlast week 46.7 49.0 50.3 48.3Experience 13.1 14.6 15.1 14.1On-Job Training 9.5 46.3 44.2 100.0

UrbanNo. of hours workedlast week 49.6 53.2 59.6 52.5Experience 11.1 13.1 15.1 12.5On-Job Training 7.7 38.5 53.8 100.0

RuralNo. of hours workedlast week 45.4 47.2 47.8 46.6Experience 14.0 15.3 15.1 14.8On-Job Training 9.8 47.6 42.7 100.0

Source: NHDR/PIDE Survey 2001.

60 POVERTY, GROWTH AND GOVERNANCE

disheartened that 46.4 per cent of theextremely poor and 24.4 per cent of the poordid not even try to get a job, probablybecause of the experience of those who triedto get a job but did not succeed. In the urbanareas, 33.3 per cent of the extremely pooreducated tried to get employment but couldnot, while 25 per cent never applied for ajob; the comparable proportions for the poorwere 33.3 and 26.7 per cent. In the ruralareas the situation is even worse, where 31.8per cent of the extremely poor did not get ajob and 52.3 per cent did not even apply forthe job. Of those who succeeded in gettinga job they got it in the private sector ratherthan in government (see Table 9).

It is noteworthy that the poor are mostlyilliterate, but those who do get education donot find jobs and some are so frustrated thatthey do not even apply for a job. Thepresumption that jobs cannot be obtainedwithout bribe or strong ‘connections’ hasbeen the main reason for not applying for ajob; as many as 83.3 and 91.1 per cent ofthe educated from the extremely poor andthe poor households, respectively, cited thisto be the reason for not getting a job, and50.0 and 47.4 per cent respectively cited itas a reason for not applying (see Table 10).

IV. LOCAL POWER STRUCTURES,MARKETS AND POVERTY

Various forms of dependency of the peasanton the local power structures and thedistortions in the input and the outputmarkets, functioning against the poor,constitute the elements of the process ofpoverty generation amongst the peasantry.A substantial proportion of the potential aswell as actual income of the poor peasantryis lost to the increasingly adverse tenancyarrangements and the obligation to selllabour at less than market wage rates orwithout any wages at all, to the landlords.This is because of the social and economicleverage that the landlords exercise over thepoor peasants. At the same time, there isunequal access over both the input and theoutput markets, as well as over services suchas credit, dispute resolution and healthfacilities. In this section, we will presentevidence from the NHDR/PIDE Survey toanalyze the nature of the process of povertygeneration and the magnitude of peasantincome lost due to various forms of

Table 8 The Occupation of the Major Earners

Average of Sample Extremely Poor Non-Poor TotalPoor

PakistanProfessional workers 2.4 2.4 4.8 2.8Clerical & Service workers 6.4 12.6 13.9 10.4Agriculture/Livestock workers 21.8 24.9 28.5 24.2Business/salesmen/milkmen 3.4 6.5 13.6 6.4Skilled workers 8.0 12.3 14.5 11.0Unskilled workers 57.5 40.2 23.9 44.3Miscellaneous 0.6 1.2 0.6 0.9

UrbanProfessional workers 1.7 0.7 1.4 1.2Clerical & Service workers 14.2 20.8 15.7 17.6Agriculture/Livestock workers 1.7 0.7 1.4 1.2Business/salesmen/milkmen 5.0 6.1 11.4 6.3Skilled workers 9.6 16.4 31.4 15.4Unskilled workers 66.7 55.3 38.6 57.9Miscellaneous 1.3 — — 0.5

RuralProfessional workers 2.7 3.1 5.8 3.4Clerical & Service workers 3.0 9.0 13.5 7.6Agriculture/Livestock workers 30.4 35.4 35.8 33.6Business/salesmen/milkmen 2.7 6.7 14.2 6.5Skilled workers 7.3 10.5 10.0 9.2Unskilled workers 53.6 33.7 20.0 38.0Miscellaneous 0.4 1.6 0.8 1.0

Source: NHDR/PIDE Survey 2001.

Table 9 Educated Persons by Employment Status

Average of Sample Extremely Poor Non-Poor TotalPoor

PakistanGovt. Employee 8.9 19.4 17.0 16.8Private Employee 10.7 7.5 14.5 11.6Self-Employment 1.8 10.0 16.6 12.5Retired — 3.1 1.7 2.0Tried to get Employment 32.1 35.6 24.5 29.3Did not try to get Employment 46.4 24.4 25.7 27.8

UrbanGovt. Employee 8.3 13.3 — 6.4Private Employee 33.3 20.0 25.0 25.5Self-Employment — 6.7 — 2.1Retired — — — —Tried to get Employment 33.3 33.3 60.0 44.7Did not try to get Employment 25.0 26.7 15.0 21.3

RuralGovt. Employee 9.1 20.0 18.6 18.0Private Employee 4.5 6.2 13.6 10.0Self-Employment 2.3 10.3 18.1 13.7Retired — 3.4 1.8 2.2Tried to get Employment 31.8 35.9 21.3 27.6Did not try to get Employment 52.3 24.1 26.7 28.5

Source: NHDR/PIDE Survey 2001.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 61

dependence and market distortions. In thesmall farm households, the most significantconstraint to increasing income is the non-availability of land and the income lossesassociated with land use within the structureof dependence. Amongst the non rural farmhouseholds, the principal constraint topoverty alleviation is the limited possibilityof remunerative jobs and the low ability toinitiate self-employment projects. In theurban areas, the employment status,informalization of the work force and thelow level of productivity of microenterprises constrain income levels and giverise to poverty.

IV.1 SMALL LANDHOLDERS AND LANDLESSNESS

Farmers’ income not only depends on theproduction of various crops, tenancyarrangements, and marketing arrangementsbut also on other agricultural activities, suchas livestock, and non-agricultural activities.The poor and the extremely poor householdshave a very small amount of owned land.Poverty and land ownership are positivelycorrelated: Compared to the non-poor’s landownership that exceeds six acres; for theextremely poor and the poor it was only oneacre and two acres, respectively.5 Such landholdings are uneconomical and, as such, asizable proportion of the extremely poor andthe poor rent out the land and undertakenon-agricultural activity.6 The others rent-inthe land both on share-cropping and cashrent basis and increase the operated holdingsto around three acres (see Table 11). Whilethis does help in increasing the productionlevels, their incomes would not necessarilyrise proportionately, through increasingoperated holdings. The increase in incomewould largely depend on the share-croppingarrangements.

Instead of buying land, the poor wereforced to sell their land. As many as 76.5per cent of the extremely poor and 38.9 percent of the poor sold their land over the lastten years. Even more important, the poorhad to sell land for urgent consumptionneeds, marriage expenditure and healthexpenditures (see Table 12). In the process,the productive assets of the poor getdepleted, adversely impacting their futurestreams of incomes and reducing theprobability of getting out of poverty.

Table 10 Reasons for not Applying and Reasons for not Getting the Job

Extremely Poor Non-Poor TotalPoor

Reasons for not getting a jobHigh merit/competition 11.1 3.6 6.8 6.0No Safarish/Money 83.3 91.1 86.4 88.0Others 5.6 5.4 6.8 6.0Total 100 100 100 100

Reasons for not applyingLow Marks/High merit 15.4 2.6 6.6 7.2No Safarish/Money 50.0 47.4 16.4 32.8Had to work in family enterprise — 7.9 16.4 11.2Lack of information 7.7 10.5 4.9 7.2Others 23.1 31.6 55.7 41.6

Who helped in getting EmploymentNo one 44.4 54.8 59.7 56.8MPA/MNA/Chairman 11.1 11.9 9.0 10.2Relative/Friend 11.1 9.5 4.5 6.8Person already in the Department 22.2 2.4 6.0 5.9

Source: NHDR/PIDE Survey 2001.

Table 11 Land Owned and Operated by Economic Status (Rural FarmHouseholds) (in acres)

Extremely Poor Non-Poor TotalPoor

Land owned 1.07 2.06 6.09 2.72Land rented out 0.11 0.37 1.19 0.49Land rented-in on share-crop basis 1.85 0.99 0.92 1.22Land rented-in on cash rent basis 0.04 0.14 0.71 0.25Any other land 0.08 0.26 0.11 0.17Total land 2.93 3.09 6.65 3.88

Note: There are non-farm households who own land and because of that total land exceeds the landowned.Source: NHDR/PIDE Survey 2001.

Table 12 Land Obtained and Sold by Economic Status

Extremely Poor Non-Poor TotalPoor

Made any plan to buy land (Proportion) 1.7 4.6 7.5 3.9If yes, reasons for not buying

Too expensive 90.9 93.1 83.3 89.7Land not available 9.1 6.9 — 5.2

Did you sell any land (Proportion) 2.5 5.0 10.4 4.9Acres of land sold 2.0 4.3 13.6 7.03Reasons for selling land

Urgent consumption need 46.2 23.5 29.2 29.6Marriage expenditure 30.8 26.5 12.5 22.5Health expenditure 23.1 17.6 4.2 14.1To purchase other property — 11.8 20.8 12.7To return debt — 17.6 25.0 16.9To establish business — 2.9 8.3 4.2

Sold any land during last few yearsas well (Proportion) 76.5 38.9 42.3 48.1Money received from land sale last year 1522 1458 6126 2261

Source: NHDR/PIDE Survey 2001.

62 POVERTY, GROWTH AND GOVERNANCE

IV.2 POVERTY AND UNEQUAL ACCESS OVER

THE L AND RENTAL AND CREDIT

MARKETS

As table 13 shows, the average farm size ofowner-cum-tenant households is highercompared to any other category of tenurialstatus. This is true for all the income classes,the extremely poor, the poor and the non-poor. This suggests that, ceteris paribus, theability of farm households to increase theirfarm size and income depends upon theability to rent-in additional land. It isinteresting that the average farm size ofowner-cum-tenant operators amongst thenon-poor is more than twice that of poorhouseholds. This indicates that the non-poorare able to rent-in more land than the poor toenlarge their operated holdings and incomes.It also suggests a certain asymmetry in therural land rental market as between the poorand the non-poor households, as also therelative shortage of working capital amongstthe former arising from unequal access overthe credit market. Yet it is precisely thepoorest farm households with an averagefarm size of only 2.3 acres (compared to 7.03acres for the non-poor households) who havea greater need for renting-in land than thenon-poor.

IV.3 POWER, ECONOMIC DEPENDENCE AND

POVERTY

Table 15 shows the impact of the landlord’spower on the disposal of produce by thepoor farm households, and its directconsequence for their consumption. Underasymmetric tenurial arrangements, theextremely poor farmers are obliged to pay alarger proportion of their farm produce

compared to the poor and the non-poorcategories. For example, the extremely poorhave to pay 28.21 per cent of theirproduction value to the landlord, comparedto 13.39 per cent by the poor householdsand only 8.41 per cent by the non-poorhouseholds. Consequently, the extremelypoor households are forced to keep only39.59 per cent of their crop output forhousehold consumption, compared to 48 percent by poor households and 54 per cent bynon-poor households. This suggests that theextremely poor and the poor households arelikely to run out of their household stock offood grain and would be obliged to purchasegrain in the market near the end of the yearwhen market prices are relatively higher.7

Such households are then faced with thenecessity of borrowing for foodconsumption. Where this is not possible thepeasant household faces starvation. This isalso suggested by the evidence in table 1,which shows that the extremely poorhouseholds borrow for food consumption.Poor farm households are placed under adouble squeeze: First by the power of thelandlord, who obliges them to hand over arelatively larger proportion of their cropoutput as a crop share to the landlord. Asecond squeeze is placed by the seasonalvariation in the market price of grain, whichobliges the extremely poor households topurchase a relatively larger proportion oftheir food consumption requirements fromthe market when prices are high (seechapter 2 for an analysis of how thisphenomenon emerged in the agrarianstructure).

Given their food budget deficit, manytenant households in the poor and theextremely poor categories are obliged tosupplement their incomes by working part

Muhammad Ibrahim: This case study wascarried out in a village, Bajori Kallan, some40 km away from district Khuzdar. MuhammadIbrahim is 35 years old. He is married and hasfour children. He is the only earning memberof the household.

He works as a labourer on the farm of thelocal landowner and also cultivates his ownsmall piece of barani land.

Relations with the landlord are tense,because he makes unfair demands on Ibrahimin terms of giving him a wage much below the

Box 2 Wage Labourer on Landlord’s Farm

market rate when he works on the landlord’sfarm. His annual income is about Rs.12,000which is not enough to cover his consumptionneeds. There are also other expenditures onbuying seeds, fertilizer and other inputs. Hemanages his expenditures by taking loans fromthe landowner and some relatives.

Ibrahim also took a loan of Rs.75,000 fromhis relative to establish his own tea shop on theRCD (Regional Cooperation for Development)highway. However, his business failed. He isnow paying his debts in installments.

Under asymmetric tenurialarrangements, theextremely poor farmers areobliged to pay a largerproportion of their farmproduce compared to thepoor and the non-poorcategories

The resultant leverage andadditional social controlacquired by the landlordobliges many poorhouseholds to work for thelandlord without any wageat all

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 63

time on the landlord’s owner-cultivatedpiece of the land holding. Such poor tenantsthereby constitute a convenient source oftied labour supply to the landlord. It isconvenient not only in the sense that theirlabour is easily accessible during peakseasons when many farmers experience atemporary labour shortage. Perhaps equallyimportant, landlords are able to pay a lowerthan market wage rate to their dependenttenants.8 Table 14 for example, shows that asubstantial proportion of the poorhouseholds work as wage labourers for thelandlord and that the wage rates of the poorand the extremely poor households arealmost half the wage rates at which the non-poor households are able to sell their labourin the market.

Apart from the income loss of the poorhouseholds emanating from adverse cropsharing contracts, an additional squeeze ontheir income results from loan dependencyon the landlord. Table 14 shows that asmany as 50.8 per cent of the extremely poorfarm households borrow a loan from thelandlord.

The resultant leverage and additionalsocial control acquired by the landlordobliges many poor households to work forthe landlord without any wage at all. Forexample, table 14 shows that 57.4 per centof extremely poor households worked forthe landlord without wages. Similarlyamongst poor households, as many as 29.4per cent have borrowed a loan from thelandlord and 38 per cent are obliged to workfor the landlord without wages.

IV.4 I MPACT OF ADVERSE CHANGES IN

TENANCY ARRANGEMENTS ON INPUT

COSTS OF THE POOR

The incomes of households depend on theproportion of the land owned, tenurial statusand productive use of assets. Majority ofthe extremely poor (52.5 per cent) and thepoor (30.6 per cent) are tenants. Anydeterioration in the tenancy arrangementsfor the tenant would therefore tend toincrease poverty. As shall be seen later, thetenants over time have to bear a higherproportion of the cost of inputs therebyreducing the incomes of the poor. No doubt,36.2 and 56.4 per cent of the extremely poorand the poor are owner-operators butbecause of very small land holdings they

Table 13 Farm Size by Tenurial Status

Extremely Poor Non-Poor TotalPoor

Farm Size (Acres)Owner Operator 2.32 3.43 7.03 3.92Tenant 3.28 3.38 3.66 3.34Owner Operator-cum-Tenant 3.68 4.11 8.94 5.92Others 1.07 6.59 19.08 7.30Total 2.85 3.62 7.67 4.16

Percentage of HouseholdsOwner Operator 41.1 58.6 58.3 51.7Tenant 45.8 25.5 10.3 30.3Owner Operator-cum-Tenant 9.8 11.9 27.6 14.3Others 3.4 4.0 3.8 3.7

Source: NHDR/PIDE Survey 2001.

Table 14 Loan Dependence on the Landlord and Labour Exploitation ofthe Poor Peasantry

Extremely Poor Non-Poor TotalPoor

Loan from landlord (%) 50.8 29.4 11.7 34.4Work for landlord againstwages (%) 14.0 24.3 5.1 16.9Daily wages (Rupees) 28.0 43.6 60.0 40.0Work for landlordwithout wages (%) 57.4 38.5 25.4 43.5

Source: NHDR/PIDE Survey 2001.

Chart 1 Loan Dependence on the Landlord and Labour Exploitationof the Poor Peasantry (%)

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

ExtremelyPoorPoorNon-PoorAll

Loan fromLandlord

Work for Landlordagainst Wages

Work for Landlordwithout Wages

50.8

29.4

11.7

34.4

14.0

24.3

5.1

16.9

57.4

25.4

43.5

38.5

64 POVERTY, GROWTH AND GOVERNANCE

are confronted with persistent poverty. Thissuggests that contrary to the general beliefthat poverty of a household is a short runphenomenon, the fact is that the tenants aregenerally poor and the ancestors of existingtenants have also been tenants. As many as78.7 per cent of the existing tenants’fathers were also tenants. This suggests thatrural poverty may be endemic to theagrarian structure rather than a transientphenomenon.

Changes in tenancy arrangements withrespect to the financial contribution of thetenants to input use on the tenant operatedfarm have become a significant factor ingenerating poverty. The contribution oftenants to input costs in the case of tractorrental, labour, seeds and fertilizer hasincreased during the period 1990-91 to2000-2001. For example as table 16 shows,in the case of wheat, the contribution of thetenants in the provision of tractors increased

Table 15 Disposal of Crop Harvest by Income Class

Total Paid in kind Paid as rent Paid to landlord Given to Crop Sold Crop KeptProduction to labour (Value)/Total under share Relatives (Value)/Total for Own

Value (Value)/Total Production cropping agree- (Value)/Total Production Use/TotalProduction Value* 100 ment (Value)/ Production Value* 100 ProductionValue* 100 Total Production Value* 100 Value* 100

Value* 100

Extremely Poor 13864 1.45 1.10 28.21 0.09 29.57 39.59

Poor 22538 2.76 1.40 13.39 1.06 33.27 48.12

Non-Poor 37626 4.70 0.83 8.41 1.61 30.02 54.43

Source: NHDR/PIDE Survey 2001.

Table 16 Contribution of Tenants in Inputs(%)

1990-91 2000-2001Tractor Labour Seeds Fertilizer Tractor Labour Seeds Fertilizer

WheatExtremely Poor 58 43 45 43 70 51 56 50Poor 55 45 52 48 75 65 72 60Non-Poor 93 59 62 57 84 69 75 64Total 63 47 51 47 74 60 67 57

CottonExtremely Poor 41 20 24 24 52 28 34 34Poor 21 8 15 15 46 31 41 38Non-Poor 21 15 21 19 42 32 42 36Total 30 15 20 20 48 30 38 36

RiceExtremely Poor 24 17 16 20 29 20 19 25Poor 22 14 13 18 25 15 14 19Non-Poor 28 18 22 21 32 18 25 25Total 24 16 16 19 28 18 18 23

SugarcaneExtremely Poor 22 15 14 17 23 15 15 18Poor 20 8 11 17 19 11 11 19Non-Poor 17 11 10 12 20 12 13 13Total 20 12 12 16 21 13 13 17

TotalExtremely Poor 36.3 13.8 24.8 26.0 43.5 28.5 31.0 31.8Poor 29.5 18.8 22.8 24.5 41.3 30.5 34.5 34.0Non-Poor 39.8 25.8 28.8 27.3 44.5 32.8 38.8 34.5Total 34.3 22.5 24.8 25.5 42.8 30.3 34.0 33.3

Source: NHDR/PIDE Survey 2001.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 65

from 63 to 74 per cent, labour from 47 to60 per cent, seeds from 51 to 67 per centand fertilizer from 47 to 57 per cent. Theincrease in the proportion of tenant’scontribution to inputs for cotton has been30 to 48 per cent in the case of tractors,from 15 to 30 per cent in the case of labour,from 20 to 38 per cent in the case of seeds,and from 20 to 36 per cent in the case offertilizer. For rice the tenant’s share in inputcosts has increased in the case of tractorshiring from 24 to 28 per cent, labour from16 to 18 per cent and fertilizer from 19 to23 per cent.

The burden of financing input costs inpercentage terms even in 1990-91 washigher for the extremely poor and poorcategories compared to the non-poor (seeTable 16). With the increase in this burdenover the decade of the 1990s, the squeezeon tenant income has been intensified.

While the financial burden and inputcosts on the poor tenants has increased, theirlack of control over timing of waterapplication, combined with adulteratedinputs, keeps the yield per acre of poorpeasants at a low level, thereby reducingtheir net income.

IV.5 I NCOME L OSS RESULTING FROM

UNEQUAL ACCESS OVER INPUT MARKETS

The source of input procurement alsoimpacts adversely the cost of production andhence on incomes of the poor. As many as28.2 per cent of the extremely poor have tobuy the inputs from the landlords and theproportion falls to only 8.7 and 2.7 per centin the case of the poor and the non-poor. Onaverage, the poor have to pay 11.8 per centmore than the actual amount which theywould have to pay in case these inputs wereprocured from the least cost sources.Compared to the extremely poor, this

proportion for the non-poor is only 9.41 percent (see Table 17).

Irrigation is basic to the productivity inthe agriculture sector. As many as 54 percent of the extremely poor households donot have any source of irrigation and theproportion falls to 45.8 per cent in case ofthe poor and 30.3 per cent in case of thenon-poor. Whereas the proportion ofhouseholds using canal as the only sourceof irrigation is not much different, it issignificantly different in the case of otherirrigation facilities. Moreover, most of theextremely poor households are at the tailend of the irrigation channel.

IV.6. I NCOME L OSS RESULTING FROM

UNEQUAL ACCESS OVER OUTPUT

M ARKETS

As we have seen in the preceding SectionIV.5, unequal access over input marketssqueezes the income of the poor since theinputs they purchase have a higher price andpoorer quality compared to those which themore influential large farmers are able toacquire. Similarly the income of the poorfarmers is further squeezed due to unequalaccess over markets for farm output. Thegovernment fixes the support prices forsome of the major crops but the smallfarmers seldom receive these prices becausegovernment agencies procure output fromcommission agents rather than directly fromsmall farmers. The following table 18 showsthe distribution of four major crops sold inthe market by type of buyer.

It shows that an overwhelming proportionof output sold in the case of rice, cotton andwheat, is sold to traders and landlords whoconstitute an important element in the localpower structure in many areas, rather thandirectly to the government or semi-autonomous government organizations. It is

Table 17 Percentage Loss in Prices of Inputs Used for Selected Inputs by Economic Status

Input Type

DAP Urea Potash Nitrogen Pesticide Pesticide Total# 1 # 2

Extremely Poor 7.11 14.65 — 4.23 18.57 28.57 11.78Poor 7.98 9.74 2.86 6.67 20.29 — 9.03Non-Poor 8.27 10.56 — 6.67 4.76 — 9.41Total 7.81 11.32 2.86 5.45 16.84 28.57 9.89

Source: NHDR/PIDE Survey 2001.

While the financial burdenand input costs on the poortenants has increased, theirlack of control over timingof water application,combined with adulteratedinputs, keeps the yield peracre of poor peasants at alow level, thereby reducingtheir net income

66 POVERTY, GROWTH AND GOVERNANCE

pertinent to point out that the traders andthe landlords give a lower price than theofficial purchase price of the government,since, in most cases, either the poor peasantsdo not have direct access over governmentagencies, or are tied into various forms ofdependence (on the landlord throughtenancy and loans dependence, and ontraders through loan dependence andprotection rackets). For example of the totaloutput sold, the percentage sold to tradersand landlords is 45.3 per cent in the case ofrice, is 96.3 per cent in the case of cottonand 67.3 per cent in the case of wheat. Only

in the case of sugarcane, as much as 88.5per cent of the total output was sold directlyto the mill owners. However even in thiscase, mill owners enjoy a virtuallymonopsonistic position vis-à-vis the farmersin the local area. They are able to push downprices of sugarcane simply by delayingpurchase in a situation where delay in theopportunity to sell the sugarcane places thesmall farmer under intense pressure. This ispartly because of his urgent requirements atharvest time and partly because the sucrosecontent of the sugarcane falls over timethereby reducing its value.

As seen in table 19, the income of thepoor is reduced by 7.44 per cent of the totalvalue of sales for the major crops becausethey were unable to get the minimum rulingmarket price. These four crops account for85 per cent of the total output in the cropsector. If the loss of income in the other subsectors resulting from such marketdistortions, is also taken into account, thenthe loss would be almost doubled. If theincrease in the cost of input procurement isalso taken into account, then the small

Table 18 Distribution of Four Major Crops Sold in the Market by Type of Buyer (Rural Pakistan)

To whom Sold Rice Cotton Wheat Sugarcane Total

Trader 37.5 78.2 49.7 1.9 56.9Relative/Friend 14.1 1.6 15.6 — 7.1Neighbour 4.7 — 4.1 — 1.8Mill Owner 28.1 0.4 — 88.5 12.8Government 1.6 — — 1.9 0.4PASCO — — 1.4 — 0.4Food Department — — 2.7 — 0.8Landlord 7.8 18.1 13.6 5.8 14.2Others 6.3 1.6 12.9 1.9 5.5Total 100.0 100.0 100.0 100.0 100.0

Source: NHDR/PIDE Survey 2001.

Table 19 Income Loss due toDistortions in OutputMarkets by Economic Status

Loss/Value Sold* 100

Extremely Poor 7.44Poor 6.42Non-Poor 5.65Total 6.55

Source: NHDR/PIDE Survey 2001.

Table 20 Place Where Livestock Produce Sold by Economic Status

Where Sold Extremely Poor Poor Non-Poor Total

MilkVillage 33.3 33.0 16.3 26.9Town 21.2 19.1 16.3 18.4Middleman 36.4 44.3 61.6 49.6Others 9.1 3.5 5.8 5.1Total 100.0 100.0 100.0 100.0

Butter/GheeVillage 100.0 100.0 — 80.00Town — — 100.0 20.0Total 100.0 100.0 100.0 100.0

Source: NHDR/PIDE Survey 2001.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 67

farmers are deprived of about 20 per cent oftheir potential income from crop production.If the income loss resulting from thepressure to bribe local administrationofficials through provision of milk and gheeis included, then as much as one-third ofthe potential income of small farmers is lost(see following sub-section, table 22).

IV.7 M ILK AND MILK PRODUCTS AND INCOME

LOSS TO THE LOCAL POWER STRUCTURE

Besides land, livestock is another majorasset of the farming community especiallyof the poor. It plays a major role inproviding nutrition to the farmingcommunity. Whether the farmers are pooror extremely poor, they do own someanimals; ownership of animals is lessskewed than the ownership of land. Valueof animals owned by the extremely poor andthe poor ranges between Rs.17,000 to

Rs.24,000, compared to Rs.47,400 for thenon-poor. It is noteworthy that the value ofanimals owned has increased over the yearsfor all the three categories.

Milk is the major product, and thequantity produced per year varies from 702litres of milk annually in case of theextremely poor to 2,463 litres in case of thenon-poor (see Table 22). The extremelypoor households consumed 84 per cent ofthe total milk they produced. The ratiodeclines to 76 and 66 per cent for the poorand the non-poor, respectively. Since theextremely poor have a small amount to sell,they are able to earn from the sale of milkonly Rs.1,898 compared to Rs.5,980 by thepoor and Rs.19,202 by the non-poor.Whereas production of the extremely poorand the non-poor has a ratio of 1 to 3.5, thesales ratio is 1 to 10. Another interestingfeature is that whereas the extremely poorand the poor are pressurized to provide arelatively large proportion of their milk

Table 21 Livestock by Economic Status

Value of Animals (Rs.)Currently Owned in Sold during Slaughtered/ Purchased Received asOwned the Start of Last Year Consumed during during Gift during

Last Year Last Year Last Year Last Year

Extremely Poor 17048 12641 1106 51 1706 19Poor 23990 19438 2114 163 2103 220Non-Poor 47414 39631 3624 303 3118 206Total 27268 22050 2165 163 2218 159

Source: NHDR/PIDE Survey 2001.

Table 22 Production and Income from Livestock by Economic Status

Extremely Poor Poor Non-Poor Total

MilkQuantity produced (Litres) 701.85 1079.96 2463.72 1380.56Quantity consumed from own production (%) 83.83 75.60 66.35 74.92Quantity sold (%) 12.39 23.63 33.78 23.85Sale value (Rs.) 1898 5980 19202 8672Value of produce given to Patwari (Rs.) 0 0 8 2Value of the produce given to other officials (Rs.) 72 197 7 116Value of produce given to Imam Masjid (Rs.) 35 10 51 27

Butter/GheeQuantity produced (Kg.) 24.89 47.42 73.00 51.21Quantity consumed from own production (%) 94.12 89.24 95.80 92.49Quantity sold (%) 5.88 11.07 3.33 7.47Sale value (Rs.) 26 203 43 114Value of produce given to Patwari (Rs.) 0 0 0 0Value of the produce given to other officials (Rs.) 0 0 0 0Value of produce given to Imam Masjid (Rs.) 0 4 0 2

Source: NHDR/PIDE Survey 2001.

68 POVERTY, GROWTH AND GOVERNANCE

output to the officials in the area, it doesnot form a significant proportion in the caseof the non-poor (see Table 22).

All the three income classes also producebutter and ghee. The annual quantity is25 kg in case of the extremely poor and73 kg in case of the non-poor. Most of thisis consumed and it is only the poor who sell11 per cent of the total quantity (seeTable 22).

V. DISPUTES AND THE ECONOMICCOST OF SEEKING RESOLUTION

Given the powerlessness of the poor andtheir vulnerability to social and economicinjustice within the local power structure,the poor are engaged in a variety of disputes.The NHDR/PIDE Survey 2001 hasinvestigated the frequency and type ofdisputes for various income classes of thepoor and the cost of mediation as well asthe rate of successful resolution.

As table 23(a) shows, the highestfrequency of reported disputes occurs in thecase of the poor, while the extremely poor,perhaps due to their acutely constrainedeconomic circumstances, are often notprepared to take on the burden of a dispute.Their disputes as a percentage of the totaldisputes is 17.1 per cent, with the figure forthe non-poor being 34.2 per cent. In therelatively few cases where the extremely

poor do engage in disputes, the cost ofmediation (Rs.18,333) places a cripplingburden on them since it is more than theirannual household income. Yet inspite ofhaving spent such a large amount of money,usually by taking out loans or sellingwhatever few assets they have, thepercentage of successful resolution ofdisputes in the case of the extremely poor isthe lowest amongst the three income classes(38.5 per cent). In the case of the non-poor,the percentage of reported disputes resolvedis much higher at (80.8 per cent) indicatingthe role of their relatively greater socialinfluence in dispute resolution.

As table 23(b) shows, the greatestproportion of disputes related with money/credit occurs in the case of the poor (61.2per cent) and to a much lesser extent in theother two income classes, being 22.2 percent for the extremely poor and 16.7 percent for the non-poor. In the case of landdisputes, again the highest proportion occursin the case of the poor (42.9 per cent) withthe extremely poor also facing a substantialproportion of land disputes (21.4 per cent).In disputes related with honour or ‘loss offace’, again the greatest percentage occursamongst the poor (47.1 per cent) with thefigure in the case of the extremely poorbeing 17.6 per cent, and in the case of thenon-poor being 35.3 per cent.

The data show that in all the threeincome classes, the poor by and large tend

Table 23 (a) Frequency of Disputes, Resolution and Cost of Resolution by Economic Status(Cases Reporting Disputes only)

Economic Status Distribution of Amount Spent on ReportedReported Disputes Mediation (Mean) Disputes Resolved (%)

Extremely Poor 17.1 Rs. 18,333 38.5Poor 48.7 Rs. 12,074 59.5Non-Poor 34.2 Rs. 18,264 80.8Total/Average 100 Rs. 15,123 63.2

Source: NHDR/PIDE Poor Communities Survey 2001.

Table 23 (b) Type of Dispute by Economic Status (Dispute Reporting Cases only)

Economic Status Land Dispute Water Dispute Money/ Honour OtherCredit Dispute Dispute

Extremely Poor 21.4 — 22.2 17.6 13Poor 42.9 — 61.2 47.1 47.8Non-Poor 35.7 100 16.7 35.3 39.1Total 100 100 100 100 100

Source: NHDR/PIDE Survey 2001.

In the relatively few caseswhere the extremely poordo engage in disputes, thecost of mediation(Rs.18,333) places acrippling burden on themsince it is more than theirannual household income

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 69

to avoid involving the police. This isindicative not only of the perceivedinefficiency of the police in handlingdisputes, but also the danger of harassmentby them. This is quite apart from the bribemoney that has to be paid to register andpursue a case with the police, whether it istheft, violence or kidnapping. As table 24shows, the extremely poor involve policein only 1 per cent of the disputes, the poorto the extent of 2.8 per cent and the non-poor to the extent of 4.9 per cent. Therelatively low involvement of police in thedisputes of the poor is explained to someextent by the fact that a relatively largeamount of bribe money has to be paid tothe police just to register a case. In thecase of extremely poor the bribe moneypaid to police, in cases where it wasinvolved was Rs.16,171, in the case of thepoor, it was Rs.14,517 and in the case ofthe non-poor, it was Rs. 35,558.

VI. POVERTY AND ILLNESS

The NHDR/PIDE Survey 2001 shows thatthe poor are not only afflicted by a highfrequency of illness but also, the high costof medical treatment constitutes a majorfactor in pushing people into poverty.

The poor due to inadequate nutrition andhence lowered immunity are relatively moresusceptible to disease. Moreover the lack ofaccess over safe drinking water as well asunhygienic conditions of production, storageand consumption of food would be expectedto result in a relatively high frequency ofdisease amongst the poor. It is not surprisingthat our data show that 55 per cent of thepoor and 65 per cent of the extremely poorin the NHDR/PIDE 2001 poor communitiessurvey, were ill at the time of the survey(see Table 25). The high prevalence of poorhealth amongst the poor is also borne out

by the National Health Survey of Pakistan.It shows that in rural areas, amongst lowincome women of 45 years age and aboveas many as about 45 per cent suffer frompoor health and over 80 per cent suffer frompoor to fair health.9 Amongst men in ruralareas, almost 60 per cent suffer from poorto fair health. Similarly children under 5years of age in rural Pakistan have onaverage six episodes of cough and feverduring the year.10

Table 24 Police Involvement in Disputes and Amount of Bribe MoneyPaid by Economic Status

Economic Police Bribe MoneyStatus Involvement Paid to

in any Dispute (%) Police

Extremely Poor 1 Rs.16,171Poor 2.8 Rs.14,517Non-Poor 4.9 Rs.35,558Average 2.5 Rs.22,648

Source: NHDR/PIDE Survey 2001.

Table 25 Percentage of Poor Who are Sick, Number of Days of Sickness, Treatment Expenses and DistanceTravelled for Medical Consultation (Head of Household only)

Economic Status Sick at the Time of Number of Days in Treatment PatientsSurvey (%) Current Sickness Expenses Travelling over 6

(Mean) (Rs.) kms. (%)

Extremely Poor 65.1 94.9 1885 49.4

Poor 55.6 27.4 497 29.5

Source: NHDR/PIDE Survey 2001.

Shehnaz Bibi: She lives in MohallaShamspura which is an impoverishedurban neighbourhood (Lahore). Herhusband, Niamat felt pain in his kidneysa few years ago. He took medicine froma local private practitioner irregularly.With the passage of time, his kidneyproblem became serious and he wasadmitted to a hospital for two monthslast year. When he recovered from thekidney problem he returned home. Aftersome days, he was struck by anunknown disease and had to be carriedto the Mayo Hospital. In the evening ofthe second day, a little blood came outof his mouth and he passed away.

Shehnaz spent sixty thousand rupeeson her husband’s treatment. Twenty

Box 3 Moving into Deep Poverty

thousand rupees were household savingswhile forty thousand rupees wereborrowed from relatives. Besides theloss of her husband, Shahnaz had alsoto bear the loss in goods which Niamathad sent to other cities for sale. Now,she is in debt of nearly forty thousandrupees and is worried about paying itback.

She is living in this household withher six children, three sons and threedaughters. At present, Shehnaz Bibi, isearning a livelihood for her family. Shetakes a few goods from the mandi(market) and then carries them on herhead in a wicker basket for sale. Sheearns sixty to seventy rupees daily.

70 POVERTY, GROWTH AND GOVERNANCE

The NHDR/PIDE Survey 2001 showsthat not only 65.1 per cent of the extremelypoor respondents were sick at the time ofthe survey but that they had on averagesuffered from their current sickness for thelast ninety-five days (see Table 25). TheNHDR/PIDE Survey shows that rather thangoing to homeopaths, hakims or evengovernment hospitals and dispensaries, thepoor predominantly go to private allopathicmedical practitioners. This is reflective ofthe desire of the poor to get the best possiblemedical treatment for their loved ones. It isalso reflective of the poor quality of mostgovernment medical facilities and of thelack of access of the poor over the betterones. As table 26 and chart 2 show, of thepoor in the various income classes, onaverage, 54 per cent go to private medicalpractitioners, 13.3 per cent to government

hospitals, 8.0 per cent to governmentdispensaries and only 5.6 per cent tohomeopaths, hakims and others.

Ironically, a large number of privateallopathic medical practitioners who areconducting private practices in the ruralareas, are poorly trained and have grosslyinadequate diagnostic facilities. The resultis that when the poor fall ill they suffer fora protracted period and get locked into ahigh cost source of medical treatment. Astable 25 shows, the extremely poor spendRs.1,885/ on their current illness and 49.4per cent of the patients have to travel oversix kilometers for their medical consultation.Given the high cost of medical treatmentand protracted illness due to inadequatediagnostic facilities, in many cases the poorare forced to sell whatever few assets theyhave and to finally borrow money to finance

Table 26 Type of Health Facility used by Sick Persons within each Economic Category

Distribution of sick persons by type of Health Facility Used

Economic Private Govt. Govt. Compounder Community Homeopath, ROWStatus Medical Hospital Dispensary or Chemist Health Hakim and TOTAL

Practitioner Worker others(Allopathic)

Extremely Poor 57.8 12.0 7.2 13.3 1.2 8.4 100Poor 45.9 16.3 8.2 22.4 0.9 6.1 100Non-Poor 64.4 8.9 8.9 15.6 — 2.2 100Average 54.0 13.3 8.0 17.7 0.4 5.6 100

Source: NHDR/PIDE Survey 2001.

The NHDR/PIDE Survey2001 shows that not only65.1 per cent of theextremely poor respondentswere sick at the time of thesurvey but that they had onaverage suffered from theircurrent sickness for the lastninety-five days

ExtremelyPoor

100

80

60

40

20

0

Chart 2 Type of Health Facility Used by Sick Persons within Each Economic Category

Poor Non-Poor All

Economic Status

Homeopath, Hakim and OthersCommunity Health WorkerCompounder or ChemistGovernment DispensaryGovernment HospitalPrivate Medical Practitioner(Allopathic)

(%)

57.8

45.9

64.4

54.4

5.8

17.8

8.1

13.4

0.52.2

8.9

8.9

15.6

16.3

22.4

8.2

6.1

0.9

7.2

1.28.4

13.3

12.0

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 71

the treatment of their loved ones. Thepoignancy of the human condition of thepoor in this context is that as they undertakethe noble act of providing succour to theirfamily members, they get pushed deeperinto poverty.

VII. MICRO-ENTERPRISES ANDPOVERTY ALLEVIATION

Whereas land ownership has been a majorfactor in determining the probability ofbeing poor in the farm sector, productivityof micro-enterprises would be important forthe large proportion (42.7 per cent) of thework force that is engaged in the non-agricultural sector [see annexure 3(e)]. Ingeneral, productivity of micro-enterprises inwhich most of the poor work, is low, andtherefore, the employees have low incomesand tend to fall below the poverty line.

VII.1 O CCUPATIONAL STATUS OF THE POOR

IN THE NON-AGRICULTURAL SECTOR

AND THE TYPES AND PROFITABILITY OF

M ICRO-ENTERPRISES

Whereas non-agriculture enterprisesaccount for almost 40 per cent of the totalenterprises in the rural areas, almost all thelabour force (in our sample) in the urbanareas, is engaged in non-farm enterprises.In the rural areas, as many as 57.2 per centof the extremely poor are farmers andanother 32.4 per cent are absorbed in thehousehold establishments employing lessthan ten persons, or carry out other manualwork [see annexure 3(f)]. Most of the poorin small establishments are employeesrather than employers, and as such, theprobability of falling below the poverty lineis quite high.11 Similarly, in the urban areas,most of the extremely poor and the poorare in micro-enterprises; the proportionbeing 57.0 and 52.1 per cent respectively.Location of these enterprises also plays animportant role in determination of incomelevels. Most of the enterprises of theextremely poor and the non-poor arelocated in the house itself or in a smallshop. A large proportion of them are alsostreet vendors. None of the extremely poorrun a micro-enterprise unit of their own inthe industrial sector. Enabling the poor toset up their own micro enterprise units

would be an important factor in povertyreduction.

Non-farm enterprises are about two-fifthof the total enterprises. [See annexure 3(f)].The poor and the extremely poor areassociated with those organizations whichemploy less than ten employees. Theproductivity levels and employmentgenerating capacity of these enterprises aresignificant determinants of the povertylevels. Whereas the households involved inoperation of these enterprises reportedoperations of eleven months, effective workseems to be much less when their sales andnet profits are taken into consideration. Theenterprises run by the extremely poor (allPakistan) have annual sales of Rs.76,438and net profit of Rs.43,670 (see Table 27).The sales volume in the rural areas of microenterprises run by the extremely poor is onlyRs.32,000 and profits merely aboutRs.13,000 annually (Table 27). The volumeof business is rather small. Enhancing salesand net profits of enterprises run by the poorcould contribute significantly to povertyreduction.

VII.2 P ROBLEMS IN RUNNING M ICRO -ENTERPRISES

Most of the enterprises have not reportedany specific problem out of a sense of utterfrustration. However, little less than half ofthe extremely poor have been able to voicetheir problems which relate to lack of funds,

Table 27 Duration of Operation, Sale and Net Profit of Non-AgriculturalEnterprises by Economic Status

Extremely Poor Non-Poor TotalPoor

All PakistanDuration of Operation (Months) 11 11 11 11Sales (Rs.) 76438 121698 173261 12922Net Profit (Rs.) 43670 29689 63160 42673

UrbanDuration of Operation (Months) 11 11 11 11Sales (Rs.) 93930 169470 198355 154161Net Profit (Rs.) 55395 36686 53373 44147

RuralDuration of Operation (Months) 12 11 10 11Sales (Rs.) 32125 46999 164897 102574Net Profit (Rs.) 13185 19131 66422 41102

Source: NHDR/PIDE Survey 2001.

Enhancing sales and netprofits of enterprises run bythe poor could contributesignificantly to povertyreduction

72 POVERTY, GROWTH AND GOVERNANCE

high costs, police harassment, MunicipalCorporation/Committee harassment, un-certainty in supply of inputs, uncertainty ofearnings, sale on credit, governmentdisturbance, transportation problems,locality problems and others [seeAnnexure 3 (a)].

Lack of funds has been reported as amajor problem by both the rural as well asthe urban enterprises. The problems weresimilar in all the three categories, as werereasons given for the decline in business.An overwhelming proportion felt thatenhanced availability of credit would behelpful in the business. Better location hasbeen the second most important factor andlack of transport facilities as the third. Thelast two in fact are related to marketingproblems (see Table 28).

VII.3 M ICRO-ENTERPRISES, LOCAL POWER

STRUCTURE AND CORRUPTION

Running a small business without socialinfluence over the local power structure isproblematic. The police, tax departments,municipal committee staff etc. often do notallow unhindered functioning unless theofficials are bribed. It is significant that 16.7per cent of the extremely poor, incomparison with 6.7 per cent of the non-

poor, reported to have paid bribes (seeTable 29). In the rural areas, the incidenceof bribe is greater than in the urban areas.The average amount of bribe in case of theextremely poor is Rs.6,833, in the case ofthe poor Rs.6,060 and the non-poor,Rs.9,257, respectively. If this is added tothe cost already indicated earlier due tomarketing problems, the poor may havebeen deprived of at least one-third of theirearnings. Moreover, in the case of the urbanareas, the extremely poor had to pay thehighest rate of bribe to run the business butthe pattern in the rural areas reverses.

The NHDR/PIDE Survey data providesupport to the frequent allegations ofcorruption in obtaining loans for smallbusinesses. In our Survey data, about 17 percent is the rate of bribery as a percentage ofthe loan. Interestingly enough, the extremelypoor have to pay 14 per cent, poor 16 percent and the non-poor 19 per cent. Whereasin the urban areas the ratio is rather small,in the rural areas it is quite large.

Delay in the loan delivery also impactson business activities and is one indicatorof corruption. The households have to makefrequent visits, which also involvesexpenditure and bribe to obtain the loan. Thereasons cited for delay are, complicatedprocedures, lack of collateral, unacceptablelending source and non-availability of funds.As much as 41.4 per cent of the borrowersin the urban areas and 9.7 per cent in therural areas, complained about the delay.

A significant aspect of loans received bymicro enterprises is the high default rate.Only 4.9 per cent of the loans received havebeen repaid on time [see annexure 3 (g)].The reasons given for delay in repaymentof loans are crop failure and losses in microenterprises. Another factor in the failure torepay loans is due to the fact that they havebeen used for purposes other than those forwhich they were borrowed.

VIII. CREDIT FOR THE POOR:WHERE DOES IT COMEFROM, WHERE DOES IT GO?

Since credit has been one of the majorfactors constraining the growth of the micro-enterprises, as well as the productivity ofthe small farm sector, the issue of creditavailability needs to be analyzed. In thissection, we will examine the following

Table 28 Type of Help Needed to Expand Business/Enterprise byEconomic Status

Location of Extremely Poor Non-Poor TotalEnterprise Poor

PakistanCredit 62.5 65.3 65.5 64.7Better Location 25.0 18.4 20.7 20.6Recovery Loan — 2.0 — 1.0Transport 12.5 6.1 10.3 8.8Others — 8.2 3.4 4.9UrbanCredit 63.2 72.4 71.4 69.1Better Location 26.3 17.2 14.3 20.0Transport 10.5 6.9 — 7.3Others — 3.4 14.3 3.6RuralCredit 60.0 55.0 63.6 59.6Better Location 20.0 20.0 22.7 21.3Recovery of Loan — 5.0 — 2.1Transport 20.0 5.0 13.6 10.6Others — 15.0 — 6.4Total 100.0 100.0 100.0 100.0

Source: NHDR/PIDE Survey 2001.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 73

questions: to what extent do poorhouseholds in various categories receiveloans? for what purpose are they used? howare the total loans provided to themdistributed amongst various loan givingsources? and what is the average size ofloan disbursed by various sources todifferent categories of the poor? In thiscontext, we will also examine the relativeimportance of the NGOs as a credit sourcefor the poor, and their relative effectivenessin targeting their claimed beneficiaries.

VIII.1 E XTENT OF BORROWING AND SOURCES

OF LOANS

According to our survey (see Table 30), only35.6 per cent of households have had accessto loans and the proportion does not varysubstantially across the categories ofextremely poor and poor households.However, the proportion is significantlylower in the urban areas, where only 16 percent of the households have been able toreceive loans. However, the proportion issimilar across all the income categories. Forthe rural areas the proportion of householdsreceiving loans is lowest in the case of theextremely poor, i.e., 37.3 per cent comparedto 44.7 per cent and 47.7 per cent for the

poor and the non-poor households,respectively.

The amount borrowed not surprisinglyrises with the income level. It rises fromRs.12,925 for the extremely poor toRs.18,152 for the poor and Rs.36,642 forthe non poor categories (see Table 31). Thecredit as percentage of the income is 82.1,46.4, and 36.4 in the extremely poor, thepoor and the non-poor categories,respectively. The percentage of householdsreceiving loans amongst the non-poor islower in the urban areas than in the ruralareas. Overall, the reliance of the ruralhouseholds on credit has been higher,

Table 29 Bribe Payment to Run Business/Enterprise by Economic Status

Extremely Poor Non-Poor TotalPoor

Proportion who paid bribePakistan 16.7 11.8 6.7 11.4Urban 15.8 10.3 14.3 12.7Rural 20.0 13.6 4.3 10.0

Amount of bribe (Rs.)Pakistan 6833 6060 9257 6879Urban 8700 5664 1200 5594Rural 3100 6544 15300 8420

Source: NHDR/PIDE Survey 2001.

Only 35.6 per cent ofhouseholds have had accessto loans

Chart 3 Prevalence of Bribe Payment to Run Business/Enterprise, by Economic Status

20.0

15.0

10.0

5.0

0.0Extremely Poor

PakistanUrbanRural

Poor Non-Poor All

Economic Status

% w

ho P

aid

Brib

e

16.7

15.8

20.0

11.8

10.3

13.6

6.7

14.3

4.3

11.4 12

.7

10.0

74 POVERTY, GROWTH AND GOVERNANCE

48.7 per cent, compared to 39.8 per cent inthe urban areas.

While the rural areas have received moreloans, that does not mean that moreinstitutional credit has been made availableto them. As much as 80.3 per cent of thetotal loans are obtained either from theshopkeepers or from friends and relatives[see annexure 3(h)]. In the extremely poorhouseholds, shopkeepers account for 39.1per cent of the total loans and the relationsaccount for another 39 per cent. As regardsthe ADBP, only 1.0 per cent households ofextremely poor have received a loan fromthe ADBP. The proportion rises slightly to5.1 per cent in the case of the non-poor.Moreover, whatever the loan provided byADBP, the extremely poor who are 40 percent of the total rural households constituteonly 13.6 per cent of the total ADBPrecipients, the poor 50.0 per cent. Thenon-poor, by contrast, who are less than20 per cent of total households, havereceived as much as 36.4 per cent of theADBP loans. This suggests that theinstitutional credit tends to flow to relativelyricher sections of society. In the urban areas,the commercial banks do not provide anyloans to the extremely poor.

Whereas much is being made aboutNGOs providing credit, two aspects ofempirical evidence in this regard are

noteworthy. First, NGO intervention isrelatively insignificant. Of the total numberof loans received by all the three incomeclasses, from all the sources, the NGOsprovided only 1 per cent of the loans in theurban areas and 0.8 per cent of the loans inthe rural areas [see annexure 3(h)]. Second,the NGOs cater to the non-poor householdsto a much greater extent than to the poorhouseholds. For example, of the totalnumber of loans received from the NGOs,in rural areas as much as 50 per cent havebeen received by the non-poor households,33.3 per cent by the poor households and16.7 per cent by the extremely poorhouseholds [see annexure 3(h)].

VIII.2 T HE PURPOSE OF LOANS, RATE OF

I NTEREST AND THE PROBLEM OF

I NDEBTEDNESS

The loans taken by all the three types ofhouseholds in the urban, as well as the ruralareas have been predominantly for meetingconsumption needs (see Table 32). Theproportion of loans used for consumptionpurposes is 56.8 per cent in case of theextremely poor and 65.1 per cent in case ofthe poor, in the urban areas, and 69.0 and57.5 per cent, respectively, in the rural areas.Since institutional creditors would notofficially provide loans for consumptionpurposes, friends and relatives are the majorlenders.

Data on the annual mark ups provideinteresting insights: average mark-up is only2.1 per cent and even lower for the poorand the extremely poor (see Table 33).However, this is because they receive loansfrom relatives which are interest free. Bycontrast, the average mark-up by the moneylender is around 48 per cent. It rises to 58.8per cent in the case of the extremely poorand 60 per cent in the case of the poor, butfalls sharply to just 17 per cent for the non-poor. In the very few cases where NGOsare providing loans to the extremely poor,they are interest free. The interest rate risesto 19 per cent for the non-poor. The samepattern is observed in the case of ADBP.Here the rate of interest for the extremelypoor is 8 per cent, which rises to 17 percent for the non-poor. However, access to apublic sector development bank such as theADBP or even NGOs is rather limited. Thecommercial banks on the other hand do not

Table 30 Percentage of Households Which Received Loans during Last12 Months by Economics Status

Extremely Poor Non-Poor TotalPoor

All Pakistan 32.1 36.4 41.9 35.6

Urban 17.6 14.5 18.4 16.2

Rural 37.3 44.7 47.7 42.3

Source: NHDR/PIDE Survey 2001.

Table 31 Credit Received During Last 12 Months by Economic Status

Extremely Poor Non-Poor TotalPoor

All Pakistan 12,925 18,152 36,642 19,591

Urban 14,045 25,084 26,870 20,281

Rural 12,699 17,096 37,496 19,483

Source: NHDR/PIDE Survey 2001.

First, NGO intervention isrelatively insignificant. Ofthe total number of loansreceived by all the threeincome classes, from all thesources, the NGOs providedonly 1 per cent of the loansin the urban areas and 0.8per cent of the loans in therural areas [see annexure3(h)]. Second, the NGOscater to the non-poorhouseholds to a muchgreater extent than to thepoor households

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 75

provide any loan to the extremely poor. Therate for the poor is 19 per cent and for thenon-poor only 10 per cent. The mark-upcharged by factory/mill owners is 13.0 percent for the extremely poor, but it falls to3.0 and 5.1 per cent in the case of the poorand the non-poor (see Table 33).

That 70 per cent of the rural householdsnever applied for any loan is significant andmay be mainly the result of a lack ofcollateral. While 75.0 per cent could notprovide the collateral, the lack of awarenessrelating to the procedure of obtaining loanshas been another problem. At least one-quarter of the extremely poor householdsreported that their loan application wasrejected because they did not pay any bribe.[see annexure 3(i)]. In some cases, however,the loan application has been rejectedbecause the household has not returned theprevious loan.

As was noted earlier, the loans have beena high percentage of their incomesespecially for the poor. Since the loans havebeen used to meet the consumption needsby an overwhelming proportion, there islittle likelihood that they will be repaid.Therefore, the indebtedness in both the ruraland urban areas has increased sharply. Theextremely poor persons on average (allPakistan) are indebted to the extent ofRs.28,137 and the figure rises to Rs.57,780in the case of the non-poor. Indebtedness asa proportion of income shows the acutenessof the problem. The indebtedness of theextremely poor is 276.1 per cent whichdeclines to 75.8 per cent for the poor and53.2 per cent for the non-poor (seeTable 34). The high indebtedness is a majorhurdle in poverty alleviation programmesbased on credit alone.

CONCLUSIONS

In this chapter we have attempted toexamine essentially two questions on thebasis of the NHDR/PIDE 2001 Survey data:(1) Who are the poor? (2) What pushes theminto poverty and what are the mechanismswhich keep them poor? In this context wehave analyzed the processes of povertygeneration by showing how asymmetricaccess of the poor to local markets and thefunctioning of local power structuresdeprives the poor of a large proportion oftheir actual and potential income. We have

Table 32 Purpose of Loan by Economic Status

Extremely Poor Non-Poor TotalPoor

All PakistanAgricultural inputs 4.9 6.5 11.9 7.0Purchase of any other property 4.6 7.8 7.0 6.5Shop/Hotel/Other Non-Farm Activity 5.6 5.5 6.9 5.8Consumption Purposesincluding Ceremonies 67.2 58.3 51.6 60.2Others 17.7 21.9 22.6 20.5UrbanConsumption Purposesincluding Ceremonies 56.8 65.1 35.7 57.4Shop/Hotel/Other Non-Farm Activity 4.5 4.7 — 4.0Purchase of any other Property 4.5 2.3 — 3.0Others 34.1 28.0 64.3 35.6RuralAgricultural inputs 5.7 7.3 13.1 7.9Purchase of any other property 4.6 8.0 7.6 6.7Shop/Hotel/Other Non-Farm Activity 5.7 5.6 7.6 6.0Consumption Purposes 69.0 57.5 53.1 60.6Others 15.0 21.6 18.6 18.8

Source: NHDR/PIDE Survey 2001.

Table 33 Average Annual Interest/Mark-up Rate by Source of Loan andEconomic Status

Extremely Poor Non-Poor TotalPoor

ADBP 8.17 13.47 17.44 14.19Commercial Bank — 19.00 10.44 13.03NGO 0.00 8.33 19.00 11.71Input Supplier 8.33 4.55 30.00 8.42Landlord 0.06 0.84 0.00 0.32Profit Money Lender 58.83 60.50 16.67 47.64Shopkeeper 0.53 0.10 0.25 0.30Factory/Mill 13.00 3.00 5.08 5.25Commission Agent 1.67 25.00 0.00 6.88Friends/Relatives 0.55 0.73 2.93 1.07Total 1.93 1.52 4.09 2.12

Source: NHDR/PIDE Survey 2001.

Table 34 Total Indebtedness (Mean) of the Sample Households byEconomic Status

Extremely Poor Non-Poor TotalPoor

IndebtednessAll Pakistan (Rs.) 28137.24 29170.99 57780.83 34057.67Urban (Rs.) 55825.00 33527.03 30350.00 43413.79Rural (Rs.) 21785.28 28843.65 60800.00 32594.09As a percentage of IncomeAll Pakistan 276.09 75.84 53.17 142.82Urban 166.10 58.71 33.61 104.49Rural 298.55 78.28 54.95 148.70

Source: NHDR/PIDE Survey 2001.

76 POVERTY, GROWTH AND GOVERNANCE

also identified some of the major economicand social features of the poor population.This was specifically with respect to thesources of income of the poor, the sourcesof their loans and level of indebtedness, theirmajor occupations, their health status, thetypes and costs of health facilities they useand finally the types of disputes they faceand the costs of resolution.

Some of the major conclusions thatemerge from our empirical analysis are asfollows:

1. Poverty and Modes of FinancingConsumption

(i) The basic difference between theextremely poor and the poorcategories is that in the formercategory, the total annual householdincome (Rs.15,350) is substantiallyless than the food consumptionrequirement (Rs.18,497), while inthe latter, the annual total householdincome (Rs.40,566) is sufficient tofulfill the food consumptionrequirement. Consequently, theextremely poor are obliged to useloans to buy food. Since availabilityof loans to the poor is extremelylimited, they suffer from acutenutritional deficiencies.

(ii) Various forms of charity provide asignificant source for financing theconsumption requirements of boththe extremely poor and the poorhouseholds. Two features emergefrom the data in this regard: (a)Charity from the private sector isthree times as large as that from thepublic sector. (b) The non poor arealso significant recipients of thegovernment’s Zakat funds which aresupposed to go exclusively to thepoor. This indicates inefficienttargeting of beneficiaries in thedisbursement of Zakat funds.

(iii) Remittances constitute a majorsource of supplementary income forpoor households. An improvement inthe education level and henceincrease in the incomes of themigrants could significantly increasethe remittances component of

household consumption. The dataclearly show that the reason why theincome of poor migrants is low isbecause 73.9 per cent of the migrantsare illiterate or just have primaryeducation. The income of non-poormigrants was higher because of theirbetter educational status.

Clearly improved education andskill training of the poor can play arole in poverty alleviation byimproving the incomes of migrantworkers who send remittances totheir families.

Policy Implications: Given the fact that theaverage total household receipts of theextremely poor are only 80 per cent of theirminimum food consumption requirements,an increase in the volume of Zakat funds,improved targeting of beneficiaries andgreater efficiency in the administration ofZakat funds is required.

2. Moving into and Out of Poverty

(i) The data show that the employmentstatus and income level of the secondearner of a household is the keydeterminant of the probability ofmoving out or falling into poverty.Here again the income level of thesecond earner is influenced by her/his education level.

(ii) A predominant proportion of themajor earners in both rural and urbanareas in poor households areunskilled workers engaged in lowproductivity and low incomeoccupations. The mobility of suchunskilled workers across occupationsis also low.

Policy Implications: Vocational Trainingand apprenticeship programmes to imparttechnical skills after primary education toworkers from poor households couldcontribute to poverty alleviation.

3. Local Power Structures and thePoverty Process

(i) Our data show that due to thelandlord’s power over small tenants,the extremely poor tenant farmersare obliged to pay as crop share a

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 77

larger proportion of their farmproduce compared to the non-poortenant farmers. For example, theextremely poor have to pay 28.21 percent of their production value to thelandlord compared 8.1 per cent bythe non-poor tenant farmers.

(ii) Consequently, the extremely poorhouseholds can keep only about 40per cent of their crop output forhousehold consumption, comparedto 48 per cent by poor householdsand 54 per cent by non-poorhouseholds. This evidence suggeststhat the extremely poor and poorhouseholds are likely to run out oftheir household stock of food grainand be obliged to purchase grain inthe market at the end of theproduction cycle when marketprices are high. Such households areforced to borrow for foodconsumption or face starvation. Thisis also suggested by our evidencethat poor households borrow forfood consumption.

(iii) Given their food budget deficit manypoor tenant households are obligedto supplement their incomes byworking part time on the landlord’sowner cultivated piece of thelandholding. Given their power, thelandlords, are able to pay a lowerthan market wage rate to theirdependent tenants. The data showthat a substantial proportion of poortenant households work as wagelabourers for the landlords and thewage rates of the poor are almosthalf the wage rates at which the non-poor households are able to sell theirlabour in the market.

(iv) Due to inadequate access of the poorover institutionalized credit marketsas many as 50.8 per cent ofextremely poor households borrowfrom the landlord. The resultantincrease in leverage and additionalsocial control by the landlord,obliges many poor households towork for the landlord without anywage at all (57.4 per cent ofextremely poor households workedfor the landlord without wages).

(v) The data show that the tenancycontracts of poor tenant householdswere not only more adverse thannon-poor ones, but also during thelast decade the tenancy arrangementsfor the poor have worsened. Sincethe majority of the extremely poor(52.5 per cent) are tenants, anydeterioration in tenancy arrange-ments would therefore increasepoverty. The data show that thefinancial contribution of tenants toinput costs of production haveincreased substantially and havebecome a significant factor inpoverty generation. For example inthe case of wheat, the contributionof the tenants in the financing oftractor hiring costs has increasedfrom 63 to 74 per cent, the labourcost contribution of poor tenants hasincreased over the period from 47 to60 per cent, seeds from 51 to 67 percent and fertilizer from 47 to 57 percent.

Policy Implications: (i) NGOs engaged inhuman rights advocacy, LawyersAssociations, and apex organizations ofdevelopment NGOs could form aconsortium facilitated by the government toenable the poor tenants and farm labourersto form a Small Tenant and Farm LabourersUnion, at the district, provincial and nationallevels. The purpose would be to negotiatewithin the existing legal framework toachieve fair wage and tenancy contracts forthe farm sector. (ii) Facilitating theemergence of autonomous organizations ofthe poor and their institutional linkage witheach tier of local government, could enablethe poor to break out of the nexus of thelocal power structures and unequal accessover markets, and thereby reduce theirincome losses (see chapter 5).

4. Income Loss Resulting from UnequalAccess over Input Markets

As many as 28.2 per cent of the extremelypoor peasants have to buy their inputs fromthe landlord. The data show that on averagethe poor have to pay 11.8 per cent morethan the actual amount which they wouldhave to pay in case these inputs wereprocured from least cost sources.

78 POVERTY, GROWTH AND GOVERNANCE

5. Income Loss Resulting from UnequalAccess over Output Markets

The data show that an overwhelmingproportion of output sold by the poorfarmers in the case of rice, cotton and wheat,is sold to traders and landlords whoconstitute an important element in the localpower structure in many areas. The data alsoshow that the traders and landlords give alower price to the poor farmers, than theofficial purchase price of the government.The income of the poor was reduced by 7.44per cent of the total value of sales for themajor crops because they were unable toget the minimum ruling price.

If the income loss resulting from marketdistortions in the output and input marketsare taken into account then the small farmersare deprived of about 20 per cent of theirincome. If the income loss resulting fromthe pressure to give bribes and to providelocal administration officials with free milkand ghee is included, then the income lossis as much one-third of the householdincome of the poor peasant.

Here again facilitating the emergence ofautonomous organizations of the poor andgiving them a greater influence over localgovernment institutions could enable thepoor to improve their access over localmarkets for inputs and outputs (seechapter 5).

6. Disputes and Poverty

The data show that 48.7 per cent of reporteddisputes occur in poor households and 17.1per cent in extremely poor households. Theaverage cost of mediation is Rs.18,333which is higher than the annual householdincome of the extremely poor. Yet despitebearing this crippling burden (usuallyfinanced by borrowing or selling livestock)the percentage of successful resolution ofdisputes is only 38.5 per cent.

7. Poverty and Illness

Frequency of illness and often its protractednature with resultant high costs of treatmentis an important factor pushing marginalhouseholds into poverty and poorhouseholds into deeper poverty. On average

62 per cent of the respondents in the NHDR/PIDE 2001 Survey, were ill at the time ofsurvey. These findings are supported by theNational Health Survey of Pakistan data,which show that amongst low incomepersons of 45 years and above, as many as45 per cent suffer from poor health and80 per cent suffer from poor to fair health.Our NHDR/PIDE data also show that mostof the ill respondents had been suffering fora protracted period. As many as 54 per centgo to private medical practitioners, 49.4 percent travel on average over six kilometersfor their medical consultation, and theextremely poor had spent Rs.1,885 on theircurrent illness. In many cases the poor areforced to sell whatever few assets they haveand then borrow to finance medicaltreatment of their family members.

Policy Implications: Improving thenutrition, preventive hygiene, provision ofsafe drinking water, improving the servicedelivery of basic health units, publictransport, and improved diagnostic andtreatment capabilities of Tehsil and DistrictHospitals are urgent imperatives to deal withthe crisis of health and poverty.

8. Micro-enterprises and the Poor

In general the productivity of micro-enterprises (in which 42.7 per cent of theworkforce in the non-agriculture sector areemployed) is low. In the urban areas mostof the poor are employed in micro-enterprises. The enterprises run by the poorhave low annual sales and even lower netprofits. The poor households who run micro-enterprises have reported a number ofproblems as possible causes of their lowprofits. These include, lack of funds; highcosts; police harassment, municipalcorporation/committee harassment andinadequate transport facilities.

Policy Implications: Enabling the poor toimprove the productivity, sales and netprofits would contribute significantly topoverty reduction. An overwhelmingproportion reported that enhancedavailability of credit, better location andtransport facilities would help to increasetheir incomes from micro-enterprises.

THE STRUCTURE OF POVERTY AND THE PROCESS OF POVERTY GENERATION 79

9. Microcredit and NGOs

According to our NHDR/PIDE Survey dataonly 35.6 per cent of households have hadaccess to loans from any source. Anoverwhelming proportion of the loans takenby poor households were obtained from non-institutional sources including shopkeepers,friends and relatives.

With regard to NGOs the data show twoimportant facts:

(i) NGO intervention is relativelyinsignificant. Of the total number ofloans received by all three incomeclasses, from all sources, the NGOsprovided only 1 per cent of the loansin the urban areas and 0.8 per centof the loans in the rural areas.

(ii) NGOs as well as public sectordevelopment banks such as theADBP cater to non-poor householdsto a much greater extent than to thepoor households. For example, of thetotal number of loans received fromNGOs in rural areas, as many as50 per cent have been received bythe non-poor households, 33.3 percent by the poor households and 16.7per cent by the extremely poorhouseholds. (These broad con-clusions are reinforced by the spotsurvey data on impact of NGOs. Seechapter 4).

Policy Implications: (i) The volume ofmicrocredit through institutional sourcesneeds to be increased hundred fold. (ii)Monitoring and Evaluation Institutions needto be established to conduct an independent,systematic and regular impact assessment ofmicrocredit disbursed through NGOs andother institutional sources. (iii) Existingapex institutions providing microcredit (Forexample, PPAF and the new Khushali Bank)need to carefully examine the organizationalstructure and operational procedures ofpartner organizations through whommicrocredit is disbursed. The purpose wouldbe to suggest institutional improvements intheir partner organizations for bettertargeting of the poor.

NOTES

1. Aristotle proposed that it is human functioning thatis the real object of value. The implication of thisformulation for public action today in the contextof poverty, is: Maximizing value in society wouldrequire enabling the maximum number of peopleto actualize their human potential. See,Nicomachean Ethics, Book 1, Section 5, D. Roos(ed.), Oxford University Press, 1980.

2. For an elaboration of this perspective, see, AkmalHussain, ‘Pro-Poor Growth, ParticipatoryDevelopment and Decentralization: Paradigms andPraxis,’ 19 January 2002, Wignaraja, Sirivardana(eds.), Pro-Poor Growth and Governance in SouthAsia—Case Profiles of Participatory Developmentand Decentralization Reforms, Zed Press London(Forthcoming).

3. In the urban areas, the consumption of theextremely poor exceeds their total receipts by14 per cent, and the ratio of net credit toconsumption is 17 per cent. Remittances have beenrather low in the two urban communities and thetotal transfers are just around 6 per cent of thetotal receipts. In the rural areas, the remittances inthe total receipts of the extremely poor accountedfor 17.2 per cent and other transfers for another4 per cent. The consumption exceeds total receiptsby 35 per cent, financed by credit to the extent of17 per cent and sale of land by about 5 per cent.The poor received 6.7 per cent in the form ofremittances and 1.3 per cent from other transfers.On average they could finance their consumptionlevels through net credit and sale of land by 15 percent and 3 per cent of the consumption levelrespectively.

4. However, for total receipts that include bothincomes and transfers, the ratio falls to 9.4. At thedistrict level also, the ratio improves across all thedistricts (see Table 3).

5. Whereas 89.3 per cent of the non-poor householdsowned the land, the proportion was 48.2 and 70.9per cent amongst the extremely poor and the poor.

6. The land rented out is 10.3 per cent and 18.0 percent of the landownership of the extremely poorand the poor.

7. An analysis of the mechanisms of povertygeneration in the rural areas, (with specialreference to the Punjab) was first conducted onthe basis of a 1978 field survey. See, AkmalHussain, Strategic Issues in Pakistan’s EconomicPolicy, Chapter 5, pp. 101 to 176, ProgressivePublishers, Lahore 1988.

8. This was first investigated over two decades agoin a small sample survey for a doctoral thesis, See,Akmal Hussain, Impact of Agricultural Growth onChanges in the Agrarian Structure of Pakistan,with Special Reference to the Punjab Province,D. Phil. Thesis, Sussex University, 1980.

9. National Health Survey of Pakistan, PakistanMedical Research Council, 1998. (This survey wasconducted by the Medical Research Council incollaboration with the Department of Health and

80 POVERTY, GROWTH AND GOVERNANCE

Human Services, Washington, USA and theFederal Bureau of Statistics, Islamabad), p. 129,Figure 57.

10. Ibid., p. 109, Figure 48.11. Only 1.4 per cent of the extremely poor are

engaged in large scale industries or financialinstitutions, or are public servants, and even there,

they are doing low paid jobs. The plight of thepoor is little better where 42.7 per cent work inthe farm sector, 33.4 per cent in householdestablishments, 7.8 as servants and menial workers,5.8 per cent are engaged in large scale enterprises,and 8.2 per cent in the public sector.

POVERTY ALLEVIATION THROUGH NGOS 81

CHAPTER 4

POVERTY ALLEVIATION THROUGH NGOS

Photograph by Akmal Hussain

The human mind is not a vessel to be filledBut a fire to be kindled

√ PLUTARCH

POVERTY ALLEVIATION THROUGH NGOS 83

CHAPTER 4

Poverty Alleviation Through NGOs

Over the last two decades the tighteningfinancial constraints on the government andgrowing awareness of the limitations of topdown development programmes to alleviatepoverty,1 have created the space for non-governmental organizations (NGOs) andalternative approaches to developmentactions. During this period a variety ofNGOs have established programmes at thecommunity level. The question that arises iswhether these alternative institutional formsof public action for overcoming poverty, canachieve sufficient coverage of the poorpopulation and cost effectiveness for asignificant impact on the overall povertyproblem in the country. In addressing thisquestion we will examine the institutionaldynamics and management issues involvedin achieving rapid coverage and efficacy ofNGOs. In this context as part of this NHDRStudy a small sample spot survey wasconducted to investigate the impact ofvarious types of NGOs on their beneficiarieswith respect to nutrition, health andsustainable income increases. (The resultsare presented in section-V). Due to time andresource constraints the sample size for thesurvey was too small (277) for the impactassessment to be representative at thenational level, even for the seven NGOscovered by the spot survey. However, theresults do provide illustrative insights withrespect to the relative efficacy of differenttypes of NGOs.

In section-I, we will briefly indicate thedifferent categories of development NGOsfunctioning in Pakistan. Since many of themcharacterize their approach as ‘participatory’we will attempt to provide a paradigmaticoutline of the participatory developmentapproach in this section. In the next section-II, we will identify some of the generalissues related with micro credit,independently of the differing approachesand structure of organizations providing it.In section-III, we will present briefindividual profiles of NGOs in eachcategory, to illustrate the variety oforganizational approaches in the NGOsector and draw brief policy conclusions in

this context. In section-IV, the results of thespot survey on impact assessment of NGOswill be presented. In section-V, we willexamine the strategic issues in takingdevelopment NGOs to scale. Here we willalso indicate some of the features ofmanagement and organizational structurewhich could help achieve efficacy and rapidgrowth. In section-VI, we will indicate theelements of an enabling institutionalstructure at the national level which canfacilitate public action at the grassroots levelfor poverty alleviation.

I. TYPES OF NGOS AND THEPARTICIPATORY DEVELOP-MENT APPROACH

I.1 THE NATURE OF POVERTY , EMPOWER-MENT AND TYPES OF PARTICIPATORY

DEVELOPMENT NGOS

As we have analyzed in chapter 3 of thisreport, the poor face a structure of markets,State and institutions, which discriminateagainst access of the poor over resources,public services and the process ofgovernment decision-making.2 The poor areoften locked into a system of dependence atthe local level which deprives them of asmuch as one third of their actual income.(see chapter 3 for evidence). Thedependence of individual members of poorcommunities originates in the fact that theyare fragmented and alone. They have neitherthe skills nor the resources to increase theirproductivity, nor the organizational strengththrough which to acquire resources fromgovernments, donors and the market. Theparticipatory development approach aims toempower the poor by enabling them toorganize, acquire new skills, increaseproductivity, achieve savings, and developthe ability to access training, technicalsupport and credit from a variety ofinstitutional sources.3 The approach is basedon the principle of social mobilization whichwas first used in its rudimentary form inComilla (Bangladesh) during the 1960s and

The dependence ofindividual members of poorcommunities originates inthe fact that they arefragmented and alone. Theyhave neither the skills northe resources to increasetheir productivity, nor theorganizational strengththrough which to acquireresources fromgovernments, donors andthe market

84 POVERTY, GROWTH AND GOVERNANCE

later developed in the Saemul DongMovement (South Korea) and the Aga KhanRural Support Programme (AKRSP)Pakistan. The social mobilization approachwas formulated into a rigorous methodologyof participatory development under theauspices of the United Nations University,South Asian Perspectives Project during the1980s.4 Since the early 1980s a largenumber of development NGOs of differentsizes and organizational forms haveemerged across the country, most of themusing the participatory developmentapproach to varying degrees.

These include the following broadcategories which may not be mutuallyexclusive at the margin.5

At present there is a wide variety ofNGOs and participatory organizations in thedevelopment field. These include:6

(i) The RSPs which do not describethemselves as NGOs and are multi-functional in that they provide arange of services and aim to achievea provincial and national coverage.

(ii) Ur ban NGOs for ParticipatoryDevelopment

(iii) Single-function NGOs such as thosefocusing on micro-credit. Theseoften engage in supplementaryfunctions, similar to those of (i)above.

(iv) CO Clusters and independent COssome of which are partners ofsupport organizations and in manycases use the ParticipatoryDevelopment approach.

These participatory bodies are not onlydiverse in type, they operate in urban orrural areas and sometimes both. The scaleof operation varies from a village orneighbourhood association to a nation-wideorganization covering tens of thousands ofhouseholds. The geographical spread too isnow nation-wide. Where participatoryNGOs were once spots on a map,concentrated in a few regions where theenabling environment was consideredfavourable, they now span all four provincesalthough Balochistan lags behind the otherthree provinces even now.

Intensity of coverage of operating area isvery much a question of policy choice. Totake two relatively long-lived and large-scale NGOs from our own sample, OPP/

OCT has concentrated on covering its‘home’ area of Orangi7 and a few areas inand around Karachi. Its formidable influencein the rest of Pakistan has to do more withthe personality and prestige of its latefounder, its own very real achievements inOrangi and the alliances it has forgedelsewhere rather than a far-flung physicalpresence.

NRSP on the other hand spreads itsapproximately 13,500 COs, each with anaverage of 21.6 members over twenty-sevendistricts throughout the country. Coverageintensity is therefore necessarily low.

Women’s activities are no longer a kindof appendix to NGO or CO work as theywere a decade ago. Most participatorybodies include working with women in theirrange of activities to a greater rather thanlesser degree although the range ofopportunity provided to women is still notequal to that provided to men. However,there are now a number of participatoryorganizations that are either women-focusedor which target households through women.Two such organizations, Kashf andKhwendo Kor are part of the groupexamined in this study.

Lastly, there is now a significant numberand range of NGOs that practice advocacyon a number of issues affecting poor anddisadvantaged groups as well as citizensrights. Some are exclusively advocacyoriented but many combine advocacy withother development work.

I.2 T HE PARTICIPATORY DEVELOPMENT

APPROACH8

Participatory Development is a processwhich involves the participation of the poorat the village level to build their human,natural and economic resource base forbreaking out of the poverty nexus. It isspecifically aims at achieving a localizedcapital accumulation process based on theprogressive development of group identity,skills development and local resourcesgeneration. The essential feature ofParticipatory Development is socialmobilization or the formation of groupidentity. This is done by initiating a seriesof dialogues with rural communities, whichcan result in the formation of communityorganizations. The beginning of the processis therefore the emergence of a nascent form

Most participatory bodiesinclude working withwomen in their range ofactivities to a greater ratherthan lesser degree althoughthe range of opportunityprovided to women is stillnot equal to that providedto men

Participatory Developmentis a process which involvesthe participation of the poorat the village level to buildtheir human, natural andeconomic resource base forbreaking out of the povertynexus

POVERTY ALLEVIATION THROUGH NGOS 85

of community consciousness. This is thendeepened as the community identifies andimplements projects for increasing income,acquiring new skills and begins to engagein collective savings.

As the sense of group identity isdeepened it gives a new self-confidencethrough which the community can engagein more ambitious projects involvingcollective action and management.

I.2.1 The Concept: The concept ofParticipatory Development has three keyelements:

(i) Process: It is a process whosemoving forces are the growth ofconsciousness and group identity,and the realization, in practice, of thecreative potential of the poor.

(ii) Empowerment: The process ofreconstructing a group identity, ofraising consciousness, of acquiringnew skills and of upgrading theirknowledge base, progressivelyimparts to the poor a new power overthe economic and social forces thatfashion their daily lives.

It is through this power that thepoor shift out of the perception ofbeing passive victims of the processthat perpetuates their poverty. Theybecome the active forces in initiatinginterventions that progressivelyimprove their economic and socialcondition, and help overcomepoverty.

(iii) Participation: The acquisition of thepower to break the vicious circle ofpoverty is based on participationwithin an organization, in a series ofprojects. This participation is notthrough ‘representatives’ who act ontheir behalf but rather, the actualinvolvement of each member of theorganization in project identification,formulation, implementation andevaluation. It is in open meetings ofordinary members at the village/mohalla level organization thatdecisions are collectively taken, andwork responsibilities assigned onissues such as income generationprojects, savings funds, conservationpractices in land use, infrastructureconstruction and asset creation.

I.2.2 The Dynamics of ParticipatoryDevelopment: The process of participatorydevelopment proceeds through a dynamicinteraction between the achievement ofspecific objectives for improving theresource position of the local communityand the inculcation of a sense of communityidentity. Collective actions for specificobjectives such as a small irrigation project,building a school, clean drinking waterprovision, or agricultural productionactivities can be an entry point for alocalized capital accumulation process. Thisis associated with group savings schemes,reinvestment and asset creation. Thedynamics of participatory development arebased on the possibility that with theachievement of such specific objectives foran improved resource position, thecommunity would acquire greater self-confidence and strengthen its group identity.

II. SELECTED ISSUES IN MICRO-CREDIT

Since most development NGOs whatevertheir organizational structure, use microcredit as an important element in theirintervention, it may be useful in this sub-section to briefly examine some of the issuesin micro credit.9

II.1 M ICRO-CREDIT IN THE URBAN CONTEXT

In the urban context in Pakistan, it has beenrecognized that small scale, informalenterprises whether manufacturing, cottageindustry, trading or services have in manycases provided higher returns on capitalinvested than large scale or medium scaleenterprises in the formal sector.Employment coefficients with respect tooutput in the small-scale manufacturingsector and micro-enterprises are also high.Paradoxically, this is the very sector that isstarved for capital because the poor andeven large sections of the middle class inPakistan have very little access toinstitutionalized credit.

The case for provision of micro-credit isclear, the impact of micro-credit has beenproven in urban and peri-urban settings. Anumber of studies conducted bydevelopment professionals, NGO’s

The process of participatorydevelopment proceedsthrough a dynamicinteraction between theachievement of specificobjectives for improving theresource position of thelocal community and theinculcation of a sense ofcommunity identity

86 POVERTY, GROWTH AND GOVERNANCE

themselves and donors show a highlypositive impact on income as a result ofutilization of micro-credit.10

OCT’s experience shows that as familiesof successful users of micro-credit registersustainable income increases, the impact isnot confined to greater consumption orinvestment in the micro-enterprise. Thesehouseholds also show significantimprovement in such social indicators aschildren’s education, family nutrition andimproved hygiene.

On the other hand access of the urbanpoor to micro-credit has always been low tonon-existent. The formal banking sector inPakistan has usually avoided lending to thepoor on grounds of supposed difficulties incollection and lack of collateral.

II.2 M ICRO-CREDIT IN THE RURAL CONTEXT

(i) Rural use of micro-credit isimportant both for agricultural andnon agricultural use. The need forcredit is particularly important forpoorer farmers. Their requirementfor agricultural inputs, seeds,fertilizer, pesticide, etc. tends to becyclical as does their income.However the two cycles do notalways coincide.

The poorer the farmer the greaterthe proportion of his produce that hasto be diverted towards householdconsumption. In the case of thepoorest, those with the smallest orleast productive land holdings, theirconsumption requirements willexceed their production of basic fooditems.

It is common practice therefore forthe farmer to have to purchase seedsand other inputs at the time ofsowing from shopkeepers/traders(arhtis) on credit at inflated rates (seediscussion and evidence inchapter 3). The requirements to payback these amounts along with theprice of food also purchased fromthe Arhtis on credit puts greatpressure on the small farmer. He isobliged to dispose off his croptogether which any dairy or poultryproduce in order to pay of thesedebts immediately after the harvestin the market when prices for hiscrop are low.11 In a lean crop year

the pressure on the farmer to buyfood and inputs on credit is all thegreater.

In such situations productionloans for crop inputs ease thepressure on the farmer considerably.He is able to purchase better qualityinputs more cheaply andindependently of the local powerstructure.

The recent practice of combiningsuch loans for inputs with cropinsurance provides significantprotection to both the farmer and thelending agencies. This policy is nowbeing introduced by a number ofNGOs.

(ii) When a farmer is living atsubsistence level, he seldom has thedisposable income to makeimprovements in his land that wouldimprove productivity such as landlevelling, lining of water channels orthe practice of several farmersjoining to construct a tube-well.Loans given for such improvementscan be used to purchase materials,tractor time or small machinery. Theimpact of these loans could be highlypositive.

(iii) Rural loans for non agriculturalpurposes include such things asvillage shops which provide basicconsumption goods, clothing, andsome inputs. Services of micro-creditusers show that this is thecommonest non agricultural rural useof micro-credit.

II.3 SOME CONDITIONS FOR SUCCESSFUL

MICRO-CREDIT USE

In this sub-section some of the issues relatedwith the provision of micro-credit are brieflyoutlined.

II.3.1 Group Formation: In rural particularlyagricultural environments, there is a clearadvantage in the formation of a CO, whethercomprising the bulk of households in avillage or a group within a village of broadlysimilar economic level. This is because ofthe relatively isolated and self containednature of small rural communities and also

POVERTY ALLEVIATION THROUGH NGOS 87

to the nature of social cohesion in thesesocieties.

Not only are occupations much morediverse in urban and peri-urban areas butthe tight social cohesion of rural societies isgreatly diffused. In urban areas/peri-urbanareas, biraderi ties are replaced with broaderethnic identities and there are street ormohalla level communities or associationsof persons in a particular trade or profession.Therefore, group association has been foundto be beneficial for purposes of successfuluse and repayment of micro-credit.12

It is possible to provide micro-creditthrough groups formed specifically for thepurpose or through groups formed for suchother purposes as sanitation, health, andproductive infrastructure. What is necessaryin each case is that certain rules andconditions specific to the successful use ofmicro-credit be applied in every case. Theseinclude:

(i) Some form of credit disciplineneeds to be transferred to the group.This is often done through a processof saving whether it is a process ofcollective bank savings or internalsavings aimed at internal lendingwithin the group.

(ii) The group acts as a guarantor of itsmembers who are the individualborrowers. This is more useful inrural than in urban conditions sincegreater social pressure can bebrought to bear in village societythan in urban situations.

(iii) Loans given to a first time borrowershould always progress fromrelatively small amounts to largeramounts. Larger loans given to firsttime borrowers do not have a goodrecord of success in OCT, PIEDARand NRSP in the group studied inthis exercise as well as a number ofother NGOs providing micro-credit.

(iv) The business plan of the borrowermust be carefully scrutinized by thelender.

• Too many individuals grantedloan for the same trade or shopin one area will result in oversupply of that service.

• The borrower must show clearlywhat his or her market is andhow that market will be accessed.

• Rudimentary business manage-ments skills should be transferredsuch as elementary bookkeeping,cost control, planning and notdiverting capital from thebusiness to social, consumptionor other uses.

(v) Default where deliberate shouldalways be pursued with all themeans of the lending organization.

(vi) Where there is default whetherdeliberate or through force majeuresuch as through death orincapacitation of the borrower orthrough natural disaster, the amountshould be written off, throughprovision made in the budget andthe result reflected in the lendersbooks.

(vii) Delay or failure owing to badmanagement or poor businessplanning reflects badly on both theability of the borrower and thecapability of the lending agency.

(viii) There are two major issues intargeting borrowers. Firstly, smallersized loans (<Rs.10,000) aregenerally better suited to the needsand repayment capacities of the poor;secondly, they also contribute tobetter targeting of the poor and offerless temptation to the better-off tocompete for loans. Organizations thathave offered relatively high loans(Rs.15-20,000 plus) report greaterdifficulties in repayment. Thoseorganizations in this category visitedby the NHDR research team weremoving towards a smaller averagesize of loan and highlighted the needfor better scrutiny of borrowersbusiness plans.

II.3.2 Provision of micro-credit is anecessary but often not a sufficient conditionfor inducing a sustainable increase inincome of the borrower. Additionallyprovision of technical skill, better accessover input markets, and marketing supportmay be necessary.

Provision of micro-credit isa necessary but often not asufficient condition forinducing a sustainableincrease in income of theborrower. Additionallyprovision of technical skill,better access over inputmarkets, and marketingsupport may be necessary

88 POVERTY, GROWTH AND GOVERNANCE

II.3.3 The Role of Savings: In early micro-credit practice the role of savings wascentral. Regular savings by CO memberswas linked proportionately to disbursementof loans. Not all other practitioners agree.

There is wide divergence amongst theNGOs on the role of savings and the linkbetween credit and savings; this questionlinks in with the question of whether loansshould be made to groups or to individuals.At one pole, the RSPs have always stressedsavings both as a means of strengtheningCOs and as a means of strengthening creditdiscipline.

OPP/OCT’s modus operandi is radicallydifferent. It places no stress on savings.Dr Khan held that encouraging smallentrepreneurs to hold savings in banks atdeclining real rates of interest rather thaninvesting in their own businesses withinflation-adjusted rates of return of over30 per cent typically makes no sense. Hepointed to the ultimate absurdity of AKRSPbeneficiaries holding tens of millions ofrupees in bank savings where inflationerodes their holdings while the banks stillrefuse to extend credit to smallentrepreneurs like them, choosing instead tolend to their usual rich clients elsewhere inPakistan. Thus, the curious phenomenon ofthrifty small savers in a deprived regionproviding funds for those engaged inconspicuous consumption in better-offregions.

Thus, while there is little doubt thatregular savings and processes like internallending help to instill financial discipline,large savings are not by themselvesnecessary to successful micro-creditoperations.

II.3.4 The Question of Interest: The issue ofinterest apart from its economic aspects,takes on an added dimension in Pakistanwhere interest poses a particular cultural/religious problem. There are also factorsother than cultural/religious relating tointerest that warrant close attention.

(i) The philosophy of subsidized credithas always had a following ingovernment, if not in banking andfinancial circles. ADBP longcontinued to dispense credit atlower than market rates (often towell-off clients), and there are a

host of small government pro-grammes supposedly for dis-advantaged groups such as womenand unemployed youth, that followsimilar policies. A number ofdonors have in the past acceptedsubsidized credit in practice.

(ii) Some NGOs see their beneficiariesas a disadvantaged group that needsto be introduced to the use of creditby initial use of ‘soft’ terms. Thereis an underlying feeling that if therural rich and politically well-connected can take advantage ofsubsidized credit, their own clientsare surely more deserving. However,it is pertinent to note that there is adirect link between programmesustainability and interest rates andother user charges. Without thisperspective there can be littleunderstanding of either the real costof capital or the costs of running acredit programme. In times of highgrowth when returns on micro-enterprise can be as high as 40 to 50per cent, it may is possible for asuccessful micro-enterprise to affordmarket based interest rates.However, this may not be the casein periods of economic stagnation.

(iii) The prolonged economic recession inthe 1990s and particularly since 1998has affected the poor severely withmarginal/disadvantaged groupsgenerally worst off. Typically, creditused by micro-enterprises has hadhigh rates of return in times ofmoderate to high economic growth.Successful use of credit in micro-enterprises has become moreproblematic during the presentprolonged slump. The principalreasons for this are shrinkingmarkets and pressures on borrowersto divert micro-credit to urgentconsumption or emergency (forexample, health) needs. There istherefore a tendency in NGOs andinstitutions such as the ADBP to lendmoney meant for the poor to the non-poor. (This is substantiated byevidence from the NHDR/PIDESurvey 2001 analyzed in chapter 3).

POVERTY ALLEVIATION THROUGH NGOS 89

III. PROFILES OF PARTICIPATORYNGOS13

In this section profiles of NGOs in eachcategory are presented, to indicate thedifferent organizational structures andapproaches to poverty alleviation.

III.1 NRSP AND THE RURAL SUPPORT

PROGRAMMES

The Rural Support Programmes in Pakistanconsist of the National Rural SupportProgramme (NRSP), Balochistan RuralSupport Programme (BRSP), and SarhadRural Support Corporation (SRSC) and theAga Khan Rural Support Programme(AKRSP).

The RSPs were originally seen as a groupof Government assisted NGOs with amandate to promote rural development.They were set up on the premise that theFederal and Provincial Governments haveneither the resources nor the organizationalreach to bring a range of developmentactivities to the majority of the nation’s ruralpopulation and that even if this werepossible, the recurring budget for thedevelopment activities would be beyond thecapacity of government. The RSPs now nolonger see themselves as NGOs but assomething intermediate between agovernment body and an NGO.

The RSPs are incorporated under theCompanies Act and include both serving andretired government officers on their Boards,in their personal and in an ex-officiocapacity.

III.2 A CHIEVEMENTS OF THE RSP MODEL

1. There is no doubt that the RSPs haveplayed a central role in introducing andpopularizing the participatory approachin Pakistan.

2. The RSPs have also shown that ruralcommunities hitherto unevenly affectedby a growth process external to them-selves can successfully take charge oftheir own development.

3. They have been at the forefront of NGO/Government agency models of co-operation (despite claiming not to beNGOs).

4. The RSPs and in particular NRSP havethe largest member base of any NGO inPakistan. (It now has 293,000 membersin its COs.)

5. The RSPs have set up training facilitiesfor various aspects of participatorydevelopment which have also been usedby other organizations.

III.3 W EAKNESSES OF THE RSP MODEL

Critics of the RSP model contend that:

1. The approach is expensive to implement;despite considerable individual variationthe RSP method is capital-intensivecompared with other, ‘non-GONGO’organizations. Operating costs are alsohigh, owing to high levels of staffing andhigh salary levels compared with otherNGOs.14

2. The NHDR/A.I. Hamid Spot Survey datashow that neither NRSP’s loan sizes norits selection of borrowers in the areasurveyed target the poor. With onehousehold owning two hundred irrigatedacres, 13 per cent owning over thirty anda further 20 per cent owning over tenirrigated acres, targeting can at best becharacterized as imprecise.

3. NRSP is by far the largest NGO with apresence in twenty-seven districts. It hasalso spent the greatest amount ofresources compared to any other NGO inthe country. Yet over a decade it hasreached only 293,000 beneficiaries. Thisis 0.7 per cent of the forty million ofrural poor. For an NGO whose raisond’etre is to overcome poverty on anational scale, this cannot be called rapidprogress. Nor, going by the results of ourspot survey, can it be assumed that theirmethodology ensures that all bene-ficiaries are poor.

4. Sustainability can be a serious problem. Itis still not clear how much time must lapsebefore a community organization set upby an RSP could achieve a level ofmaturity that would enable it in concertwith other COs, to interact directly withgovernment and private sector agenciesproviding services. To date there is noexample of a RSP having wound up itsinfrastructure even in an area where it hasoperated for seven or eight years.

90 POVERTY, GROWTH AND GOVERNANCE

5. Criticism has emerged even from withinthe RSPs that heavy reliance on RSPstaff, especially social organizers inmobilizing communities and buildingcommunity organizations is costly andcounter-productive. This is contrastedwith relying on a process of identifying,training and supporting village activiststo perform these services for their owncommunities with long-term recurringcosts borne by the communitiesthemselves. This internal dynamic withincommunities reduces dependence and ismore likely to produce a self-sustainingcommunity organization capable oftaking charge of its own development.To date however the new approach hasnot been developed and put into practice.

6. A problem not unique to the RSP’s butexaggerated by their scale of operations,is the role of their credit operations. Aslarge multi-sectoral development NGOs,the RSPs find it difficult to view creditas anything other than a supporting legof a larger, integrated programme.Equally, they find it difficult to separatecosts specific to the credit programme.This not only alters their perception ofthe credit programme at the policy levelby allowing subsidized credit to be seenas a means of facilitating the overallmulti-sectoral programme, it makes itdifficult to calculate cost recovery andbreak-even points for the creditoperation.

III.4 OPP/OCT

How is OPP/OCT different from say, theRSPs besides the obvious point that itoperates in an urban, not rural area?

• Its infrastructure and overheads are farless and it lives within its means.

• It does not form COs although it willcollaborate with them.

• It does not attempt to use programmestaff to micro manage of communitiesand operates with a light touch.

• It does not expand beyond its originalarea or ‘replicate’ itself elsewherealthough it has many sincere imitatorsand organizations to which it providesadvice and sometimes material help.

• It believes in dedicated workers withsalaries much lower than with otherlarge NGOs.

OPP began with sanitation and theprocess involved the recognition of thedifferent levels of sanitation.

‘There are four levels of modernsanitation system:

• Inside the house—the sanitary latrine.• In the lane—underground sewerage

lines with manholes and houseconnections.

• Secondary or collector drains.• Main drains and treatment plants.

OPP found the house-owners willing andcompetent to assume the responsibility ofconstructing and maintaining all sanitaryarrangements at the first three levels withtheir own resources and under their ownmanagement, like the small farmers. Thesethree levels constitute 80 to 90 per cent ofthe system. The main drains and thetreatment plant must remain, like main roadsand water lines, the responsibility of acentral authority.’15

OPP also found that several barriersneeded to be tackled:

• Reducing the Cost through researchand extension

• Removing the Economic Barrier• Removing the Psychological Barrier

i.e., ‘the mistaken belief that theyshould get sewerage and sanitation asfree gifts.’

On micro-credit too, OPP/OCT’smodus operandi is radically different:

• OCT considers the family enterpriseto be the basic productive unit in theareas in which it operates. OCT’sstated objective is to provide capitalto emerging family enterprises, not toalleviate poverty, by giving smallloans to the poorest of the poor. OCTrelies on the undoubted multipliereffect on incomes and employmentamongst the poorest when it investsin the micro-enterprises one rung upthe economic ladder.

• Its groups are much larger in size thanthe five-member Grameen style group.The average number of open accounts

POVERTY ALLEVIATION THROUGH NGOS 91

in each group in Orangi is twenty-onealthough in individual cases thenumber can be much higher. Loans aremade to individuals who are backedby two guarantors.

• The key figure in these groups is the‘agent’, analogous to the activist insome rural NGOs. The agent initiallyidentifies and investigates potentialborrowers, OCT verifies theinformation and carries out a businessanalysis. It then tracks each loanthrough to full repayment, delay or theoccasional default.

• OCT does not accept claims of 98 or99 per cent repayments by someNGOs. It holds that this is statisticallyimpossible in large groups whereadverse local conditions, deaths,business or family disasters and theoccasional cheat will make theirappearance. OCT increasingly formsgroups on the basis of trades oroccupations and tracks theirperformance. Accordingly it will notonly expand or reduce the portfolio ina region or of a group according toperformance, it has begun to track theviability of businesses by type andregion.

• As mentioned above OCT places nostress on savings.

• OPP has established partnerships withother NGOs, such as OPD and YCHRin Punjab. In this arrangement,affiliate NGOs act as an agent for OPPby identifying, vetting and supportingqualified borrowers who receive creditfrom OPP which also providestraining on credit operation to theNGOs as well as other support. Someof these arrangements were a success,others less so.

OPP has also experimented by givinglarger sized loans to agriculturists and afishermens cooperative. These were not asuccess.

III.5 KASHF

The Kashf Foundation was established toserve two main objectives: (i) Alleviatepoverty; and (ii) Economically empowerwomen from poor households.

Kashf operates in the districts of Lahoreand Sheikhupura with five branches.The Ravi Rayon Branch is located inSheikhupura District and the Yakki Gate,Sukh Nehr, Bedian and Kahna Branches arelocated in Lahore District. Bedian, Kahnaand Ravi Rayon are peri-urban areas. SukhNehr and Yakee Gate are located within theLahore City area.

Kashf insists that it is not the usualpoverty alleviation oriented NGO with‘beneficiaries’. It is a service provider with‘clients’. That said, the spot survey showsthat in the areas sampled at least, Kashf’stargeting of the poor was one of the best inthe sample of NGOs surveyed. Its targetclients are working women. While womenin these areas are relatively less restrictedby gender and society compared with ruralwomen since feudal and tribal mores haveless of a hold, theirs is a hard lot.

In the words of Kashf’s management:‘Kashf’s approach in improving theeconomic choices of the poor focuses onsupporting those within the poverty bracketwho have existing economic opportunities.These households earn slightly more thanone US dollar a day, but certainly less thantwo dollars’.

Kashf’s targeting is precise, loans sizescompletely appropriate to its clientele andits MIS and monitoring systems amongst thebest in the NGO sector in Pakistan. Its staffis keen and efficient.

III.6 C OMMUNITY ORGANIZATIONS (COS)

There is now considerable variation inworking approaches practised byparticipatory development organizations,some borrowed, imitated or modified, othershome-grown. This is particularly true of thenew breed of COs now coming intoprominence.

A particularly marked and interestingstage in the development process is theemergence of a wide variety of COs. Wherepreviously local community basedorganizations tended to be of a charitablenature or narrowly focused on particularinterests, the new ones are clearlydevelopment oriented and have absorbedand apply many of the principles ofparticipatory development originallyfostered by a few larger supportorganizations.

92 POVERTY, GROWTH AND GOVERNANCE

Not having the access to funds that largersupport organizations have developed,independent COs have to live within theirmeans. This implies greater reliance onactivists and on networking, limited scopeof operation and in the case of successfulorganizations, a highly focused approach.

IV. COMPARATIVE IMPACT ASSESS-MENT OF NGOS

A small sample field survey was conductedfor the NHDR to investigate the impact ofvarious NGOs on the economic life of thebeneficiaries. Data was collected on howwell the respondents ate, before and afterthe NGO intervention, their health status,their household income and the issue ofwhether or not a sustainable increase inincome occurred followed the provision ofloans. The size of irrigated land owned isthe single most important indicator of theeconomic status of rural households.Accordingly data on canal irrigated landowned by beneficiaries of various NGOswas also collected to assess their relativeeffectiveness in targeting of the poor.

It may be important to reiterate that giventhe resource and time constraints of thestudy the sample size was too small for theresults to be representative for the countryas a whole or even for the entire geographicscope of operations of the NGOs covered.

The beneficiaries of a total of sevenorganizations of varying sizes wereinterviewed. The NGOs were selected forboth geographical and functional diversity.No presumption could be made in advanceas to whether they represented ‘bestpractices’ or were ‘best in class’. However,in many cases their methodologies could be

representative of a much broader group ofsimilar NGOs. Both urban and rural NGOswere represented in this sample. A total of277 respondents were interviewed with anaverage of forty for each NGO. Since landownership is an important indicator ofeconomic status it is interesting that 60 percent of the beneficiaries of NRSP, 35 percent of PIEDAR, 20 per cent of KhwendoKor (KK) and 10 per cent of KASHFrespondents owned land. For all respondentscovered across NGOs a surprising 18 percent of total land owners owned overtwenty-six acres, mostly irrigated. Another25 per cent fell in the ten to twenty-fiveacres category.

IV.1 L AND OWNERSHIP

If ownership of canal irrigated land is anindicator of rural wealth, NRSP hasrelatively the wealthiest clients. Sixty percent of the NRSP sample beneficiariesowned irrigated land compared to 18.8 percent in the case of PIEDAR, 17.1 per centin the case of KK and 9.5 per cent in thecase of KASHF. In terms of the sizedistribution of land owners NRSP onceagain stands out with 50 per cent of its landowning beneficiaries owning over elevenacres of irrigated land (see Table 6). Thepercentage of land owners with holdingsabove eleven acres is 11.1 per cent in thecase of PIEDAR and 83 per cent in the caseof KK. However, it may be noted that only17 per cent of KK respondents owned anyland at all. In the case of KASHF none ofthe land owning beneficiaries have morethan ten acres and also only 9.5 per cent ofits total beneficiaries owned any land at all(see Table 6).

IV.2 H EALTH AND NUTRITION

The apparently cut and dried answer to thehealth and nutrition questions were obtainedby the surveyors after some discussions andcross questioning. As many as 59 per centof the respondents ate their fill daily and27 per cent responded with ‘mostly’.However faced with the question as towhether they ate better now or in earliertimes, as many as 40 per cent said ‘earlier’citing loss of work, reduction in business,static or declining incomes and expanding

Table 1 Household Nutrition Status by NGO

Do You and Your Family Eat Your FillNGOs Daily Mostly Sometimes Seldom Total

(%) (%) (%) (%) (%)

KK 42.90 31.40 17.10 8.60 100.00OPP 72.10 24.60 3.30 — 100.00PIEDAR 66.70 12.50 14.60 6.30 100.00NRSP 67.50 27.50 5.00 — 100.00KASHF 45.20 40.50 9.50 4.80 100.00OWP 73.70 21.10 — 5.30 100.00ASB 40.60 37.50 21.90 — 100.00

Source: NHDR/A.I. Hamid Spot Survey 2001.

POVERTY ALLEVIATION THROUGH NGOS 93

families as the causes of the deterioration intheir diet.

In terms of the comparative picture ofNGOs 68 per cent of NRSP respondents atetheir fill daily (see Table 1) and 65 per centate better now than earlier (see Table 2). Inthe case of OPP 72 per cent of thebeneficiaries ate their fill daily (Table 1),while 27 per cent ate more now than earlier(Table 2). As many as 43 per cent had moreto eat in earlier times in the case of OPPcompared to 40 per cent in the case of KK,48 per cent in the case of PIEDAR, 18 percent in the case of NRSP, 31 per cent in thecase of KASHF, 47 per cent in the case ofOWP and 56 per cent in the case of ASB(see Table 2). In their comments a numberof respondents spoke of the declining qualityrather than quantity of diet, pointing todeclining consumption of already scarcemeat, loss of household animals or accessto pure dairy products, and fewer and lessfresh vegetables, being obliged to buy themin the market occasionally. (Thesecomments refer to those who are operatingland below the minimum subsistenceacreage).

As table 3 shows for a substantialproportion of respondents related with eachNGO there has been a deterioration in healthstatus. This is consistent with the NHDR/PIDE data set both quantitative andqualitative which shows wide spread illnessamongst the poor with sickness being animportant factor in pushing people intopoverty (see chapter 3). In the spot surveyfor NGOs as table 3 shows as many as60 per cent of the respondents in KKreported a deterioration in their health,39 per cent in the case of OPP, 41.7 per centin the case of PIEDAR, 40.5 per cent in thecase of KASHF, 42.1 per cent in the case ofOWP and 40.6 per cent in the case of ASB.However, NRSP stands out with only12.5 per cent of its beneficiaries reporting adeterioration in their health and as many as50 per cent reporting an improvement intheir health. NRSP respondents pointed togreater agricultural productivity, higheryields, better supply of inputs and adoptionof new techniques as the factors which hadimproved their income, consumption andhealth. Some of this credit should certainlygo to NRSP and some to the government.However it must be remembered that interms of both income and assets NRSPrespondents were the best off in the sample.

For other NGOs where between 40 to60 per cent had reported a deterioration intheir health, their comments in this contextwere interesting. The respondents linkeddeclining health not only with economicconditions (declining real incomes andrising costs of medical care) butinterestingly with increased mental stress(most used the urdu word pareshani).

IV.3 M ONTHLY HOUSEHOLD INCOME

Table 4 shows the distribution ofbeneficiaries in each NGO by various classesof monthly household income. PIEDAR hasthe largest proportion of respondents in theextremely poor category, with 22.9 per centhaving monthly incomes of Rs.1,000 or less,43.8 per cent with incomes between Rs.1,000and 5,000 per month and only 6.3 per centwith incomes above Rs.15,000 per month. Inthe case of KK 17.1 per cent of thebeneficiaries have a monthly householdincome upto Rs.1,000 and 42.9 per centbetween 1,000 to 5,000 rupees. In the case of

Table 2 Nutrition History by NGO

NGOs Do You Have More to Eat TotalNow or Earlier

Have more to Have more to eat Equaleat now in earlier times

(%) (%) (%) (%)

KK 28.60 40.00 31.40 100.00OPP 27.90 42.60 29.50 100.00PIEDAR 35.40 47.90 16.70 100.00NRSP 65.00 17.50 17.50 100.00KASHF 42.90 31.00 26.20 100.00OWP 31.60 47.40 21.10 100.00ASB 31.30 56.30 12.50 100.00

Source: NHDR/A.I. Hamid Spot Survey 2001.

Table 3 Health History by NGO

NGOs Is Your Family’s Health Better Now or EarlierHealth is Health was No

better now better earlier Equal information Total(%) (%) (%) (%) (%)

KK 20.00 60.00 17.10 2.90 100.00OPP 19.70 39.30 41.00 — 100.00PIEDAR 25.00 41.70 31.30 2.10 100.00NRSP 50.00 12.50 37.50 — 100.00KASHF 31.00 40.50 28.60 — 100.00OWP 21.10 42.10 36.80 — 100.00ASB 15.60 40.60 43.80 — 100.00

Source: NHDR/A.I. Hamid Spot Survey 2001.

94 POVERTY, GROWTH AND GOVERNANCE

OPP the comparable figures are for OPP 9.8per cent and 21.3 per cent respectively. In thecase of NRSP 2.5 per cent and 25.0 per centrespectively. In the case of KASHF2.4 per cent and 42.9 per cent respectively.In the case of OWP 5.3 per cent and 36.8 percent respectively and in the case of ASB 6.3per cent and 62.5 per cent respectively. Table4 shows the largest proportion of respondentsin the Rs.15,000 plus per month category arein NRSP (27.5 per cent) and the lowest inKASHF with 2.4 per cent. For the otherNGOs the percentage of respondents in thisrelatively affluent category range between 5.3

and 8.6 per cent. It appears therefore that asfar as targeting the poor is concerned KASHFand PIEDAR come out on top. As NRSPwith 27.5 per cent of its beneficiaries withover Rs.15,000 monthly household incomeand 72 per cent of its beneficiaries with anincome of Rs.5,000 to over Rs.15,000 permonth, has the most imprecise targeting ofthe poor compared to other NGOs in thesample.

IV.4 SUSTAINABLE INCOME INCREASE

As table 5 shows for all NGOs in the sampleexcept for KK more than 50 per cent of thebeneficiaries achieved a sustainable increasein income following the receipt of a loan.The top performer is NRSP with 81.6 percent of its beneficiaries experiencing asustainable increase in their income afterreceipt of a loan. However this must bequalified by the fact that NRSP also has thehighest proportion of well off beneficiaries.The proportion of beneficiaries with asustainable increase in income followingloan receipt, is 71.1 per cent in the case ofOPP, 66.7 per cent in the case of KASHF,56.5 per cent in the case of PIEDAR and42.9 per cent in the case of KK.

V. STRATEGIC ISSUES OF UP-SCALING

V.1. PARTICIPATORY DEVELOPMENT NGOS:CONSCIOUSNESS, ORGANIZATION AND

WORK PROCEDURES16

The defining feature of a programme forempowering the poor, is the passion, which

Table 4 Monthly Household Income by NGO

Total Monthly Household Income from all sourcesUpto Rs. 1000 to 5000 to 15000 Total1000 (%) 5000 (%) 15000 (%) plus (%) (%)

KK 17.10 42.90 31.40 8.60 100.00OPP 9.80 21.30 59.00 9.80 100.00PIEDAR 22.90 43.80 27.10 6.30 100.00NRSP 2.50 25.00 45.00 27.50 100.00KASHF 2.40 42.90 52.40 2.40 100.00OWP 5.30 36.80 52.60 5.30 100.00ASB 6.30 62.50 31.30 100.00

Source: NHDR/A.I. Hamid Spot Survey 2001.

Table 5 Sustainable Income Increase After Loan

Did Loan Result in Sustainable Increase in IncomeNGOs Yes No Equal Total

(%) (%) (%) (%)

KK 42.90 47.60 9.50 100.00OPP 71.10 17.80 11.10 100.00PIEDAR 56.50 21.70 21.70 100.00NRSP 81.60 7.90 10.50 100.00KASHF 66.70 33.30 — 100.00OWP — — 100.00 100.00ASB 53.30 46.70 — 100.00

Source: NHDR/A.I. Hamid Spot Survey 2001.

Table 6 Canal Irrigated Land Owned by Size of Holding of Beneficiaries, by NGO

NRSP PIEDAR KK KASHFAcres Number % Number % Number % Number %

1 to 5 7 29.17 1 11.11 1 16.67 3 75.006 to 10 5 20.83 7 77.78 0 0.00 1 25.0011 to 25 7 29.17 1 11.11 2 33.33 0 0.0026 to 50 4 16.67 0 0.00 0 0.00 0 0.0051 to 100 0 0.00 0 0.00 3 50.00 0 0.00101 to 200 1 4.17 0 0.00 0 0.00 0 0.00

Total 24 100.00 9 100.00 6 100.00 4 100.00

Total 40 Respondents 48 35 42

Source: NHDR/PIDE Survey 2001.

POVERTY ALLEVIATION THROUGH NGOS 95

impels those who work in it and those forwhom they work. It is not just an emotionbut a form of consciousness. It comes fromtranscending the ego and relating with thecommunity through love. Thus, passionateconsciousness is both a cohering force ofthe community and also the synergy throughwhich the NGO team can engage in aprocess of action and reflection. Thisprinciple can be the basis of its managementculture and work procedures. It would bemanifested in the quality of dialogues thatoccur between NGO personnel and ruralcommunities, on the one hand and betweenmembers of the NGO team on the other.The dialogues are designed to identify andactualize the creative potential ofindividuals.

This form of learning and creative growthif pursued by an NGO through its dialoguesmay be called Faqiraana as, opposed toMessianic. The messianic leader/teacher/manager is one who claims to embody thetruth and if his followers want to becomesomething they can only be his shadows.By contrast, the faqiraana leader/teacher/manager is one who abnegates his ownexceptionality and recognizes eachindividual as the unique origin of change.The participants in the dialogues whetherbetween the NGO and a community orwithin the NGO itself, are essentiallyco-equals in a journey of actualizing eachother’s creative potential in the context ofsocial change.

The organizational structure reflectingthe Messianic approach is hierarchic andrestricts the space for independent thinking.Its work procedures involve issuinginstructions or blindly implementing them.By contrast the organizational structureassociated with the Faqiraana approach isnon-hierarchic, designed to provide spacefor thought and action by autonomousindividuals in collegial interaction. Its workprocedures instead of being a simpledichotomy between instructions andcompliance, are designed for mutuallyfertilizing dialogues, action and collectivereflection.

V.2 TAKING SMALL NGOS TO SCALE : SOME

NECESSARY CONDITIONS FOR SUCCESS17

The aim of up scaling of small NGOs wouldbe to reach the district level only, but with

coverage of all union councils within it. Thisis in view of the fact that: (i) the governmentis decentralizing key governmentaldevelopment functions to the district level.So if NGOs fostering communityorganizations of the poor, could go up to adistrict scale, they could institutionally linkup with local governments. This wouldenable organizations of the poor toparticipate in government fundeddevelopment projects and also in other areasof local governance. (ii) The NGO (or RSPs)which are currently operating in a numberof different districts simultaneously, havevery low intensity of coverage within anyone district. There may therefore be a casefor having district level NGOs that have fullcoverage of the poor population within it.

Of the large number of NGOs with smallbeginnings, a few have grown to asignificant size and achieved nationalprominence. These include OPP/OCT,SUNGI, and BANH BELI. Three questionsarise in the context of their success: (a)What are the common factors in theirsuccess? (b) At this stage of their growth,what are the constraints they face to furtherup-scaling and/or rapid replication? (c)What are the elements of an enablingenvironment at the national level whichcould let a ‘hundred flowers bloom’, in thesense of nurturing the rapid growth/replication of a variety of developmentNGOs, enable mutually catalyzinginteraction and yet maintain the uniquecharacter of each of them?

V.2.1 Success Criteria: Perhaps the singlemost important factor in their success is thequality of leadership. Specifically, it is theability to relate with humility and love withthe poor. It is to build a team which whilebeing internally coordinated, at the sametime, enables each member to become acentre of thought and action. The successfulNGO leader creates the team synergy todevelop innovative responses to each newproblem on the ground. Yet, he/she ensuresthat each action by the team contributes toreinforcing the process of the poor takingcharge of their own development. Theeffective leader focuses the team toexperience the potential of the poor and tograsp the specific dynamics of how they canorganize, take responsibilities and initiatechange. Thus, the challenge for the NGOleadership is to so relate with the poor and

The defining feature of aprogramme for empoweringthe poor, is the passion,which impels those whowork in it and those forwhom they work. It is notjust an emotion but a formof consciousness. It comesfrom transcending the egoand relating with thecommunity through love

96 POVERTY, GROWTH AND GOVERNANCE

the team, that every act, every word, everymoment of silence, contributes to fertilizingthe other, rather than establishing control:Liberating rather than inducing dependency.

The second factor in the success of thosesmall NGOs which engage in socialmobilisation, is the identification, trainingand fostering of village level activists whogradually begin to manage existing COs,thereby, enabling NGO staff to give moretime to develop new COs. This process ofdevolution of management responsibilityfrom NGO staff to village level activists isa crucial factor in the enlargement of NGOcoverage in a situation where funds arelimited and rapid expansion of stafffinancially infeasible. The converse of thisdynamic is that if too much money becomesavailable too early, it undermines discipline,initiative and energy of the NGO.

The third factor in the success of smallNGOs which have reached significant scaleis the development of second levelmanagement and the ability of top levelleadership to devolve responsibility,acknowledge their achievements and tolearn from them just as much as it isnecessary for the leadership to learn fromthe poor. An inner wakefulness that comesfrom transcending the ego is necessary tobe always open to learning from the poor,and from each member of one’s team. It isthis openness to learning from others thatconstitutes the basis of the organization’sdynamism, its innovation and its sense ofbeing a community.

The fourth factor in the success of smallNGOs in reaching significant scale is thedevelopment of credible accountingprocedures, and a regular monitoring andevaluation exercise on the basis of whichdonor funding can be sought when it isrequired. In each case the successful NGO,apart from devising efficacious modes ofreflection and action with the villagecommunities, also develops formalizedrecording and reporting systems.

V.2.2 Key Features in the Transition fromSmall Sized to District Level NGOs: ThoseNGOs which started small and throughcertain specific features (discussed above)have reached a medium-size are now facedwith the challenge of up-scaling to a districtlevel size. Typically, the successful NGOsstarted work in one hamlet a decade ago,are now working in scores of villages. The

question is what are the key changes withinthe organization which could enable themto reach a full coverage of a district size. Inthis context, seven key changes may berequired:

(i) The single leader at the top(variously called Chairman,President or Chief ExecutiveOfficer) would need to build a teamof at least three or four leaders whocan work independently at the toplevel. This is necessary in a situationwhere programme operationsbecome so geographically diversi-fied within a district that overallprogramme management wouldneed to get decentralized to theUnion Council and Tehsil levels.

(ii) For a major up-scaling of smallNGOs to successful medium-sizedNGOs, it would be necessary toreceive grant funding forinstitutional strengthening andgrowth. The Pakistan PovertyAlleviation Fund that has recentlybeen established, could provide suchfunding after careful evaluation ofthe concerned NGOs andassessment of their expansion plans.

(iii) As the organizational structure ofthe NGO changes from a centralizedto a geographically decentralizedone, within a whole district, themethodology of work would alsohave to change to enableintroduction of procedures formonitoring and strategic planning.As full autonomy is granted toUnion Council and Tehsil levelregional programme heads, each ofthem would be expected to reportand evaluate on programmeperformance within an agreedformat and in consultation withcommunity organizations and theregional programme team. Thisevaluation could be done on amonthly basis and could feed intothe process of developing regionalprogramme plans on a quarterly andannual basis. These tehsil levelregional programme plans preparedinitially at Union Council levelregional programme offices, would

POVERTY ALLEVIATION THROUGH NGOS 97

include issues such as the numberand locations of new COs to beformed and the deepening ofexisting COs. It would also includefacilitating the preparation ofparticipatory village developmentprogrammes for infrastructure,social sector services, and off-farmenterprises, as and when suchservices are identified by COs. Thedeepening of existing COs in theregional programme plans wouldinclude devolution of organizationalresponsibilities to Union Counciland then village activists formanaging village level or villagecluster level apex organizations ofthe poor. Such devolution ofresponsibility would, on the onehand, enable self-managedcommunity organizations todevelop, and on the other hand,enable the NGO to keep itsoverheads low as it enlarges itscoverage within the district. Theregional planning exercise could beconducted at the Tehsil level officeon a quarterly basis. However, thisprocess could also involve annualplenary planning sessions at Districtlevel Head Office where villageactivists, key members of regionalteams and Head Office personnel inplanning, monitoring and humanresource development, wouldinteract with each other.

(iv) One of the necessary conditions forsuccessful NGOs that up-scaled tomedium-sized level, was thedevelopment of a nascent middlelevel management in their team,although still tightly supervised bythe top leadership. As small NGOsup-scale to district level size andachieve geographic diversification,such middle level managementwould have to be brought tomaturity, allowed greater autonomyand considerably increased innumber. Such middle levelmanagement would play a key rolein coordinating social mobilization,training of Union Council levelmanagers and teshil level managersand village level activists, and

accessing technical support andcredit. The middle managementUnion and Tehsil level cadre byvirtue of its proximity to the fieldwould also be important incollecting data necessary formonitoring, evaluation andplanning.

(v) The challenge to NGO up-scaling isthat unlike RSPs, they must keepoverheads costs to a minimum level.In order to achieve this, it isnecessary for the NGO to be able towithdraw from those villages whereCOs have achieved adequatematurity and have developed thecapacity to form apex supportorganizations of their own. Thecritical factor for enabling NGOs todevolve organizational responsibi-lities to apex organizations of COs,is the development of a cadre ofvillage activists with training in thefollowing fields: (a) communitymanagement skills, (b) ability tointeract with donor organizationsand government line departments,(c) expertise in a range of basicskills such as, livestockmanagement, agriculture, soils,irrigation, natural resourcemanagement and micro-enterprisedevelopment. Such a cadre couldconstitute a core management teamin an independent apex supportorganization.

(vi) As the NGO up-scales to a districtlevel size it would generate a varietyof training needs for CO membersat the village level, as well as careerdevelopment and professionaltraining needs of NGO personnel.Consequently, a human resourcedevelopment programme within theNGO may be necessary to identifythe human resource and careerdevelopment needs specific to theinternal dynamics of the NGO’swork. The human resourcedevelopment section within theNGO would need to be a lean unitwhich should network with diversespecialized institutions to access therequired training services.

98 POVERTY, GROWTH AND GOVERNANCE

(vii) As the NGO reaches a district scale,there would be a quantum leap inthe range and complexity offinancial flows within the NGOprogrammes and also between theNGO and macro level institutions(such as PPAF, commercial banks,donor agencies and governmentdepartments). It would, therefore, beessential for the NGO to have a highquality professional finance andaccounts division, with the abilityto develop and operate MIS,finance, accounting and statisticalsoftware packages. Members of thisdivision, while having the bestavailable skills as charteredaccountants and finance managerswould need to be sensitized to themethodology of ParticipatoryDevelopment and their workintegrated with field operations. Itwould be necessary to developaccounting procedures that whilemeeting the auditing requirements atthe most rigorous level, would alsohave the innovativeness andflexibility to cater to the uniquenature of development NGOs creditoperations.

Box 1 shows the key features of NGOsat each stage of their growth from small toDistrict level size. The features specified atthe small size and transitional stages,actually prevail in successful NGOs thathave grown to a significant size. Thefeatures in the third stage (District level),however, are indicative in nature, forDistrict level NGOs to be sustainable, cost-effective and genuinely participatory.

VI. ENABLING APEX STRUCTUREFOR POVERTY ALLEVIATIONWITH NGOs

(i) Enable the recently establishedPPAF to engage in capacity buildingof small NGOs to enable them toreach Tehsil and District levelcategory, so that it can fulfill itsmandate of becoming an apexorganization for fostering the rapidgrowth of partner organizationsengaged in poverty alleviation. Thiscapacity building would involve the

development of four dimensions ofits organization: (a) the ability tocoordinate rigorous evaluation andimpact assessment of the work ofpartner organizations. (b) coordinat-ing management support for localgovernment and NGOs (for example,MIS, systems for accounting andproject management), which are inthe process of up-scaling, (c) providea forum for local governmentinstitutions and NGOs to learn fromeach other’s experience, (d) providea forum for policy dialogue onpoverty issues between localgovernment Nazims, NGOs,provincial and federal governments,donors and the private sector.

(ii) Establish a national facility fortraining village activists in a varietyof skills, social mobilizers andmanagement professionals. It shouldbe a lean organization with amandate to network with all NGOs,identify their training needs and thencoordinate with different trainingsources, develop courses and ensurethat high training standards areestablished. The sources wouldinclude VTIs, training facilities inprovincial government line depart-ments, (such as Agriculture,Forestry, Livestock and Irrigationdepartments), autonomous organiz-ations and the private sector.

(iii) The volume of credit being disbursedby the PPAF and Khushali bankcould be increased substantially.Equally important the percentage ofPPAF loans going to smaller NGOs(or smaller wholesalers) should beincreased to diversify its loanstowards smaller partner organiz-ations. At the moment as much as91.6 per cent of PPAF disbursementshave gone to the RSPs, with 50 percent going to the NRSP alone.

(iv) Establish a national Monitoring,Evaluation and Participatory PovertyAssessment Institute (MEPPAI) inthe private sector supported bydonors and government which hasthe professional expertise toundertake rigorous monitoring,

POVERTY ALLEVIATION THROUGH NGOS 99

Sr. KeyNo. Features

1. Leadership

2. ManagementSystems

3. Accounting andFinanceSystems

4. Devolution ofResponsibilityto IndependentApex SupportOrganizationsof VOs

5. Relationshipwith FundingAgencies

6. RelationshipwithGovernment

Large NGO(Indicative Features)

Hiring and training of professionaland dedicated leaders for Tehsillevel programmes. Elevation oftalented lower management fieldofficers to Union Council andTehsil level leadership positions.Formalized management systems,functional division of roles,systematic, periodic collectivereflection to ensure participatorydecision making and planning.Inhouse research capacity and linkup with specialized researchinstitutions.Hiring of top-level financemanager with professional financeand accounting team, sensitized toparticipatory developmentapproach, development ofcustomized software for MIS andcredit operations.Large experienced cadre of villageactivists, matured multifunctionVOs; emergence of independentapex multifunction supportorganizations at village cluster ortehsil level. They enableredeployment of NGO field staffand hence NGO overheads keptlow.Establishment of an endowmentfund at the district level, projectspecific and region specificfunding from multiple donorsources, link up with banks andPPAF for financing creditoperations.Systematic working relationshipwith government.Line departments at the district,and tehsil and Union Councillevel. Systematic workingrelationship with specializedinstitutions for technical supportand training in government,autonomous and private sectors.Unwarranted governmentinterference through seniorofficials and politicians could be asignificant hazard.

Box 1 NGO Growth and Changing Profile of Key Features

Small NGO(Prevalent Features)

Single, dedicated leaderusually without formalmanagement training.

Absence of formalizedprocedures, multi-functionrole of staff members,intense synergy and teamwork. An openness tolearning from the poor andfrom each other.

Rudimentary, operated bynon-specialists. Maximumemphasis on keeping costsat lowest level.

Social mobilization andsupport functions performedonly by NGO staff.

Funding usually from singleforeign donor, coveringfunction specificoperational costs henceoccasional donations fromfriends of leader.

Government departmentsusually hostile, avoidingpressure from lowerechelon governmentofficials a significantpreoccupation.

Transition to Upscaling(Prevalent Features)

Emergence of one or more fieldofficers as Union Councilprogramme Heads. Hiring ofspecialists at senior managementlevel.

Institutional regulations and jobspecifications emerge; yet,emphasis on participatorydecision making; collectivereflection in regular staffmeetings.

Hiring of professionalaccountants emergence offinancial analysis, computerizedaccounts and formal auditing.

Emergence of cadre of villageactivists, who share support role;emergence of independentmultifunction supportorganizations at village level.

Funding from multiple donorsources for both operations andinstitutional capacity building.Application to PPAF forinstitution building grant andcredit line.

Nascent links with governmentline departments to accesstechnical support for VOs, goodworking relationship withdistrict officials and selectedprovincial secretaries.Interference by vested interestsamongst senior governmentofficials and politicians a majorhazard particularly due tofragility of NGO at this stage.

Source: Akmal Hussain, ILO/CEPR, op. cit.

100 POVERTY, GROWTH AND GOVERNANCE

evaluation, and impact assessmentexercises for the PPAF and NGOs,on demand. Such an institute wouldalso network national data collectionand research institutions (such as theFederal Bureau of Statistics, PIDE,LUMS) to bring their expertisetogether for particular impactassessment exercises. TheParticipatory Poverty Assessment(PPA) currently initiated by DFIDcould be institutionalized into apermanent feature within theMEPPAI.

CONCLUSIONS

In this chapter we have examined the issueof NGOs emerging as an institutional basis,(alongside the government), for contributingto poverty alleviation. The total coverage ofNGOs currently, is relatively insignificantcompared to the magnitude of the poorpopulation. The NHDR/PIDE 2001 surveyfor example shows that of the total loansreceived by all categories of the samplepopulation, the percentage of loans receivedfrom NGOs was only 0.8 per cent in therural areas and 1 per cent in the urban areas.Similarly the NRSP which is by far thelargest NGO in the country, operating intwenty-seven districts, nevertheless has atotal coverage of only 293,000 beneficiaries.Even if we assume that all of them fall inthe category of the poor (the NHDR/A.I.Hamid Spot Survey shows that a significantpercentage are not), even then thisconstitutes 0.7 per cent of the forty millionrural poor. Accordingly we have examinedthe issue of the increase in coverage ofNGOs and the effectiveness of their impacton the poor. This was done in the context ofexamining different types of NGOs, thecomparative effectiveness of their impact onthe poor, and key organizational andmanagement issues involved in up scaling.We also identified the elements of anenabling institutional structure at thenational level, which could accelerate thegrowth and enhance the effectiveness ofNGOs.

The NHDR/A.I. Hamid Spot Surveyshowed that there was considerable variationwith respect to the effectiveness of targetingof the poor between various NGOs. Therewas also considerable variation with respect

to the impact of NGO intervention onincomes, nutrition and health of the poor.This has implications for organizationalforms and work procedures.

Under the devolution programme a newstructure of local governments at the districtlevel is emerging, within which electedrepresentatives will be expected toundertake (amongst other functions) povertyalleviation at different tiers of localgovernment (district, tehsil, union counciland village levels). Within this structureNGOs that enable the formation ofautonomous organizations of the poor couldplay an important role in creating asystematic relationship between localgovernance and poor communities. Such arelationship would enable the poor toparticipate in identification andimplementation of development projects aswell as decisions related with access overmarkets and local power structures. It couldalso help broaden the social base of power,authority and the allocation and use ofpublic resources.

If NGOs are to play this role they wouldneed to function at the district level ratherthan across districts. This would benecessary if only to prevent centralized transdistrict and un-elected organizations toimpinge upon an elected decentralizedsystem. Equally important, the emphasisperhaps may need to shift from buildingcentralized NGOs in a large number ofdistricts with low intensity of coverage (andhigh overheads) in each, towards districtspecific NGOs which achieve full coverageof the poor population in the villages, unioncouncils and tehsils of that district. Thequestion therefore becomes how smallNGOs operating at the village or unioncouncil level can grow rapidly and costeffectively to achieve full coverage of thepoor population of that district. A relatedissue is how can organizations of the poorbe enabled to become genuinelyautonomous on the one hand and link upwith local governments on the other? Wehave discussed some of the organizationaland management issues that would need tobe addressed in this context. These involvebuilding multiple tiers of professionalmanagement, MIS, accounting and projectmanagement systems to enable decentraliz-ation of district NGOs to tehsil and unioncouncil levels. Hierarchic, centralizedstructures of management may need to be

NGOs that enable theformation of autonomousorganizations of the poorcould play an importantrole in creating a systematicrelationship between localgovernance and poorcommunities. Such arelationship would enablethe poor to participate inidentification andimplementation ofdevelopment projects aswell as decisions relatedwith access over marketsand local power structures.It could also help broadenthe social base of power,authority and the allocationand use of public resources

POVERTY ALLEVIATION THROUGH NGOS 101

replaced with decentralized ones which canprovide space for thought and action byautonomous individuals in collegialinteractions (this is the distinction betweenmessianic and faqiraana managementsystems) The work procedures instead ofbeing a simple dichotomy betweeninstructions and compliance could bedesigned for mutually fertilizing dialogues,actions and collective reflection. Thepurpose is to build a team that enables thepoor to grasp the specific dynamics of howthey can organize, take responsibilities andinitiate change.

In terms of the national level institutionalstructures which could enable rapid growthof coverage from village level to districtlevel NGOs and also for more effectiveimpact, the following policy proposalsemerge from the analysis:

(i) To enable the Pakistan PovertyAlleviation Fund (PPAF) to fosterthe rapid growth and replication ofpartner organizations engaged inpoverty alleviation. The capacitybuilding in the PPAF could addressthe following dimensions: (a) todevelop the ability to coordinate anindependent and more rigorousevaluation and impact assessment ofpartner organizations; (b) providingmanagement support for localgovernment and NGOs (exampleMIS, project management andaccounting systems).

(ii) Establish a national facility for largescale training of village activists,social mobilizers and managementprofessionals.

(iii) Establish a national monitoring andparticipatory poverty assessmentinstitute in the private sector support-ed by donors and government. Itshould have the expertise toundertake rigorous monitoring andimpact assessment exercises for thePPAF and NGOs when required.

(iv) A large increase in the scale of creditbeing disbursed by PPAF andKhushali Bank is required if they areto supply a significant proportion ofthe microcredit currently beingdemanded. So far the total amount

of credit disbursed by the PPAFcovers only 50,000 beneficiarieswhich is an insignificant proportionof the total number of poor in needof microcredit.

NOTES

1. For a more detailed discussion on the limitationsof top-down development programmes, See,Akmal Hussain, Poverty Alleviation in Pakistan,Vanguard Books, Lahore, 1994, pp. 23-36.

2. For a detailed discussion of this perspective onpoverty see, Akmal Hussain, ‘Pro-Poor Growth,Participatory Development and Decentralization:Paradigms and Praxis’, chapter in, Wignaraja,Sirivardana (ed.), Pro-Poor Growth andGovernance in South Asia—Case Profiles ofParticipatory Development and DecentralizationReforms, Zed Press London (Forthcoming).

3. For a more detailed discussion of this approach,See, Akmal Hussain, Poverty Alleviation inPakistan, op. cit., pp. 23-39.

4. See, Ponna Wignaraja, Akmal Hussain, HarshSethi and Ganeshan Wignaraja, ParticipatoryDevelopment, Learning from South Asia, UnitedNations University, Oxford University Press, 1991.

5. For example, NRSP, easily the biggest RSPconcentrates its work in the rural areas but alsomanages the Urban Poverty Alleviation Project inRawalpindi.

Similarly PIEDAR primarily offers micro-creditin its urban/peri-urban Kabirwala operating area,but supports community based irrigationmanagement and primary education for rural girls(but not micro-credit) in its other, rural, operatingarea in Darkhana. It also supports urban wastemanagement in low-income wards of Quetta,Balochistan, conservation of lakes in Upper Swat,NWFP, and an environmental education networkthat spreads across Urdu-medium schools in lowincome areas of Rawalpindi-Islamabad andLahore.

Again, Kashf for example is single function inthe sense that its primary and most importantservice is provision of micro-credit but it hasancillary activities in elementary businessmanagement to assist its clients as well as anenterprise development initiative for the poorestwomen who cannot yet afford to run a business.Its Enterprise Development Section designsproducts, and explores markets for clientsproducts. Kashf also works with clients on suchsocial issues as prevention of violence againstwomen and promotion of sanitation, etc. A newinitiative, Shaafi Project, is looking at ways toimprove the health of Kashf’s clients. Takentogether, these ancillary activities will clearlymove Kashf in a multifunctional direction.

6. The discussion on types of ParticipatoryDevelopment NGOs is drawn from the researchinput of Agha Imran Hamid.

7. The agglomeration of kachi abadis known asOrangi has an estimated population of about amillion. OPP points out that there is therefore, a

102 POVERTY, GROWTH AND GOVERNANCE

lot of ground still to be covered in its immediatevicinity.

8. This sub-section is drawn from Akmal Hussain,Poverty Alleviation in Pakistan, op. cit., pp. 26-28.

9. This sub-section is based on the research input ofMr Agha Imran Hamid.

10. See, also impact assessment data of the SpotSurvey, Section-IV.

11. For a more detailed analysis of this double squeezeon the poor peasant, see, Akmal Hussain,‘Squeezed Out by Progress,’ in Development:Seeds of Change, 1985, p. 3.

12. OCT which does not form borrowers groupsnevertheless relies on guarantees from twoprevious successful borrowers.

13. This section is based on the research input ofMr Agha Imran Hamid.

14. See, for example Government/Donor/NGOCollaboration: Lessons Learnt And The Action ForThe Future, a report prepared for UNDP Pakistan,1986, pp. ii, 7-8.

15. Dr Akhtar Hameed Khan in his Orangi PilotProject: Reminiscences and Reflections, op. cit.

16. The formulations about management principles inthis sub-section are drawn from field experienceof Akmal Hussain as the first CEO (honorary) ofthe Punjab Rural Support Programme. See, AkmalHussain, The First Four Months, CEO’s Report tothe Board of Directors, PRSP, 1998.

17. This sub-section is based on Akmal Hussain,Employment Generation, Poverty Alleviation andGrowth in Pakistan’s Rural Sector: Policies forInstitutional Change, Report prepared for the ILO(CEPR), Pakistan, March 1999.

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 103

CHAPTER 5

A STRATEGY OF ECONOMIC GROWTH ANDEMPOWERING THE POOR

Photograph by Mansoor Zaidi

What has been said,Has entered our consciousness,So now we must actualize it

Whatever colour I weaveI weave deep

√ SHAH HUSSAIN17th Century Punjabi Sufi Poet

(Translation)

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 105

CHAPTER 5

A Strategy of Economic Growth andEmpowering the Poor

INTRODUCTION

In chapters 1 and 2 we have identified thestructural features of the economy thatduring the 1990s not only slowed GDPgrowth, but also accentuated its adverseeffects on poverty and unemployment.Therefore a strategy of economic revivalwould need to have two inter-relateddimensions: First, a restructured growthprocess so as to achieve not only a higherGDP growth rate but also an enhancedability of given GDP growth rates to reducepoverty. Second, a direct attack on povertywhich enables the poor to achieve asustainable increase in productivity andincomes, and thereby contribute to a fasterand more equitable economic growth.

In chapter 1, we examined the majorelements of the multifaceted crisis offinance, economy and the human condition.We also identified some of the structuraland institutional features that need to beaddressed in a strategy to overcome thecrisis. In chapter 2, we traced the historicalinter-play between the deterioration ininstitutions of governance, economic policyand the structure of economic growth whichinduced rising unemployment and poverty.In chapter 3, we analyzed the processesthrough which poverty is perpetuated at thelocal level to draw attention to the points atwhich efficacious policy interventions canbe made. Based on our analysis of theprocesses of poverty and the structure ofthe economy we will in this chapterarticulate a broad strategy of pro poorgrowth. In section-I, we will indicate insummary form some of the major structuralfeatures of the economy and the povertyprocess that need to be addressed in such astrategy. We will also briefly indicate theadverse implications of environmentaldegradation in Pakistan on growth andpoverty. In section-II, we will give anoutline of a strategy that can achieve bothfaster growth and faster poverty alleviation.Many of the proposals contained in thisstrategy have already been adopted by thegovernment. Nevertheless, this section may

be helpful in providing a conceptuallyintegrated perspective on a revival strategythat can be pursued. In section-III, we willpresent the outline of an approach for adirect attack on poverty throughParticipatory Development at the local level.In this context, we will discuss the role ofwomen’s NGOs and the dangers being facedby them from local power structures. Wewill also examine the challenge andopportunity of the induction of a largenumber of women councillors in localgovernment institutions. Finally, we willdraw some of the lessons from theexperience of decentralization reforms fromSouth Asian countries in the context of thepitfalls of implementation. In section-IV, wewill briefly review some of the economicpolicy measures that have already beeninitiated by the government.

I. STRUCTURAL FACTORS IN SLOWGROWTH AND RISING POVERTY

Let us begin by identifying the majorfeatures of the crisis in the real economythat need to be addressed. These are:

I.1 GOVERNANCE, POVERTY AND

UNEMPLOYMENT

Poverty and unemployment have increasedrapidly during the 1990s. This is due to thefact that while GDP growth declined duringthe 1990s, there has also been a decline inemployment elasticities, labour productivityand real wages in both agriculture andindustry (see chapter 2). At the same timethree aspects of governance during the1990s intensified the economic burden onthe poor (see chapter 2):

(i) Due to poor financial managementof successive governments in thepast both the level of developmentexpenditure and efficiency of its usedeclined. This contributed to thedecay in the already inadequate

106 POVERTY, GROWTH AND GOVERNANCE

social infrastructure and also to aslow down in GDP growth andfalling employment elasticities.

(ii) The failure to control budget deficitscombined with the attempt to financethem through indirect taxation alsocontributed to increasing poverty,since the adverse impact of suchtaxation has a relatively greaterimpact on the poor.

(iii) W idespread corruption ingovernment may have contributed toincreasing poverty in three ways: (a)The changing magnitude ofcorruption over time and at differentlevels of decision making ingovernment was a major factor in theuncertain policy environment and aconstraint to estimating accurateproject feasibilities. This could beexpected to slow down investmentgrowth and employment. (b) Thetransfer of some of the domesticsavings of the private sector tocorrupt politicians and governmentofficials rather than into investmentcould be a factor in slowing downGDP growth. (c) The financial costof individual projects increased,thereby simultaneously slowingdown GDP growth for given levelsof investment and also reducing theemployment elasticities with respectto investment (see chapter 2 for amore detailed analysis).

I.1.1 Policy Implications: (a) Induce higherinvestment, reduce incremental capital outputratios, and increase employment elasticitieswith respect to both output and capital inorder to increase employment. (b) Increasethe level and efficiency of governmentdevelopment expenditure to increaseemployment. (c) Increase transparency ofgovernance and reduce corruption to alleviatepoverty. (d) Improve the efficiency ofinstitutions responsible for delivering publicservices to alleviate poverty.

I.2 ASYMMETRIC MARKETS, LOCAL POWER

STRUCTURES AND POVERTY

As the analysis in chapter 3, based onNHDR/PIDE survey data shows, that poor

peasants face input and output marketswhere they have to pay a relatively higherprice for their inputs and get a relativelylower price for their outputs compared tolarge farmers. At the same time, due to lackof access over the formal credit markets thepoor peasant often has to borrow from thelandlord and as a consequence is obliged towork on the landlord’s farm at less thanmarket wage rates. The poor peasants couldbe losing one-third of their income due toasymmetric markets for inputs and outputs(see chapter 3).

In the urban and semi urban areas wherethe poor households are predominantlyinvolved in micro-enterprises an importantfactor in low incomes is the low productivityand profitability of their micro-enterprises(see chapter 3).

I.2.1 Policy Implications: Better access forthe poor over the markets for labour, land,agricultural inputs and outputs, meanschanging the balance of power in favour ofthe poor at the local level. This requiresfacilitating emergence of autonomousorganizations of the poor, particularly poorwomen at the village, Union Council, Tehsiland district levels. It also means enablingthe poor to access credit, training andtechnical support for increased employment,productivity and incomes.

I.3 I NSTITUTIONAL FACTORS IN SLOW AND

UNSTABLE CROP SECTOR GROWTH 1

In agriculture, the average annual growthrate of major crops has declined from 3.34per cent during 1980s to 2.38 per cent in1990s. At the same time, the frequency ofnegative growth years in some of the majorcrops has increased. The slow down ingrowth and increased instability of outputin major crops has resulted in sharplyincreased rural poverty on the one hand anda slow down in the export growth on theother. Underlying this phenomenon are fivemajor institutional constraints (see chapter1 for details).

I.4 SOME CONSTRAINTS TO THE GROWTH OF

THE L ARGE SCALE M ANUFACTURING

SECTOR

The large scale manufacturing sector whichhistorically was growing at 7 to 11 per cent

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 107

per annum is now growing less than 3 percent. The factors underlying this dramaticdecline include the following:

(a) A fundamental structural constraint toindustrial growth as indeed the underlyingfactor in slow export growth, is the failureto diversify exports. The large scalemanufacturing sector, particularly exportsare concentrated in the traditional lowvalue added end of textiles. (b) A changedpattern of global demand for industrialproducts with a shift towards higher valueadded and knowledge intensive products.Pakistan’s industrial structure was notpositioned to respond quickly to thesechanged market conditions. (c) An erosionof the domestic framework within whichinvestment and growth is sustained. Thisincludes: (i) A continued threat to the lifeand property of citizens due to a continuedpoor law and order situation. (ii) Highelectricity tariffs, relatively high interestrates (though these have fallen this year),(ii i) Lack of trained professionalsespecially in the high skill sector, (iv) Aninadequate technological base throughwhich industry can respond in a flexibleway to changing patterns of demand, (v)An adverse policy environment in the pastwithin which tariff and export incentiveswere distorted against those entrepreneurswho were seeking to improve quality andproductivity for export growth, (vi)Dumping of smuggled, poor quality andextremely low priced imported goodswhich are often counterfeit copies ofbranded Pakistani manufactured goods.

I.5 ENVIRONMENTAL DEGRADATION , GDPGROWTH AND POVERTY 2

The available studies on the quantitativeimpact of environmental degradation on GDPindicate the substantial adverse consequencesof air and water pollution on public health(and hence on GDP via labour productivity)and the impact of deforestation and soildegradation on productivity in the agriculturesector. For example the study by C. Brandon(World Bank) includes public health impactof air and water pollution, and productivityimpact of soil and rangeland degradation,deforestation and reduction in tourism.3

However, this study does not include theimpact of water pollution on fisheries, nor

the impact of loss of bio-diversity, loss ofcultural heritage, and long-term effects onhazardous wastes due to lack of data. Thestudy by M.W. Addison4 includes destructionof mangrove forests but not losses of tourismrevenue. These studies on the basis ofconsidering six sectors alone estimate incomelosses from environmental degradation ofbetween 3.5 to 4.2 per cent of GDP.

Both the above mentioned studies suggestthat the greatest loss to national income iswith respect to the health impact of waterpollution, especially diarrhea and otherwater borne diseases. It appears that implicitnational income losses of between US$380million to US$883 million could be avoidedby providing safe drinking water andsanitation. Similarly primary health impactsattributed to urban air pollution areestimated at between US$174 to US$369million while losses of agricultural outputattributable to soil degradation are estimatedto be between US$221 to 357 million.5

II. RESTRUCTURING GROWTH FORFASTER POVERTY REDUCTION 6

Having examined some of the main factorsunderlying the crisis in the real economy,let us outline a possible economic strategythat could be undertaken, to lay the basisfor a sustainable pro poor growth. Such astrategy could be designed to optimize fourparameters: (a) Achieve higher GDP growthwith a relatively low investment (i.e. have alow incremental capital output ratio). (b)Generate higher employment for givengrowth rates of GDP (c) Generate higherexports (d) Achieve greater equity andpoverty alleviation.

A four pronged revival strategy needs tobe undertaken in the light of the structuralconstraints to growth and poverty alleviationspecified in section-I of this chapter.

II.1 I MPROVING THE SUPPLY OF IRRIGATION

WATER

The first prong of the growth strategy shouldbe a national campaign on a war footing torehabilitate Pakistan’s irrigation systemwhich is currently in a state of acutedisrepair due to decades of poormaintenance. Such a campaign wouldinvolve organizing semi-skilled labour for

The economic growthstrategy should aim tooptimize four parameters:(a) Achieve higher GDPgrowth with a relatively lowinvestment (i.e. have a lowincremental capital outputratio). (b) Generate higheremployment for givengrowth rates of GDP(c) Generate higher exports(d) Achieve greater equityand poverty alleviation

108 POVERTY, GROWTH AND GOVERNANCE

the desilting of canals, strengthening thebanks, organizing villagers for making‘Pucca Khaalas’ (concrete lined watercourses) and to improve the gradient ofwater courses and farmlands in order toimprove both the delivery and applicationefficiencies of irrigation. Such a campaignbeing inherently labour intensive would notonly generate employment rapidly but alsohelp to improve water availability and yieldsper acre at the farm level. If the campaign isprofessionally designed and managed, thefunding for financing wage payments to thenewly employed labour force could besought from multilateral agencies, some ofwhich have poverty alleviation andsustainable agricultural growth as theirpriority concerns. The district leveldevelopment institutions in the localgovernment system could coordinate withunion councils, village developmentcouncils and autonomous farmersassociations to implement such a campaign.

II.2 I NFRASTRUCTURE DEVELOPMENT

In addition to the campaign for improvedmaintenance of the irrigation system otherlabour intensive infrastructure projectsshould also be undertaken to simultaneouslygenerate employment and stimulateaggregate demand in the economy. Suchprojects could be the building of farm tomarket roads, national high ways and ports,upgrading the railway system and enlargingits transport capacity for bulk cargo togetherwith an improved communication systemand increased production of cheaper energythrough domestically available coal ratherthan imported furnace oil.7

Such infrastructure projects would needto be undertaken through joint venturearrangements between domestic construc-tion outfits such as the Frontier WorksOrganization and specialized foreign firms.The joint ventures would have to be pro-actively facilitated by the government.

II.3 M ILK , MARINE FISHERIES AND HIGH

VALUE ADDED AGRICULTURE PRODUCTS

The third prong of the revival strategy is torapidly develop export led productioncapacity for milk, fisheries and high valueadded agricultural products such as fruits,

vegetables and flowers. Let us illustrate thisinitiative by using the example of milk. Atthe moment Pakistan is producingapproximately 177 billion rupees worth ofmilk annually for domestic consumption.This makes milk the largest agriculturalproduct. By comparison, wheat, Pakistan’slargest crop has an annual production valueof approximately 111 billion rupees. Unlikewheat however, the output of milk can beaccelerated sharply within a couple of years.Currently Pakistan’s milch cattle have ayield per animal which is one-fifth of theEuropean average. Demonstrable experiencein the field has shown that the milk yieldsper animal in Pakistan can be doubledwithin two years through scientific feeding,breeding and marketing. If the institutionalframework could be established for trainingthe farmers in scientific feeding andbreeding and if the logistics could be set upto collect milk from the farm door by meansof refrigerated transport, milk output inPakistan could be doubled. This would havea dramatic impact not only on the incomesof poor peasants, but also on exports andoverall GDP growth.

Pakistan lies at the hub of milk deficitregions such as Central Asia, West Asia andSouth East Asia. Hence it could be arguedthat if milk out put in Pakistan could bedoubled, exports earnings would increase tosuch an extent that they would make a majorcontribution to overcoming the balance oftrade deficit. Such an initiative therefore canlead to accelerated exports, higher GDPgrowth and improved income distribution inPakistan. A possible institutional frameworkfor such an initiative could be theestablishment of dairy development boardsat the provincial level linked up withdevelopment institutions at the district andunion council levels in the local governmentstructure.

Marine Fisheries, also provide asignificant potential for improving foreignexchange earnings although not as large asthe potential for milk. Here again what isrequired is improved institutional supportand better management rather than hugeinvestments by the Government. In the caseof marine fisheries currently there are largelosses and failure to achieve significantexports due to the fact that the storageconditions of fish during transportation areboth unscientific and unhygienic byinternational quality standards. Currently

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 109

alternate layers of fish and hard, sharp edgedice are placed in containers on the boats.Under the weight of upper layers of fishand the sharp edged ice, fish at the lowerlayers are crushed, and the resultantbleeding causes putrefaction. To avoid this,it is necessary to provide shelves for layeredstorage of fish in boats, topped by dry ice,with fiberglass covers. Through suchmeasures it would be possible to bring backthe fish at the European Union standards ofminus 7oC and thereby make it exportable.An export potential of 300 million dollarsexists over the next three years if suchimproved management of the marinefisheries industry could be achieved.

The third element in increasing highvalue added production and export in theagricultural sector would be to facilitate theproduction of fruits, vegetables and flowersfor exports. This would require institutionalsupport for improved quality of output,improved grading, packaging, andrefrigerated transport right up to the cargoterminals for air freight to the export market.

II.4 R APID GROWTH OF SMALL SCALE

ENTERPRISES (SSES)

The fourth prong of the strategy would beto provide the institutional support necessaryfor the rapid growth of small scaleenterprises. These SSEs include high valueadded units in light engineering automotiveparts, moulds, dyes, machine tools andelectronics and computer software.

Training of a large number of softwareexperts with requisite support in credit andmarketing could quickly induce a significantincrease in software exports from Pakistan.Pakistan could build a pool of softwareexperts for a large increase in exportearnings. This would of course require aproactive government to establish jointventures between large software companiessuch as Microsoft and Pakistan’s privatesector institutions such as LUMS andINFORMATICS. The Ministry of Scienceand Technology is already moving rapidlyahead in facilitating the growth ofinformation technology in Pakistan. In thissub-section however we will focus on smallscale manufacturing enterprises.

Small scale industries have a lowgestation period, are labour intensive, andcan generate a larger output per unit of

investment compared to the large scalemanufacturing sector. Therefore the rapidgrowth of small scale enterprises would notonly accelerate economic growth in themedium term at relatively low levels ofinvestment, but would also increaseemployment and exports for given levels ofGDP growth. The key strategic issue inaccelerating the growth of SSEs is to enablethem to shift to the high value added, highgrowth end of the product market.

Field visits to a large number of smallscale enterprises in the Punjab and Frontierprovince have revealed that they haveconsiderable potential for growth and highvalue added production such as componentsfor engineering goods or components ofhigh quality farm implements for the largescale manufacturing sector.8 Yet they are inmany cases producing low value addeditems like steel shutters or car exhaust pipes.This results in low profitability, low savingsand slow growth.

II.4.1 Constraints to the Rapid Growth ofSSEs: Small scale enterprises in small townsof Pakistan face the following majorconstraints:

(i) Inability of small units to getvending contracts for the manu-facture of components from the LSMsector.

(ii) Due to lack of expertise inproduction management, the frequentinability to achieve quality control,and to meet tight delivery schedules.

(iii) Lack of specific skills like advancedmill work, metal fabrication,precision welding, all of which areneeded for producing qualityproducts with low tolerances andprecise dimensional control. In othercases accounting and managementskills may be inadequate.

(iv) Difficulty faced by small units ingetting good quality raw materials,which often can only be ordered inbulk (for which the smallentrepreneurs do not have theworking capital), and from distantlarge cities.

(v) Lack of specialized equipment.(vi) Absence of fabrication facilities such

as forging, heat treatment andsurface treatment which are requiredfor manufacture of high value added

110 POVERTY, GROWTH AND GOVERNANCE

products, but are too expensive forany one small unit to set up.

(vii)Lack of capital for investment andabsence of credit facilities.

II.4.2 Overcoming the Constraints to theGrowth of SSEs: Overcoming the afore-mentioned constraints would involveproviding institutional support in terms ofcredit, quality control management, skilltraining and marketing. This could be doneby facilitating the establishment of industrialsupport centers (ISCs) located in thespecified growth nodes in selected townswhere the entrepreneurial and technicalpotential as well as markets already exist.(For details of the growth nodes seeAnnexure I). Such support institutions(ISCs) while being facilitated by thegovernment and autonomous organizationssuch as SMEDA can and should be in theprivate sector and market driven.

The concept of the Industrial SupportCentres is based on the fact that small scaleindustrialists in Pakistan have alreadydemonstrated a high degree ofentrepreneurship, innovation and efficientutilization of capital. The ISCs would providean opportunity for rapid growth to SSEsthrough local participation in extensionservices, prototype development, anddiffusion of improved technologies,equipment and management procedures. TheISC would constitute a decentralized systemwhich ensures continuous easy access to acomprehensive package of support servicessuch as credit, skill training, managerialadvice and technical assistance. The ISCscould also be linked up with national researchcentres, and donor agencies for drawing upontechnical expertise and financial resources ofthese agencies in the service of SSI.

The Industrial Support Centres couldhave the following functional dimensions:

(i) Marketing

Provision of orders from the large scalemanufacturing sector for components,and from farmers for farm implements.These orders would then be sub-contracted to the cluster of SSI unitsthat the ISC is supposed to serve. Theindividual order would be sub-

contracted to the SSI on the basis of theskills and potential strengths of the unitconcerned.

(ii) Monitoring and Quality Control

Having given the sub-contract, the ISCwould then monitor the units closelyand help pinpoint and overcome unitspecific bottlenecks to the timelydelivery and quality control of themanufactured products. Thesebottlenecks may be specialized skills,equipment, good quality raw materialor credit.

(iii) Skill Training and Product Develop-ment

Skill training for technicians could beprovided by the new good qualityvocational training institutes (VTIs) thathave emerged since the late 1990s. inthe Punjab under the auspices of theVocational Training Council andsimilar VTIs could be established inother provinces. The ISC would providespecialized supplementary skill trainingon its premises to workers in thesatellite SSI units when required. At thesame time, it would provide advice onjigs, fixtures, special tools and productdevelopment where required.

(iv) Forging and Heat Treatment Facilities

The ISC’s would establish at theirpremises plants for forging, heattreatment and surface treatment. TheSSI units could come to the ISC to getsuch fabrication done on the productsthey are manufacturing on sub-contract,and pay a mutually agreed price for thisjob to the ISC.

(v) Credit

The ISC would provide credit to theSSI’s for purchase of new equipmentand raw materials. In cases where rawmaterials are available in bulk supply,the ISC could buy it from the source,stock it on its premises and sell at areasonable price to units as and whenthey need the raw materials.

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 111

III. DIRECT ATTACK ON POVERTY

Establishing the institutional basis forenabling the poor to increase their incomes,savings and investment, would not onlyconstitute a direct attack on poverty butwould also contribute to a faster and moreequitable economic growth process. In thissection we will examine the issue ofempowerment of the poor with specialreference to women. In this context we willexplore the institutional imperatives ofmaking the newly emerging localgovernment structures more effective inachieving the empowerment of poor women.

III.1 A UTONOMOUS ORGANIZATIONS OF THE

POOR, WOMEN AND EMPOWERMENT

A vital dimension of the economic strategywould be a national campaign to empowerthe poor at the levels of Village/Mohalla,Union Council, Tehsil and District. The ideais to facilitate the growth of communityorganizations of the poor at the village/mohallah level. In view of the fact that poorwomen in Pakistan suffer from a doubleburden that of being poor and being women,it is essential to enable poor women to formtheir own autonomous communityorganizations to be able to break out of boththe poverty nexus and gender baseddiscrimination. Through these COs the poorcan identify income generating projects,initially at the household level, acquire skilltraining from a variety of sources such asgovernment line departments, autonomousinstitutions, private sector firms, NGOs anddonors; and access credit for micro-enterprise projects through apexorganizations such as the PPAF, KhushaliBank, Small Business Finance Corporation(SBFC) and commercial banks. Specialorganizational arrangements would need tobe made in these apex institutions to takecredit to poor women and women’s COs,since poor women have even lesser accessover institutional credit compared to poormen.

It is important that such village levelcommunity based organizations (CBOs) beautonomous and be permitted to form clusterapex organizations with other CBOs (Asshown in chapter 4, large cross district andcentralized, government created NGOs are

slow, have high overheads and are imprecisein their targeting of the poor). AutonomousCBOs by means of social mobilisation,increased productivity through skill training,increased income, savings and investmentwould begin a process of localised capitalaccumulation. Such a process (which we cancall Participatory Development) would beintegrally linked with the emergence of anew consciousness of empowerment. Thepoor can begin to take autonomousinitiatives to improve their materialconditions of life. They would thus breakout of the poverty nexus and shift frombeing victims to active subjects of socialand economic change. Such a process ofvillage level increases in productivity,incomes and savings would not onlyconstitute a direct attack on the povertyproblem but would also contribute to a fasterand more equitable macro economic growth.(For a more detailed discussion of theseissues see chapter 4).

Such autonomous organizations of thepoor could become not only a frameworkfor grassroots economic growth, but wouldalso constitute countervailing power to thatof the power structures of local elites. Atthe same time, these autonomousorganizations of the poor would enable theindividual poor household to get betteraccess over input and output markets. (Inchapter 3 we have seen how local powerstructures and asymmetric marketssystematically deprive the isolatedindividual households of the poor of theiractual and potential income).

Facilitating the emergence ofautonomous organizations of the poorparticularly organizations of poor women,could enable the newly established localgovernment institutions to function in amore equitable and effective manner. Theequity would be with respect to class as wellas gender. This would require establishinginstitutionalized links between autonomousorganizations of the poor and localgovernment bodies at the Village, UnionCouncil, Tehsil and District levels. Theseinstitutional links between organizations ofthe poor and elected local bodies wouldenable more participatory and equitableprocesses of project identification, designand implementation for local leveldevelopment.

Establishing theinstitutional basis forenabling the poor toincrease their incomes,savings and investment,would not only constitute adirect attack on poverty butwould also contribute to afaster and more equitableeconomic growth process

112 POVERTY, GROWTH AND GOVERNANCE

III.2 G OVERNMENT , SOCIETY AND THE

THREAT TO WOMEN ’ S COMMUNITY

ORGANIZATIONS

As indicated in the preceding sub-sectionan essential feature of the proposed directattack on poverty is to facilitate and enablethe formation of women’s communityorganizations. Yet, governments in Pakistanin practice have failed to provide theminimum necessary protection and securityto women’s NGOs even though they areincluded as ‘policy implementers’ in theirpolicy documents on development.9 Theantagonism of local vested interests againstwomen’s NGOs has been particularlyintense in the NWFP. These vested interestsinclude extremist religious groups and forestcontractors. For example women’s NGOsengaged in literacy and educationprogrammes and others providing credit andhealth facilities to women in Dir, Malakand,Swabi, Karak, Takhtbai and Batagram areashave been threatened, stoned and physicallyattacked. Scattered incidents of attacksagainst women’s NGOs in the NWFP beganinitially with the opposition to theenfranchisement of women in the FederallyAdministered Tribal Areas (FATA) in 1997.The momentum of persecution by localpower interests gradually built up andreached a climax on 8 October 2001. Onthis date the offices, and health andeducation facilities of a women led CBO inTakhtbai (a small town in NWFP), werelooted, set on fire and raised to the ground.Later eight women’s organizations inTakhtbai Tehsil, two in Bajaur, and one inBatagram were attacked and looted.10

Earlier in July 2001 the office of a leadingwomen’s organization in Karak wasbombed. The objection from religiousextremists in the area was against therunning of home schools for girls andproviding health and education facilities forwomen. The beneficiary households in thearea of course did not see the provision ofthese services to be in violation of localcultural values. However, the religiousextremists had the backing of local politicalleaders. The local administration rather thanrestrain these elements advised the NGOs.to shift from the area.11

III.2.1 Policy Challenge: Clearly animportant element in the enablingenvironment for poverty alleviation of

women in particular, and economic growthin general, is the re-establishment of the writof the State.

III.3 L OCAL GOVERNMENT , POVERTY

ALLEVIATION AND WOMEN

The recent formation of local governmentstructures involving a decentralization ofadministrative responsibilities with respectto the government’s development effort hasopened up new possibilities of empoweringthe poor and giving greater gender balanceto both governance and poverty alleviation.However, a number of measures would needto be taken to transform decentralization ofadministration into a process of devolutionof power. This issue will be discussed inthe ensuing sub-section. In this sub-sectionwe will examine the prospects and pitfallsinvolved in the actual functioning of localgovernment institutions with respect to theparticipation of women.

There is potential in the new localgovernment structures to bring the voice ofpoor women into the process of local levelgovernance and development. As many as40,000 seats (33 per cent of the total) havebeen provided for women in various tiers oflocal government. Contrary to receivedwisdom there was an unprecedentedmobilization of women with anunexpectedly large number of poor womenfrom amongst the peasantry, workers andmiddle income groups being elected to localgovernment structures.

Given the experience of the relativelysmall number of women who entered thenational legislature, women have not onlyparticipated actively in various debates butthe quality of their interventions in thenational legislature has in some instancesbeen higher than that of their malecolleagues. Therefore, the emergence of amuch larger number of elected women inlocal government institutions combined withthe ensured representation of women fromworkers and peasants, provides promise ofbetter prospects for women in governancein the future. However, recent reports of thebias against women councillors in the actualfunctioning of local bodies gives cause forconcern.

III.3.1 Problems of Gender Bias in LocalGovernance: At this stage there are three

Governments in Pakistan inpractice have failed toprovide the minimumnecessary protection andsecurity to women’s NGOseven though they areincluded as ‘policyimplementers’ in theirpolicy documents ondevelopment

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 113

problems in this regard: (i) The role andauthority of the various tiers of localgovernment have neither been clearlydefined so far, nor are the womencouncillors aware of their domain ofauthority. According to field reports theofficial orientation session for the electedwomen has caused more confusion thanclarity, even though women members oflocal bodies are eager to start work.12

Clearly the government needs to specify theauthority and functioning procedures ofvarious tiers of local government and alsoundertake a major programme of trainingboth elected members and administrativeofficials of local government bodies, withrespect to design and implementation,finance and accounting for local leveldevelopment projects. (ii) There is confusionabout the relationship and functionalcoordination between the new structure oflocal government and the existingadministrative system. As a result Nazimshave not been given information in manydistricts about the schemes already approvedby the previous administration (in health,public works and education) nor adequatebudgets provided for their implementation.Planning for new projects at the local levelhas not even begun nor is there the provisionof trained personnel and procedures fordoing so. Despite these problems such isthe enthusiasm of local councillors thataccording to field reports, a number of themhave taken independent initiatives on avoluntary and self-help basis, for small locallevel projects such as schools, healthfacilities and road repair.13 (iii) In thefunctioning of local government institutionsat the Union Council, Tehsil and Districtlevels, women councillors in many cases arenot being treated in a collegial fashion bythe male councillors. According to some ofthe female councillors from Sindh andPunjab in the few meetings that have beenheld so far, male councillors have beenindifferent towards their female counterpartsin the process of local level governance. Forexample women are relegated to the backseats. They are neither given an opportunityto speak during the discussions, nor is theagenda of the meeting shared with thembefore hand.

III.3.2 Measures for More EffectiveFunctioning of Women Councillors: Torectify the above-mentioned problems, three

measures may be helpful: (a) Familiarizeand train councillors about the proceduresand rights in the process of localgovernment decision making. (b) Establishwomen Ombudsmen at the district level towhich women councillors working atvarious tiers can take their complaints withrespect to discriminatory behaviour by malecouncillors. (c) Establish institutional linksbetween autonomous COs of poor womenat the local level and women councillors.This could enable the latter to design andimplement development projects on thebasis of the participation of women in thecommunity.

III.3.3 Capacity Building Programme forWomen in Local Government: In the recentlocal government elections it appears that79 per cent of the women councillors hadbeen elected for the first time and 53 percent were illiterate.14 This reinforces ourargument in the preceding sub-section thattraining and capacity building would beimportant to make the increased presence ofwomen in local government more effective.In this regard a new initiative has been takenrecently in bringing together Government,NGOs, private training institutions anddonors to undertake such capacity building.The project is called ‘Women’s PoliticalParticipation Project’ and is being conductedunder the auspices of the Ministry ofWomen and Development (MOWD). It isbeing funded by the UNDP through itsGender Equality Umbrella Project (GEUP)and the Norwegian Agency for Develop-ment (NORAD). Its most important specificobjectives are: (i) To enable the womencouncillors (30 per cent) in district, tehsiland union council to become a critical massthat would substantially change the genderbalance in the conduct of governance at thelocal level. This is to be achieved byenhancing their participation in theadvocacy and implementation of anintegrated gender sensitive povertyalleviation strategy at the local level. (ii) Tobuild and develop the ‘mentoring andnurturing’ approach which is based on theprinciple of ‘women learning from women’.Mentoring means enabling the womencouncillors not only to perform theresponsibilities of their existing job moreeffectively but also to advance their politicalcareer through learning new skills andsharing experiences. (iii) To strengthen the

The role and authority ofthe various tiers of localgovernment have neitherbeen clearly defined so far,nor are the womencouncillors aware of theirdomain of authority

114 POVERTY, GROWTH AND GOVERNANCE

links between women councillors and theirconstituencies through civic participationand public accountability.

It is anticipated that this project will leadto the establishment of a Women’s PoliticalSchool which is run by women and forwomen and where women can support eachother in learning and action to achievehigher levels of decision makingresponsibilities. Such a school would helpto foster solidarity, cooperation and thebuilding of a policy consensus amongstwomen from different local councils.

III.4 G ENDER BUDGETING FOR WOMEN ’ S

DEVELOPMENT 15

In the preceding sub-section we havediscussed the institutional changes requiredto enable a systematic involvement ofautonomous organizations of poor womenas well as elected women’s councillors inlocal government. In this sub-section wewill indicate the concept of genderbudgeting and how this can provide supportat the national, provincial and localgovernment levels to the process ofachieving greater gender equality.

The concept of gender budgetinginvolves not an ‘add on’ budget for women,but a gender analysis of the entiregovernment budget (whether at the national,provincial or local levels) of the differentialgender impact of the allocation ofgovernment’s budgetary resources. Inpursuing the strategic aim of gender equalityin poverty, growth and governance, crosssectoral programmes as well as sectorspecific projects would be identified topromote gender equity and women’sdevelopment. Gender budgeting wouldconstitute the financial basis ofimplementing such programmes andprojects. For example, gender specificprojects would include the establishment ofgirls schools, women’s vocational centersand institutions for provision of micro creditand technical support for poverty alleviationprojects initiated by women at the village ormohallah level. Similarly projects forproviding high quality pre-natal and postnatal care for women to reduce morbidityrates of mothers, infant mortality rates andfertility rates. Gender specific programmesfor greater gender equality would include

programmes for gender sensitization ofgovernment’s officials at the national,provincial and local levels; programmes fortraining women in NGOs, clusters of NGOsand apex women organizations ingovernance and management skills, and thedesign, implementation and monitoring ofdevelopment projects for women. Apartfrom financing women specific projects andprogrammes, gender budgeting could alsoinclude the financing of efforts to achievegender equity within various governmentdepartments. This would include financingefforts at equal representation withinmanagement and decision making positionsof government and equitable pay andconditions of service. An equally importantaspect of gender budgeting would be toexamine the taxation system to determinethe differential impact of direct and indirecttaxes on women. Just as taxes impact on thedisposable income between the rich and thepoor, in the same way such taxes also affectthe distribution of disposable income,employment opportunities, savings andinvestment of women and men respectivelywithin various income groups.

The efficacy of gender budgeting wouldalso depend on its impact evaluation withrespect to the strategic aim of genderequality. Such an evaluation would involveidentifying: (i) The impact of genderspecific projects, programmes, budgetaryallocations for affirmative action amongstgovernment’s officials and also changes inthe tax regime. (ii) Outputs of variousprojects, programmes and governmentpolicies would be examined to see whetherthey are adequately distributed betweenwomen and men to achieve gender equality.(iii) Examine the activities associated withthe design and implementation of projects,programmes and policies to assess whetherthey are appropriate and adequate forachieving gender equality.

Essential to the initiative of genderbudgeting would be the establishment of agender specific data base of GDP estimates,labour force statistics, household incomesand expenditures surveys, as well as impactassessment surveys of the work of NGOsand autonomous and semi-autonomousorganizations. There is no data baseavailable to determine the genderdistribution of income and expenditurewithin different income groups of the

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 115

population. Equally important there is nodata base available for the more sensitiveissue of intra household distribution ofincome between various income groups ofthe population. Such data would beimportant to generate on a systematic basisat the district, provincial and national levelsin order to undertake gender budgeting.

III.5 D EVOLUTION VERSUS DECENTRALIZ -ATION : THE LESSONS FROM SOUTH ASIA

Almost every country in South Asia hasundertaken decentralization reforms with thestated purpose of empowering the poor andthereby achieving good governance. Yetthere are a number of pitfalls in theimplementation of these reforms. AsPakistan embarks on its own programme ofdevolution, it may be useful to point outthat devolution cannot simply be seen interms of a decentralization of administrativefunctions within existing governmentstructures. Rather decentralization has tocreate the space within which aninstitutionalized relationship can beginbetween autonomous organizations of thepoor and various tiers of local government.

A number of pitfalls can emerge in theimplementation of devolution reforms.Unless they are addressed at an early stagethese reforms may not achieve the desiredobjectives. The following four lessons maybe drawn on the basis of case studies ofdecentralization reforms in South Asiancountries:16

(i) Formal decentralization of adminis-trative power in itself does notnecessarily help the poor as S.K.Upadhyay17 points out in the contextof the Nepal case study. Empower-ment of the poor, he argues, requiresthat formal decentralization beaccompanied by a rigorous processof social mobilization. This involvesconsciousness raising, conscien-tisation and building organizations ofthe poor. It is only such a processthat will enable the poor to acquirecountervailing power. Without thisdimension of countervailing power,decentralization will merely result inthe appropriation by elites of the‘fruits of decentralization for their

own narrow benefit’. In this contextthe Bangladesh case study byDr Shaikh Maqsood Ali18 makes animportant distinction betweendecentralization of administrativepower in favour of its regional/localoffices as opposed to decentraliz-ation in favour of the local people.Apart from this it could be arguedthat in areas where asymmetricstructures of power prevail (forexample, coalitions of rich peasants/landlords, local influentials such astraders, revenue and police officials)mere decentralization of adminis-trative power could intensify theoppression of the poor.

(ii) The second lesson emerging fromthe case studies is that if decentraliz-ation is to enable empowerment ofthe poor, it must be holistic, i.e.,incorporate political power,enhanced confidence, emergence ofsocial consciousness and adminis-trative and fiscal devolution. At thesame time it must reach down to thegrass roots level through variousintermediate levels, with insti-tutionalized participation of the poorin governance at every level.Upadhyay refers to this holism andmulti layered devolution in the Nepalcase study.

(iii) The political dimension ofdecentralization must be inclusiveand capable of absorbing whatUpadhyay calls ‘diverse ethnic andother identity groups as equalpartners occupying spaces in thepolity’. He argues that thecentralized polity excludes suchidentities which may be a factor inethnic strife and social polarization.While the poor once organized areable to generate new resources at thelocal level yet, as participatorydevelopment is scaled up, internallygenerated resources may beinsufficient. Therefore externallygenerated resources becomenecessary but these have to becarefully applied through a sensitivesupport system that strengthensrather than weakens the autonomy of

Formal decentralization ofadministrative power initself does not necessarilyhelp the poor

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the organizations of the poor. Such asupport system could be provided bya combination of apex NGOs, stateinstitutions, banks and localgovernments. Upadhyay emphasizesthe importance of such supportorganizations being sensitized by apro poor perspective.

(iv) In the case of urban areas it appearsthat communities who havedeveloped their own funds andmanaged development themselvesare able to establish a more equitablerelationship with local governmentinstitutions.19 It can be argued that toenable urban communities to managetheir own development it isnecessary to provide technical adviceand managerial guidance. At thesame time an institutionalizedprocess of consultation andcoordination may be necessarybetween urban communityorganizations and local governmentinstitutions to prevent them fromworking at cross purposes.

IV. THE GOVERNMENT’S POLICYMEASURES

The government of President Musharraf hadattempted to deal with the multifaceted crisis(analyzed in chapters 1 and 2) byformulating the most comprehensive set ofreforms in Pakistan’s history. The strategicobjective was to establish the institutionalbasis for good governance and a policyframework for achieving both economicrevival and poverty reduction. The reformprogramme (which the newly electedgovernment is expected to pursue), consistsof two main dimensions: (1) Improvedgovernance. The elements in this contextinclude financial management reforms, taxreforms, civil services reforms anddevolution. (2) Economic Revival andPoverty Reduction.

In this section on the basis of informationcontained in the government’s InterimPoverty Reduction Strategy Paper (I-PRSP)we will describe some of the main featuresof each type of reform. We will also brieflyindicate what has been done and whatremains to be done.

IV.1 I NSTITUTIONAL REFORMS FOR BETTER

GOVERNANCE

IV.1.1 Financial Management Reforms: Animportant contributory though notnecessarily causative factor in corruptionand inefficient use of the government’sfinancial resources have been obsolete andmalfunctioning systems of financialmanagement. The Financial ManagementReforms aim to modernize financialprocedures and introduce managementinformation systems to improve budgetdecision making, achieve greatertransparency and avoid misuse of funds.

The specific policy actions taken by thegovernment in this regard include: (i)Establishment of a Fiscal MonitoringCommittee (FMC) to provide quarterly dataon consolidated expenditure verified by theAccountant General. (ii) Expenditurecontrols at the federal level have beenenhanced through a new system ofbudgeting. (iii) Provincial FiscalReconciliation Committees have also beenestablished to improve the quality andtimely availability of expenditure data at theprovincial level. (iv) Public AccountsCommittees have been established at thefederal and provincial levels, which it isthought will promote transparency andrigour in public expenditure management.(v) The Public Accounts Committees andthe Pakistan Public Procurement Authorityhave also been established to achievetransparency and greater efficiency in publicexpenditure. (vi) The Medium Term BudgetFramework (MTBF), which couldsignificantly improve expenditure controland fiscal management has been preparedbut is yet to be put in place.•What is to be done: (i) It may be pertinentto mention here that while improvement inmanagement systems and procedures arenecessary, they are not sufficient to improveefficiency in the use of the government’sfinancial resources. What is also importantis the professional skill, team work andcommitment of the personnel whoimplement such procedures and improvethem in the light of experience. (ii) At thesame time, the envisaged FinancialManagement Act would need to bepromulgated if the Financial ManagementReforms are to be sustainable. (iii) Thefiscal responsibility law which the

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 117

government is considering needs to beenacted since it could play a crucial role inconstraining government borrowing andthereby help achieve fiscal stability. (iv) Theconcept of gender budgeting needs to beintroduced into the process of budgetallocations to identify and finance projects,which specifically aim to overcome thegender bias in development.

IV.1.2 Tax Reform: Pakistan has a narrowtax base, a grossly inadequate tax to GDPratio of 13 per cent, and a low elasticity oftax revenue with respect to the GDP growthrate. Consequently even when GDP growthrates were over 5 per cent, fiscal pressureshad forced governments in the past intoincreasing loan dependence (see chapter 1).The problem intensified during the 1990swhen GDP growth rates declined andcurrent expenditures remained high (seechapter 2). If the government is to increaseits development expenditures, provide basicservices to the people and finance necessarycurrent expenditures without increasingindebtedness, then clearly increasing the taxGDP ratio and elasticity of tax revenue isessential. This would require: (i) Broadeningthe tax base (ii) Simplifying the tax structureso as to have a small number of buoyanttaxes, and eliminating distortions thatcreated unintended disincentives toinvestment and exports (iii) Increasing theshare of direct taxes in total tax revenues soas to reduce the adverse impact of taxationon the poor. (iv) Drastic improvement inthe tax administration to reduce leakage andtax evasion.

The government has addressed theseimperatives in its tax reforms whichenvisage the following: (i) Reduction in themultiplicity of taxes, (the wealth tax hasalready been eliminated). (ii) To encouragedomestic manufacturing industries andreduce the bias against exports thegovernment has reduced the maximum rateof duty on imported inputs from 35 per centto 30 per cent and has reduced the numberof duty slabs from 5 to 4. (iii) Broadeningthe scope of the generalized sales tax andplacing a tax on agriculture incomes just asthere is in other sectors of the economy.(iv) Making the process of tax collectionsimpler and more transparent. The enablinglegislation for the achievement of thisobjective is the new Income Tax Ordinance(ITO) 2001 which allows for ‘universal self

assessment, uniform tax rates…, eliminationof exemptions and detailed audit ofcompanies through a parametric process’. 20

However these planned measures are yet tobe undertaken. Similarly the proposals ofthe Task Force on Reforms in TaxAdministration, which claim to ‘virtuallyeliminate contact between tax payer andcollector…and to create a fair andaccountable tax system’21 remain to beimplemented. The government also intendsto re-organize the Central Board of Revenue(CBR) to improve tax collection by makingit more professional, transparent andaccountable.

The government’s policy measures withrespect to improving the tax collectionsystem is beginning to bear at least modestfruit. For example tax collection improvedby over 10 per cent during 1999-2000; thenumber of income tax payers increased by7.4 per cent and sales tax payers by 40 percent. Perhaps a potentially far-reachingachievement is success in completing thetax survey and registration campaign, whichhas provided data profiles of 600,000taxpayers. This data now needs to becollated, analyzed and translated intoadministrative action to widen the tax baseand substantially increase tax revenues.

IV.I.3 Civil Services Reforms: Pakistan’scivil service which in its earlier form wasthe ‘steel frame’ of the British Raj has overthe last three decades undergone a processof institutional decay. Repeated politicalintrusions, since the Z.A. Bhutto regime intoboth decision making procedures andindividual careers, have served to weakenthe internal integrity of its decision makingprocess, its esprit de corps, and individualmotivation.22 At the same time, thecentralized structure of the civil service,skill composition, over staffing and lowsalaries may be incongruent with itscontemporary tasks of delivering publicservices and managing public policy of acountry in crisis.

The government aims to bring to the civilservice, enhanced professionalism, reducedcorruption and improved motivation andperformance. In the pursuit of theseobjectives the government has taken thefollowing policy measures:23 (i) The FederalPublic Service Commission (FPSC)Ordinance has been amended to give greaterindependence to the FPSC and enlarge its

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responsibilities for recruiting professionals.It is thought that this will enable merit basedappointments and hiring of seniorprofessional staff. (ii) Legal provisions havebeen put into place to enable corrupt civilservants to be dismissed and inefficient civilservants to be retired. (iii) Additionally theNational Accountability Bureau (NAB) hasbeen given powers to investigate andprosecute corrupt civil servants in additionto other officials and politicians engaging incorruption and misuse of power. (iv) Toimprove accountability and the incentivesto perform, the decision making powers oncareer management and promotions uptograde 19 have been delegated to linemanagers. (v) The civil service educationalinstitutions (Civil Services Academy,National Institute of Public Administration,and the Pakistan Administrative StaffCollege) are being restructured to enhancetheir capacity for skill training. (vi) Inpursuance of the civil service reformsobjective to reduce over staffing, thePakistan Railways have cut down 30,000positions.•What is to be done: In order to improve thedelivery efficiency of public services (in thecontext of civil service reforms), what isrequired is to have a smaller number ofhighly professional and highly paid staffmembers working with precisely specifiedand time bound tasks, and systematicperformance monitoring and evaluation. Inthis regard the recommendations of theCommittee on Right Sizing andRestructuring need to be implementedquickly.

IV.1.4 Devolution of Power: The NationalReconstruction Board has announced adevolution plan under which powers andresponsibilities for a variety ofadministrative functions, including thoserelated to social services, will be devolvedfrom the federal and provincial levels toelected district level authorities and localcouncils. At a formal level the devolutionprogramme was put into place in August2001. The government hopes that it willenable greater participation of the people atthe grassroots level in development and alsoimprove the delivery efficiency of socialservices such as health, education, familyplanning, sanitation and clean drinkingwater. The government plans to introduce

grassroots organizations such as VillageCouncils and Citizens Community Boardsto involve local communities indevelopment. The government expects thatthese institutions would enable the citizensat the local level to monitor the functioningand effectiveness of the delivery of basicservices.•What is to be done: The devolution ofpower plan by the government and therecent elections of local governmentinstitutions in which 33 per cent of thecouncillors are women, opens up newpossibilities of people centered develop-ment, and a more participatory democracy.However, as discussed in section III.2, III.3and III.4 of this chapter the implementationof the programme is faced with a number ofproblems and pitfalls. Crucial to achievingthe objectives of the devolution programmeare the following imperatives: (i) Enablingthe emergence of autonomous communityorganizations of the poor particularly ofpoor women at the local level. (ii) Theprovisions of the devolution programmeshould be modified to enable aninstitutionalized relationship between theseautonomous organizations of the poor andeach tier of the local government structure.(iii) The relationship and functionalcoordination between the new structure oflocal government and the existingadministrative systems need to be clearlyspecified and relevant personnel informed.(iv) A large-scale gender sensitizationprogramme for local government councillorsneeds to be undertaken to familiarize themwith the procedures of involving womencouncillors into decision making, and toinform local government representatives ateach tier about the domain of their authority.(v) Local government representatives andofficials need to be trained to systematicallyinterface with and involve localcommunities in the process of design andimplementation of development projects.(vi) A large-scale programme of training,needs to be undertaken to equip localgovernment officials and electedrepresentatives at various tiers, in a varietyof skills required in the practice ofdevelopment: These include feasibilitypreparation; design and management ofdevelopment projects; financial manage-ment; and accounting skills.

In order to improve thedelivery efficiency of publicservices (in the context ofcivil service reforms), whatis required is to have asmaller number of highlyprofessional and highlypaid staff members workingwith precisely specified andtime bound tasks, andsystematic performancemonitoring and evaluation

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 119

IV.2 E CONOMIC REVIVAL AND POVERTY

REDUCTION

IV.2.1 Addressing the Water Crisis: Asdiscussed in chapter 1, section II.2 shortageof water at the farm level is one of the mostimportant constraints to a higher and morestable agricultural growth. We also pointedout that slow and unstable agriculturegrowth was a major factor in increasingrural poverty since the increased frequencyof bad harvests has a relatively greateradverse effect on the poor. Thereforeincreasing the storage capacity in theirrigation system and at the same timeimproving its delivery and applicationefficiencies is an urgent policy imperative.The government has indeed addressed thisissue and has developed a major new watersector plan with a budget of Rs.86.1 billion,for dealing with the water crisis. It has thefollowing elements: (i) Creation of anadditional storage capacity of 4.5 millionacre feet (MAF). This will be done througha number of new medium sized dams suchas Gomalzam and Mirani dams and newirrigation schemes such as Rainee, Thar andKatchi canals. (ii) Improvement of thedelivery efficiency of irrigation by liningand renovating 90,000 water courses whichare expected to save about 8 MAF. (iii) Todeal with the issue of water logging andsalinity under the water sector plan, it isenvisaged that in the existing and newSalinity Control and Reclamation Projects(SCARPs), an additional area of 2.7 millionhectares will be reclaimed for agriculturalproduction. (iv) The problem of salt depositson the top soil is being addressed through amaster plan that is being prepared to identifyvarious spines for disposal of drainageeffluent. Additionally the rehabilitation ofthe Left Bank Outfall Drain and theconstruction of a new Right Bank OutfallDrain are important initiatives planned forcompletion by the year 2004.

IV.2.2 Infrastructure Development: Thegovernment has undertaken a number ofdevelopment initiatives in some of the mainsub-sectors of infrastructure in order toimprove the environment for private sectorinvestment and also to stimulate aggregatedemand. The major features of some ofthese initiatives are briefly discussed in thissection based on information provided in theI-PRSP of the government.

(i) Communications

The Pakistan Railways which had beengenerating large deficits and was alsoundergoing a deterioration in its service,is now being re-organized. A numberof measures have been taken (includingreduction in staff strength by 30,000workers, reducing pilferage of gas andelectricity and rationalizing operation)which are expected to provide rupeesone billion financial benefit to theRailways. Additionally an allocation ofRs.6.3 billion has been made in thedevelopment plan 2001-02 forpurchasing new locomotives, increasingrolling stocks and track rehabilitation.

To improve road transport, some ofremote areas are being linked with theNational Highway Network forimproving rural access to markets.Additionally some of the major projectsbeing undertaken include the KohatTunnel Project, Jacobabad-Sibi-QuettaHighway, Islamabad-MuzaffarabadHighway, D.I. Khan-Qilla Saifullah-Quetta Highway, Bund Road Lahore,Multan-D.G. Khan-Qilla SaifullahRoad, upgrading into a dual highwaythe Karachi-Thatta-Hyderabad Roadand the Mansehra-Naran-Jhalkat road.

(ii) Energy Sector

A comprehensive restructuring plan forWAPDA and KESC is underway whichis expected to reduce systems losses. Inthis regard work is in progress totransform WAPDA’s distribution,transmission and generation companiesinto financially viable entities. In thecase of oil and gas there is a policyshift away from expensive thermal andfurnace oil towards cheaper hydel gasand coal. After commissioning ofPARCO refinery, the country is nowself sufficient in refining petrol andLPG. As the Chashma Power Projectcomes on line it will add another 300megawatt of electricity to the country’spower supply.

(iii) Telecommunications and InformationTechnology

IT usage in Pakistan is low because thecountry has one of the lowest tele

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densities in the world (2.5 per cent).However, while one year ago onlytwenty-nine cities had access to theInternet facility now 400 cities, townsand villages have internet access.Another 300 are expected to beprovided with the facility by next year.There has been a 110 per cent increasein Internet usage during the last sixmonths alone.

In order to rapidly increase thenumber of IT Professionals eighteenprojects have been launched for trainingIT professionals from blue collar ITworkers to professional degree holders.The COMSATS, institute ofinformation technology is now ready toaward masters and bachelors degrees incomputer sciences.

IV.2.3 Stimulating the Growth of Small andMedium Enterprises: The government hasre-organized the Small and MediumEnterprise Development Authority(SMEDA) and provided increased resourcesto it in the hope that it will lead the processof stimulating the development of the SMESector. The kind of support for the SMEsector by SMEDA includes facilitatingdocumentation with financial institutions,free technical managerial and marketingadvice, information on sector briefs, pre-feasibility reports, and access to tradeinformation with respect to export demandfor Pakistani products. Apart from this anumber of regulatory changes proposed bySMEDA are being undertaken to allowgreater freedom of enterprise to the SMEsector.•Comment: These measures are likely toimprove the regulatory environment andaccess over information for primarilymedium sized enterprises. However they aredesigned neither to give SMEDA thenecessary outreach to actual clusters ofexisting small-scale enterprises, nor toestablish the institutional basis of identifyingand overcoming unit specific bottlenecks totheir efficiency and growth (see thediscussion in section II.4 of this chapter).

The Small Business Finance Corporation(SBFC), is being re-vitalized and given themandate to provide financial support to theSME sector and the financial limit ofindividual loans is being increased fromRs.1.5 million to Rs.30 million (Thismeasure however is likely to benefit

medium as opposed to small enterprises).Additionally the SBFC and the RegionalDevelopment Finance Corporation (RDFC)are being merged to form a bank catering tothe needs of the SME sector.

IV.2.4 The Government’s Direct PovertyReduction Policy—An Assessment: Thereare four basic weaknesses of thegovernment’s poverty reduction strategy: (a)It makes no attempt at changing thestructure of power at the local level infavour of the poor. It is this power structurewhich (as we have analyzed in chapter 3)lies at the heart of the problem of poverty:It systematically deprives the poor of at leastone-third of their income through distortionsin the markets for inputs, outputs andservices. (b) The funds allocated for povertyreduction are aimed at being spent within atop down process through localgovernments. Consequently it is likely thatfunds will be both leaked and also mis-targeted. (c) There is no systematic attemptin the government’s strategy for facilitatingthe building of organizations of the poor thatcan enable them to participate in identifying,designing and implementing the projects forpoverty reduction. At the same time there isno institutional linkage between autonomousorganizations of the poor that do exist, andlocal governments. (d) The scale of fundsas well as micro-credit directed at the pooris insignificant compared to the large scaleof the problem, as we shall indicate in thissection. According to the I-PRSP one of thecore principles of the Government’s PovertyReduction Strategy is to improve access ofthe poor to ‘productive assets, mainlyhousing, land and credit’.24 We shall discussthe housing for the poor programme at theend of this section. Let us start by examiningthe nature and scale of the government’splanned programme of providing land andcredit as a means of directly attacking thepoverty problem.

(i) Land for Poor Farmers

The government quite rightly thinks thataccess to cultivable land would have apositive effect on poor households.However the instrument through whichland is to be provided to poorhouseholds is rather limited in terms ofthe scale of its impact. The objective isto distribute three million acres of land

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 121

available with the government to poorrural households. This is to be followedup with the provision of a range ofservices such as infrastructure andmicro-credit for purchase of inputs. Ofcourse if this objective could beachieved it would have a significantpositive impact on the poor. Thequestion is what is the scale of theimpact relative to the scale of thepoverty problem in Pakistan. Thegovernment has not made it clear whatproportion of the three million acres itplans to give to the poor, are cultivableand what proportion is irrigated. Let ussuppose that all three million acres areboth cultivable and irrigated. If eachpoor recipient gets on average five acresof this irrigated land, then together withthe financial and technical support forits utilization, it can be supposed thatthe entire household of the recipientcould pull out of poverty. Even withthese optimistic assumptions thegovernment’s strategy of ‘land for thepoor’ will alleviate poverty for 0.6million rural households which is only9.6 per cent of the 6.2 million ruralhouseholds that are currently below thepoverty line. Thus, while thegovernment’s strategy of land for thepoor is a laudable one, it can at besthave only a modest impact in terms ofthe scale of the problem of ruralpoverty.

(ii) The Government’s Micro-creditInitiatives

Let us consider now the government’splan to provide the poor access overmicro-credit. The I-PRSP Documentproposes that ‘access to credit is theshortest way of empowering the poorand improving their income generatingopportunities’. While provision of creditis certainly one of the necessaryconditions for empowering the poor itis not sufficient. Empowerment as wehave argued in chapter 4, impliesorganization, consciousness and asustainable increase in their incomes.Only then can the poor break out of thenexus of local structures of power andhave better access over markets as wellas the local institutions of governance.Nevertheless provision of micro-credit

can be a vital instrument for increasingthe incomes of the poor.

Let us briefly consider the existingscale of the government’s efforts atproviding micro-credit to the poor. ThePakistan Poverty Alleviation Fund(PPAF) and the micro finance bank(The Khushali Bank) are the two main,relatively new government sponsoredapex institutions for microcredit.According to the I-PRSP, the PPAF hasso far disbursed Rs.507 million to50,000 borrowers. Considering thatthere are about 45 million people inPakistan living below the poverty linethe coverage of PPAF is only 0.1 percent. The Khushali Bank which is morerecent than the PPAF is functioning onan even smaller scale at the moment.(As the NHDR/PIDE Survey shows,chapter 3, only 0.4 per cent of theextremely poor and 0.6 per cent of thepoor receive loans from NGOs while1.1 per cent of the extremely poor and3.1 per cent of the poor in rural areasreceive loans from the ADBP).Therefore both the PPAF and theKhushali Bank would need to operateon a much larger scale together withADBP and other commercial bankswith special windows for micro-credit,if a significant proportion of the poorin need of micro-credit are to actuallyreceive it.

(iii) Housing for the Poor

The government’s policy of housing forthe poor is focused on measures toprovide proprietary rights and improvedservice delivery to Katchi Abadis(unserviced localities predominantlyinhabited by the poor in urban and peri-urban areas). The government intendsto grant proprietary rights to residentsof Katchi Abadis established before 23March 1985. Moreover, occupants inurban areas who are able to pay in lumpsum the development charges within aperiod of three months would get 50per cent concession on these charges.

The government is also developing astrategy for improving service deliverysystems in Katchi Abadis. At the sametime, the Ministry of Housing andWorks in collaboration with provincialgovernments is expected to develop a

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programme for improving the livingconditions in slums and Katchi Abadis.It is estimated that between 35 to 50per cent of the urban population isliving in Katchi Abadis. Therefore if thegovernment’s planned measures toprovide proprietary rights to residentsof Katchi Abadis and improve servicedelivery in them are actuallyimplemented, then it would have amajor impact on the living conditionsof the urban poor.

V. SUMMARY POLICY PROPOSALS

V.1 The Political and Social Frameworkfor Overcoming the Crisis: The emergenceof an Islamic Pakistan that is modern,tolerant and democratic as envisioned by theQuaid-i-Azam, Mohammad Ali Jinnah,could provide the political and socialframework for overcoming the crisis ofpoverty, growth and governance.

An essential element in the enablingenvironment for investment, economicgrowth and poverty alleviation is to re-establish the writ of the state, specifically inthe context of violent extremist tendencies.This is particularly necessary for the povertyalleviation of poor women.

V.2 Restructured GDP Growth: To enablea faster growth with an enhanced capacityfor employment generation and povertyalleviation a four-pronged growth strategyis proposed: (i) Rehabilitation of the canalirrigation system so as to reducetransportation losses of irrigation water andprovide more water at the root zone of thecrops. This would not only generate fasteremployment but also help farmers toincrease their yield per acre. (ii) Developthe ability to produce and export more milk,marine fisheries and high value addedagriculture products such as fruits,vegetables and flowers. Increasedproduction and export of these productswould not only put more income into thehands of the small agricultural producersand fishermen, but also accelerate exportgrowth. (iii) Develop infrastructure such asdams (for both increased reservoir capacityand cheap energy production), ports,national highways, railways, farms tomarket roads, and cheaper coal based ratherthan furnace oil based energy production.

(iv) Accelerate the growth of small-scaleenterprises (SSEs) which generate bothhigher output, employment and exports forgiven levels of investment. This could bedone by facilitating the establishment in theprivate sector of Industrial Support Centres(ISCs). These would constitute theinstitutional basis for providing unit specificsupport to SSEs, to enable them to shift tohigher value added products and acceleratetheir growth.

V.3 Poverty Alleviation throughCountervailing Power: Due to inadequateaccess of the poor over institutionalizedcredit markets as many as 50.8 per cent ofextremely poor households borrow from thelandlord. The resultant increase in leverageand additional social control by the landlord,obliges many poor households to work forthe landlord without any wage at all (57.4per cent of extremely poor householdsworked for the landlord without wages). Tocreate countervailing power for enabling thepoor to break out of this nexus twoinitiatives could be undertaken:

• NGOs engaged in human rightsadvocacy, Lawyers Associations, andapex organizations of developmentNGOs could form a consortiumfacilitated by the government toenable the poor tenants and farmlabourers to form a Small Tenant andFarm Labourers Union, at the district,provincial and national levels. Thepurpose would be to negotiate withinthe existing legal framework toachieve fair wage and tenancycontracts for the farm sector.

• Facilitating the emergence ofautonomous organizations of the poorand their institutional linkage witheach tier of local government, couldenable the poor to break out of thenexus of the local power structuresand unequal access over markets, andthereby reduce their income losses

V.4 Poverty Alleviation by Increasing theProfitability of Micro-enterprises: TheNHDR/PIDE Survey shows that over 52 percent of the urban poor are engaged in microenterprises which predominantly have lowprofitability. Enabling the poor to improvethe productivity, sales and net profits would

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contribute significantly to poverty reduction.An overwhelming proportion reported thatenhanced availability of credit, betterlocation and transport facilities would helpto increase their incomes from micro-enterprises.

V.5 Increasing Incomes of the Poor byIncreasing Productivity: A predominantproportion of the major earners in both ruraland urban areas in poor households areunskilled workers engaged in lowproductivity and low income occupations.The mobility of such unskilled workersacross occupations is also low.

Vocational Training and apprenticeshipprogrammes to impart technical skills afterprimary education of workers from poorhouseholds could contribute to povertyalleviation.

V.6 Increasing the Supplementary Incomeof the Poor:

• Remittances constitute a major sourceof supplementary income for poorhouseholds. The data show that thereason why the income of poormigrants is low is because 73.9 percent of the migrants are illiterate orjust have primary education. Theincome of non-poor migrants washigher because of their bettereducational status.

Clearly improved education andskill training of the poor can play arole in poverty alleviation byimproving the incomes of migrantworkers who send remittances to theirfamilies.

• Given the fact that the average totalhousehold receipts of the extremelypoor are only 80 per cent of theirminimum food consumptionrequirements, an increase in thevolume of Zakat funds, improvedtargeting of beneficiaries and greaterefficiency in the administration ofZakat funds is required.

V.7 Health and Poverty: Our analysis hasshown that health is a major factor thatpushes people into poverty. Thereforeimproving nutrition and health conditionsare important for poverty alleviation.Improving the nutrition, preventive hygiene,

provision of safe drinking water, improvingthe service delivery of basic health units,public transport, and improved diagnosticand treatment capabilities of Tehsil andDistrict Hospitals are urgent imperatives todeal with the crisis of health and poverty.

V.8 Women, Poverty and Governance:

• In making a direct attack on poverty itis essential to facilitate the growth ofautonomous organizations of the poor,especially of women at the local levelto enable the poor to achieve betteraccess over input and output marketsand increase their productivity andincomes on a sustainable basis. Anessential aspect of the emergence ofautonomous organizations of the poor,particularly of women is to enable aninstitutionalized relationship withdifferent tiers of local government. Tothe extent that this is achieved, itwould not only enhance the ability oflocal governments to work for thepoor but also broaden the basis ofpower and decisions related toresource allocation and resource use.

• The current government programme ofdevolution appears to haveconsiderable potential in terms ofenabling greater participation ofwomen and the poor in governance.However, if it is to succeed in thisobjective four policy issues may berelevant: (a) There is a distinctionbetween decentralization ofadministrative function and devolutionof power to the people. To enable thelatter, specific norms have to becreated in the local governmentstructure for an institutionalizedrelationship with autonomousorganizations of the poor with respectto selection, design and imple-mentation of development projects. (b)Putting into place specific andverifiable procedures to ensure thatwomen councillors are in practiceinvolved in decisions within localgovernment structures. In this contextit may be worth considering theinstitution of women ombudsmen atthe tehsil level to whom womencouncillors can take their complaintsin case they are discriminated against

124 POVERTY, GROWTH AND GOVERNANCE

in the process of governancedecisions. (c) Specifying clearly thedomains of authority of localgovernment representatives in eachtier, their relationship with the existingadministrative structure and alsoensuring that local governmentpersonnel at each tier are aware of thescope of their authority and obligatoryoperational procedures. (d) A largescale programme of training localgovernment representatives andofficials in specific skills related withlocal level governance anddevelopment. (These include projectfeasibility, design, and projectmanagement, as well as skills infinancial management andaccounting).

V.9 NGOs, Governance and PovertyAlleviation:

• Under the devolution programme anew structure of local governments atthe district level is emerging, withinwhich elected representatives will beexpected to undertake (amongst otherfunctions) poverty alleviation atdifferent tiers of local government(district, tehsil, union council andvillage levels). Within this structureNGOs that enable the formation ofautonomous organizations of the poorcould play an important role increating a systematic relationshipbetween local governance and poorcommunities. Such a relationshipwould enable the poor to participatein the identification and imple-mentation of development projects aswell as decisions related with accessover markets and local powerstructures. It could also help broadenthe social base of power, authority andthe allocation and use of publicresources.

• If NGOs are to play this role theywould need to function at the districtlevel rather than across districts andachieve full coverage of the poorpopulation within the district.

• The total coverage of NGOs currently,is relatively insignificant compared tothe magnitude of the poor population.

As the NHDR/PIDE 2001 Surveyshows that of the total loans receivedby all categories of the poor thepercentage of loans received fromNGOs was only 0.8 per cent in therural areas and 1 per cent in the urbanareas. A quantum increase in the scaleof credit being disbursed by PPAF andKhushali Bank will need to beundertaken and measures put intoplace for impact assessment (seechapter 4 for details).

V.10 Saving Children Engaged inHazardous Industries:

• A large number of children from poorfamilies are working in hazardousoccupations which are causingrepeated injuries, chronic diseases,physical and mental deformities andin some cases, death. Clearly, the taskis to withdraw them from suchoccupations and enable them to go toschool. However, the experience ofPakistan and other South Asiancountries is that mere legislation is notenough to protect these children.(After all, there has been a law againstemployment of children in preciselysuch occupations since 1938 and amuch more rigorous law since 1991).Action is needed as follows:

• An administrative mechanism targetedtowards the ending of child labour inhazardous occupations over the nextfive years needs to be urgently put inplace. This mechanism can consist ofspecifying the number of children,location of hazardous work units, thedetails of the hazards in each workunit and the names of the employersin the area under the jurisdiction ofeach District Nazim in the country.This data should be available to thelocal government institutions in eachdistrict, whose task should be toindicate specific achievement targetsfor the District Co-ordination Officer(DCOs), (in terms of which theirsalaries, promotion and benefitsshould be decided). The achievementtargets would consist of withdrawingchildren from hazardous occupationsin each locality; to arrange for an adultmember of their family to start work;

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 125

and to enable the concerned employerto hire adults, improve work safetyand increase productivity.

V.11 Environmental Management, Health,Productivity and Poverty: The availablestudies on the quantitative impact ofenvironmental degradation on GDP growth,indicate the substantial adverseconsequences of air and water pollution onpublic health (and hence on GDP via labourproductivity) and the adverse impact ofdeforestation and soil degradation onproductivity in the agriculture sector.

The capacity to implement environmentalmanagement programmes is yet to bedeveloped. The effort must start from thestrengthening of local governmentinstitutions, autonomous organizations ofthe poor and civil society associations at alllevels. Particularly important for the comingdecades will be: (i) Implementing theNational Environmental Quality Standards(NEQS) that are already in place andstrengthening the professional capabilities ofEnvironmental Protection Agencies (EPAs)(ii) Farmers’ organizations for irrigation anddrainage management in the irrigatedcroplands. (iii) Community organizations forprotecting sub-watersheds and sustaininglivelihoods in the Indus uplands. (iv)Associations of the poor, empowered forexample by grazing licenses, for self-regulated access to natural resources in therelevant ecological units, such as therangelands of Cholistan, Tharparkar, andBalochistan and (v) Mohalla and laneorganizations for sanitation and solid wastemanagement in the low-income wards ofcities and towns.

CONCLUSIONS

In this chapter we have presented an outlineof an economic strategy to achieve growthwith greater poverty alleviation. It has twobroad thrusts: (1) A restructured economicgrowth process that would not only enablea faster GDP growth but enhanced povertyalleviation for given GDP growth rates. (2)Direct attack on poverty which wouldempower the poor by enabling them toorganize themselves at the local level, toincrease their productivity, incomes, savingsand investment. Thus the poor could achievenot only a sustainable increase in their

incomes but in so doing also contribute to afaster and more equitable GDP growth rate.

The strategy of a faster and restructuredgrowth is a four-pronged one whichaddresses the main structural features of theeconomy. These features have beenidentified in our analysis in chapters 1, 2and 3 as being the major factors underlyingboth the slow down in GDP growth duringthe 1990s as well as its reduced ability toalleviate poverty. Therefore the growthstrategy would aim to: (a) change thecomposition of investment so as to generatefaster GDP growth for given levels ofinvestment. (b) Change the composition ofGDP to increase employment elasticity withrespect to output and thereby enhance theemployment generation capability ofeconomic growth. (c) Accelerate the growthrate of exports and (d) Enable a shift of thelabour force from low skill, low productivitysectors to higher skilled and higherproductivity sectors in order to achieve afaster increase in incomes of the lowerincome groups. In consideration of thesestrategic parameters the proposed four-pronged growth strategy focuses on: (1)Rehabilitation of the canal irrigation systemso as to reduce transportation losses ofirrigation water and provide more water atthe root zone of the crops. This would notonly generate faster employment but alsohelp farmers to increase their yield per acre.(2) Develop the ability to produce andexport milk, marine fisheries and high valueadded agriculture products such as fruits,vegetables and flowers. Increasedproduction and export of these productswould not only put more income into thehands of the small agricultural producersand fishermen, but also accelerate exportgrowth. (3) Develop infrastructure such asdams (for both increased reservoir capacityand cheap energy production), ports,national highways, railways, farm to marketroads, and cheaper coal based rather thanfurnace oil based energy production. Thiswould not only create a facilitatingenvironment for private sector investmentbut also generate employment and stimulateaggregate demand. (4) Accelerate thegrowth of small scale enterprises (SSEs)which generate both higher output,employment and exports for given levels ofinvestment. This could be done byfacilitating the establishment in the privatesector of Industrial Support Centres (ISCs).

The capacity to implementenvironmental managementprogrammes is yet to bedeveloped. The effort muststart from the strengtheningof local governmentinstitutions, autonomousorganizations of the poorand civil societyassociations at all levels

126 POVERTY, GROWTH AND GOVERNANCE

These would constitute the institutionalbasis for providing unit specific support toSSEs, to enable them to shift to higher valueadded products and accelerate their growth.

The second broad thrust of the strategyis a direct attack on poverty. It is proposedto facilitate the growth of autonomousorganizations of the poor, especially ofwomen at the local level to enable the poorto achieve better access over input andoutput markets and increase theirproductivity and incomes on a sustainablebasis. An essential aspect of the emergenceof autonomous organizations of the poor,particularly of women is to enable aninstitutionalized relationship of the poorwith different tiers of local government. Tothe extent that this is achieved, it would notonly enhance the ability of localgovernments to work for the poor but alsobroaden the basis of power and decisionsrelated to resource allocation and resourceuse.

The current government programme ofdevolution appears to have considerablepotential in terms of enabling greaterparticipation of women and the poor ingovernance. However, if it is to succeed inthis objective four policy issues may berelevant: (a) There is a distinction betweendecentralization of administrative functionand devolution of power to the people. Toenable the latter, specific norms have to becreated in the local government structure foran institutionalized relationship withautonomous organizations of the poor withrespect to selection, design andimplementation of development projects. (b)

Putting into place specific and verifiableprocedures to ensure that women councillorsare in practice involved in decisions withinlocal government structures. In this context,it may be worth considering the institutionof women ombudsmen at the tehsil level towhom women councillors can take theircomplaints in case they are discriminatedagainst in the process of governancedecisions. (c) Specifying clearly the domainsof authority of local governmentrepresentatives in each tier, their relationshipwith the existing administrative structureand also ensuring that local governmentpersonnel at each tier are aware of the scopeof their authority and obligatory operationalprocedures. (d) A large scale programme oftraining local government representativesand officials in specific skills related withlocal level governance and development.(These include project feasibility, design,and project management, as well as skills infinancial management and accounting).

In this chapter we have presented a briefreview of government policy measureswhich have been undertaken. These are partof a comprehensive set of reforms aimed atachieving: (a) More efficient and transparentfinancial management. (b) Growth withpoverty reduction. (c) Better governancethrough civil service reforms on the onehand and devolution of power through thelocal government structures on the other. Inthis context we have indicated what remainsto be done and some of the additionalmeasures that could make the reformprogramme more effective with respect togovernance, growth and poverty alleviation.

A STRATEGY OF ECONOMIC GROWTH AND EMPOWERING THE POOR 127

Key Policy Aims• Emergence of a modern, tolerant,

democratic polity as envisaged by theQuaid-i-Azam Mohammad Ali Jinnah.This would be the enabling politicalframework for overcoming the crisis ofpoverty, growth and governance.

• Re-establishing the writ of the State tocontrol violent extremist tendencies.This is a necessary condition forinvestment and growth.

• Empowering women and removing thebias against them in law, public policyand social norms. This is necessary tounleash the creative potential of societyto overcome the national crisis.

• Achieve a higher and restructured GDPgrowth that can enable fasteremployment and productivity growth ofthe poor.

• Change the structure of power at thelocal level in favour of the poor. Thisis necessary to reduce systematicincome losses of the poor withindistorted markets for inputs, outputs

Box Overcoming The National Crisis—Poverty Growth and Governance

and in institutions for health, education,credit and dispute resolution.

• Facilitate the building of autonomousorganizations of the poor, particularlypoor women and establishinstitutionalized linkages with localgovernments. This is necessary toenable participation of the poor indecisions regarding local resourceallocation, project identification andimplementation.

• Provision of low cost and competenthealth care (especially preventivehealth care) to the poor. Highfrequency of disease, and high cost ofmedical treatment together constitute amajor trigger that pushes marginalhouseholds into poverty, and poorhouseholds into deeper poverty.

• Improved quality and coverage of lowcost health and family planningservices to women. This is necessaryto reduce fertility rates and improvehealth of mothers and children. Thiswould help increase productivity andincomes of mothers as well as the

children when the latter reachadulthood.

• It is important to achieve thegovernment’s target of stabilizing thepopulation to a level of 204 millionwith a replacement fertility rate of 2.1children per family by the year 2023.This is crucial for a faster increase inper capita incomes.

• Sharply increase the literacy rate andthe coverage and quality of education.This can be an important factor inincreasing the earnings not only of themain earner but also of the secondearner, which (our survey shows) iscrucial to pulling a household out ofpoverty.

• A large number of children from poorfamilies are working in hazardousoccupations which are causing repeatedinjuries, chronic diseases, physical andmental deformities and in some casesdeath. An administrative mechanismfor ending child labour in hazardousindustries urgently needs to be put inplace.

NOTES

1. This sub-section is based on research by AkmalHussain, Employment Generation, PovertyAlleviation and Growth in Pakistan’s Rural Sector:Policies for Institutional Change, Report preparedfor the ILO/CEPR, (Mimeo), March 1999.

2. This section I.5, is based on the research input ofAyub Qutub.

3. C. Brandon, Valuing Environmental Costs inPakistan: The Economy-Wide Impact ofEnvironmental Degradation, Asia EnvironmentDivision, World Bank, 1995.

4. M.W. Addison, Setting Environmental Priorities,(Mimeo), Draft 1996.

5. Agriculture losses are computed from the arealextent of stressors (salinity, water-logging, erosion,nutrient depletion) for particular crops (paddy,wheat, maize, cotton, and sugar cane), andeconomic value of resulting annual productionlosses. To devise the incidence of urban mortalityand morbidity owing air pollution, ambient airquality values for dust, SO

2, NO

x, and lead, which

are above World Health Organization standards,are fed into dose-response functions fromepidemiological studies in other countries. Urbanhealth impacts of air pollution are computed toinclude over 2,000 premature deaths, nearly sevenmillion serious illnesses, and 450 million episodesof minor illnesses.

6. This section is based on a paper presented to theFederal Finance Minister by Akmal Hussain, AMedium Term Strategy of Economic Revival,15 November 1999.Also published in the daily Dawn on 25 and 26November 1999.

Note: Some of the proposals related withagriculture sector have been incorporated inthe Interim Poverty Reduction Strategy Paperof the Government of Pakistan, November2001, pp. 22 and 23.

7. In this regard the Planning Commission hasformulated an excellent set of policy proposals forenergy development, see, Government of Pakistan,Planning Commission: Ten Year Perspective Planand Three Year Development Programme,Islamabad, 1 September 2001.

8. Akmal Hussain, Labour Absorption in Pakistan’sRural Sector, Final Report, ILO/ARTEP (Mimeo),20 September 1989, pp. 21 to 23.

9. Khawar Mumtaz, Poverty: The GenderPerspective, (Mimeo), Research Paper for theNHDR, 2002, p. 18.

10. Minutes of PNF-JAC Consultation, Lahore,17 October 2001, cited in Khawar Mumtaz,op. cit., p. 18.

11. PNF/SNI, Report of the fact finding mission toKarak, 2001, cited in Khawar Mumtaz, op. cit.,p. 19.

128 POVERTY, GROWTH AND GOVERNANCE

12. The newly elected councillors in some cases areturning to civil society organizations for help.However existing civil society organizations maynot necessarily have the capacity for the majoreffort required to familiarize, train and activelyinvolve women in the process of identification,design and implementation of developmentprojects. Nevertheless, six national level resourceorganizations in the non-governmental sector havereportedly started work to promote politicaleducation and enhanced participation of women inthe election process. (Khawar Mumtaz, op. cit.p. 21).

13. Ibid., p. 22.14. This sub-section is based on a project note

(Gender, Equality Umbrella Project) provided bythe UNDP Office, Islamabad. The Principal authoris grateful to the UNDP Staff for providing thisproject note.

15. This sub-section is based on a concept noteprovided by Dr Socorro L. Reyes, titled: GenderBudgeting: A Concept Note. The Principal Authorwould like to thank her for providing him thisinput.

16. See, Akmal Hussain, ‘Pro-Poor Growth,Participatory Development and Decentralization:Paradigms and Praxis,’ Part-III of the forthcomingbook, P. Wignaraja and S. Sirivardana (eds.)Pro-Poor Growth and Governance in South Asia—

Case Profiles of Participatory Development andDecentralization Reforms, Zed Press, London(Forthcoming).

17 See, S.K. Upadhyay, ‘The Nepal Case Study,’ inP. Wignaraja and S. Sirivardana (eds.) Pro-PoorGrowth and Governance in South Asia, op. cit.,Annexure to Part-III.

18. See, Dr Shaikh Maqsood Ali, ‘The BangladeshCase Study,’ in P. Wignaraja and S. Sirivardana(eds.), op. cit., Annexure to Part-III.

19. See, Arif Hassan, ‘The Pakistan Case Study,’ in P.Wignaraja and S. Sirivardana (eds.), op. cit.,Annexure to Part-III.

20. Pakistan Interim Poverty Reduction Strategy Paper(I-PRSP), Government of Pakistan, November2001, p. 15.

21. Ibid., p. 1522. For a more detailed discussion on the relationship

between the politics of successive regimes andinstitutional decay of the civil service, see, AkmalHussain, ‘The Dynamics of Power, Military,Bureaucracy and the People,’ in K. Rupasingheand K. Mumtaz, Internal Conflicts in South Asia,Sage, London, 1995.

23. Pakistan’s Reform Programme: Progress andProspects Report, The World Bank Group, March2001.

24. Pakistan, Interim Poverty Reduction StrategyPaper (I-PRSP), Government of Pakistan,November 2001, p. 36.

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CHAPTER 1: ANNEXURE I 131131

CHAPTER 1

Annexure I

I (a) Disaggregated Human DevelopmentIndices, by Provinces and Districts

I (b) Method of Calculation

CHAPTER 1: ANNEXURE I 133

Name Literacy Enrolment Infant Immunization Real GDP Educational Health Adjusted HDIRatio % Ratio % Survival Ratio % 1998 per capita Attainment Index real GDP

1998 1998 Ratio % (PPP$) Index per capita(per 1000) 1998 (PPP$)

Index

Urban 65 94 93.5 64 2319 0.747 0.85 0.374 0.656

Punjab 64 94 93.6 64 2380 0.740 0.85 0.384 0.657

Sindh 69 94 93.1 60 2308 0.773 0.83 0.372 0.659

NWFP 53 90 94.7 77 2074 0.653 0.89 0.332 0.627

Balochistan 56 88 94.4 51 1837 0.667 0.81 0.292 0.591

Rural 36 63 96.4 45 1464 0.450 0.81 0.230 0.496

Punjab 38 69 96.2 52 1523 0.483 0.83 0.239 0.517

Sindh 35 47 96.5 27 1418 0.390 0.76 0.222 0.456

NWFP 34 66 96.6 51 1241 0.447 0.83 0.192 0.489

Balochistan 33 61 96.7 32 1653 0.423 0.77 0.261 0.486

Overall 45 71 95.5 49 1715 0.537 0.82 0.272 0.541

Punjab 46 75 95.4 55 1770 0.557 0.83 0.281 0.557

Sindh 51 64 94.9 38 1804 0.553 0.78 0.287 0.540

NWFP 37 70 96.3 54 1364 0.480 0.84 0.213 0.510

Balochistan 36 64 96.4 34 1677 0.453 0.78 0.265 0.499

Islamabad 72 58 95.9 72 1743 0.673 0.89 0.277 0.612

Note: Estimates by Wasay Majid and Akmal Hussain.1. GDP per capita and Infant Survival Rates for Islamabad are calculated as an average of Punjab and Pakistan.2. Enrolment rate is for primary level only.3. Immunization refers to fully immunized children based on record and recall having received BCG, DPT1, DPT2, DPT3, Polio1, Polio2, Polio3, and Measles.4. Province-wise per capita income has been estimated from the Household Integrated Economic Survey: 1998-99. Real GDP per capita in 1998 PPP$ for provinces has been

calculated by multiplying the ratio of the province per capita income to the national per capita income of Pakistan by Pakistan’s GDP per capita in PPP$ of $1715 (1998) reportedin the HDR 2000, UNDP.

Source: Pakistan Integrated Household Survey: Round 3, 1998-1999, Federal Bureau of Statistics, Government of Pakistan, Islamabad.

ANNEXURE I (a)TABLE 1DISAGGREGATED HUMAN DEVELOPMENT INDEX FOR PAKISTAN,PROVINCE-WISE AND RURAL/URBAN

134 POVERTY, GROWTH AND GOVERNANCE

District Literacy Enrolment Immunization Infant Real GDP Educational Health Income HDIRatio % Ratio % Ratio % Survival per capita Attainment Index Index

1998 1998 1998 Ratio % (PPP$) Index1998

Attock 49.3 22.4 79.4 95.4 1,349 0.403 0.906 0.210 0.507

Bahawalpur 35.0 28.4 72.2 95.4 1,827 0.328 0.884 0.291 0.501

Bhakkar 34.2 30.0 65.8 95.4 3,373 0.328 0.865 0.551 0.581

Chakwal 56.7 47.2 66.7 95.4 1,480 0.535 0.868 0.232 0.545

Dera Ghazi Khan 30.6 23.0 65.1 95.4 1,692 0.281 0.863 0.268 0.471

Gujranwala 56.6 45.0 74.0 95.4 1,116 0.527 0.890 0.171 0.529

Gujrat 62.2 56.4 81.7 95.4 768 0.603 0.913 0.113 0.543

Hafizabad 19.6 39.3 80.6 95.4 1,798 0.262 0.910 0.286 0.486

Jhang 37.1 34.4 78.7 95.4 2,007 0.362 0.904 0.321 0.529

Jhelum 68.9 56.6 86.1 95.4 3,278 0.648 0.926 0.535 0.703

Kasur 36.2 32.1 71.8 95.4 3,065 0.348 0.883 0.499 0.577

Khanewal 39.9 33.1 77.1 95.4 1,657 0.376 0.899 0.262 0.513

Khushab 40.5 35.6 79.6 95.4 2,646 0.389 0.907 0.429 0.575

Lahore 64.7 50.7 78.1 95.4 1,121 0.600 0.902 0.172 0.558

Lodhran 29.9 26.1 66.2 95.4 1,717 0.286 0.866 0.272 0.475

Mandi Bahauddin 47.4 45.2 75.8 95.4 2,140 0.467 0.895 0.343 0.568

Mianwali 42.8 39.7 72.9 95.4 1,930 0.418 0.887 0.308 0.537

Multan 43.4 34.9 75.6 95.4 1,183 0.406 0.895 0.182 0.494

Muzaffargarh 28.4 23.9 65.2 95.4 1,559 0.269 0.863 0.246 0.459

Narowal 25.5 44.8 78.3 95.4 1,253 0.319 0.903 0.194 0.472

Okara 37.8 34.0 81.5 95.4 1,914 0.365 0.912 0.305 0.528

Pakpattan 34.7 28.6 74.2 95.4 1,743 0.327 0.890 0.277 0.498

Rahim Yar Khan 33.1 27.0 65.9 95.4 2,755 0.311 0.866 0.447 0.541

Rawalpindi 70.4 61.3 84.8 95.4 888 0.674 0.922 0.133 0.576

Sahiwal 43.9 35.8 83.4 95.4 1,842 0.412 0.918 0.293 0.541

Sargodha 46.3 42.7 80.2 95.4 1,564 0.451 0.908 0.246 0.535

Sheikhupura 43.8 37.1 77.1 95.4 3,350 0.416 0.899 0.547 0.621

Sialkot 58.9 54.9 80.9 95.4 1,159 0.576 0.911 0.178 0.555

Vehari 36.8 30.5 75.1 95.4 1,781 0.347 0.893 0.283 0.508

Notes:1. HDI calculation uses Life Expectancy data for determining the Health Index. Since this was not available at the district level, the Immunization Ratio has been used as a proxy.2. Enrolment rate is for primary level only.3. Immunization refers to fully immunized children based on record and recall having received BCG, DPT1, DPT2, DPT3, Polio1, Polio2, Polio3 and Measles.4. District-wise Real GDP per capita (PPP$ 1998) has been calculated by multiplying the ratio of the respective district’s cash value of crop output and its manufacturing value

added to the national values, into Pakistan’s GDP per capita in PPP$ (1998) of $1,715 reported in the HDR 2000, UNDP.5. Estimation by Umar Zafar, Wasay Majid and Akmal Hussain.Sources: Population Census Organization, Statistics Division, GoP 1998-2000; HIES: 1998-99, Federal Bureau of Statistics, GoP; Human Development Reports, UNDP, 1996 and2000; and World Development Indicators, 2001.

ANNEXURE I (a)TABLE 2 (a)HUMAN DEVELOPMENT INDEX FOR PUNJAB DISTRICTS

CHAPTER 1: ANNEXURE I 135

District Literacy Enrolment Immunization Infant Real GDP Educational Health Income HDIRatio % Ratio % Ratio % Survival per capita Attainment Index Index

1998 1998 1998 Ratio % (PPP$) Index1998

Badin 24.6 17.1 44.4 94.9 2,221 0.221 0.798 0.357 0.459

Dadu 35.5 28.3 56.1 94.9 2,730 0.331 0.833 0.443 0.535

Ghotki 29.0 22.2 57.1 94.9 2,394 0.267 0.836 0.386 0.496

Hyderabad 44.3 30.9 66.3 94.9 2,085 0.398 0.863 0.334 0.532

Jacobabad 23.6 20.3 59.5 94.9 756 0.225 0.843 0.110 0.393

Karachi 68.2 51.0 73.7 94.9 2,142 0.625 0.885 0.344 0.618

Khairpur 35.5 29.9 59.9 94.9 1,096 0.336 0.844 0.168 0.449

Larkana 34.9 27.5 69.9 94.9 734 0.324 0.874 0.107 0.435

Mirpur Khas 35.9 28.1 64.2 94.9 2,327 0.333 0.857 0.375 0.522

Naushahro Feroze 39.1 30.6 71.1 94.9 1,756 0.363 0.878 0.279 0.506

Nawab Shah 34.1 24.9 60.4 94.9 1,811 0.310 0.846 0.288 0.481

Sanghar 30.8 26.6 64.9 94.9 1,474 0.294 0.859 0.231 0.461

Shikarpur 31.9 17.9 55.6 94.9 980 0.272 0.831 0.148 0.417

Sukkur 46.6 33.8 61.5 94.9 1,196 0.423 0.849 0.184 0.486

Tharparkar 18.3 12.5 54.6 94.9 315 0.164 0.828 0.036 0.343

Thatta 22.1 13.2 53.6 94.9 2,020 0.191 0.825 0.323 0.447

Notes:1. HDI calculation uses Life Expectancy data for determining the Health Index. Since this was not available at the district level, the Immunization Ratio has been used

as a proxy.2. Enrolment rate is for primary level only.3. Immunization refers to fully immunized children based on record and recall having received BCG, DPT1, DPT2, DPT3, Polio1, Polio2, Polio3 and Measles.4. District-wise Real GDP per capita (PPP$ 1998) has been calculated by multiplying the ratio of the respective district’s cash value of crop output and its manufacturing

value added to the national values, into Pakistan’s GDP per capita in PPP$ (1998) of $1,715 reported in the HDR 2000, UNDP.5. Estimation by Umar Zafar, Wasay Majid and Akmal Hussain.Sources: Population Census Organization, Statistics Division, GoP 1998-2000; HIES: 1998-99, Federal Bureau of Statistics, GoP; Human Development Reports, UNDP, 1996 &2000; and World Development Indicators, 2001.

ANNEXURE I (a)TABLE 2 (b)HUMAN DEVELOPMENT INDEX FOR SINDH DISTRICTS

136 POVERTY, GROWTH AND GOVERNANCE

District Literacy Enrolment Immunization Infant Real GDP Educational Health Income HDIRatio % Ratio % Ratio % Survival per capita Attainment Index Index

1998 1998 1998 Ratio % (PPP$) Index1998

Abbottabadd 56.6 48.1 76.9 96.3 2,194 0.538 0.905 0.353 0.598

Bannu 32.1 24.1 68.8 96.3 1,399 0.294 0.881 0.219 0.465

Batgram 18.3 14.5 52.4 96.3 618 0.170 0.831 0.087 0.363

Buner 22.6 21.4 68.5 96.3 1,094 0.222 0.880 0.167 0.423

Charsadda 31.1 26.0 78.4 96.3 1,974 0.294 0.909 0.316 0.506

Chitral 40.3 42.1 86.2 96.3 660 0.409 0.933 0.094 0.479

Dera Ismail Khan 31.2 24.2 58.8 96.3 912 0.289 0.851 0.137 0.425

Hangu 30.5 26.9 66.5 96.3 297 0.293 0.874 0.033 0.400

Haripur 53.7 44.1 73.2 96.3 3,000 0.505 0.894 0.488 0.629

Karak 41.9 35.4 79.1 96.3 953 0.397 0.911 0.144 0.484

Kohat 44.0 35.8 60.7 96.3 2,141 0.413 0.856 0.344 0.537

Kohistan 11.1 6.9 44.7 96.3 640 0.097 0.808 0.091 0.332

Lakki Marwat 29.7 29.3 66.3 96.3 1,074 0.296 0.873 0.164 0.444

Lower Dir 29.9 22.5 77.4 96.3 438 0.274 0.906 0.057 0.413

Malakand 39.5 27.9 65.3 96.3 1,031 0.356 0.870 0.157 0.461

Mansehra 36.3 36.6 71.1 96.3 855 0.364 0.887 0.127 0.459

Mardan 36.5 32.6 79.1 96.3 1,835 0.352 0.911 0.292 0.519

Nowshera 42.5 32.4 78.8 96.3 1,801 0.391 0.911 0.286 0.529

Peshawar 41.8 49.6 83.0 96.3 1,450 0.444 0.923 0.227 0.531

Shangla 14.7 14.2 29.0 96.3 624 0.145 0.761 0.088 0.332

Swabi 36.0 30.6 75.0 96.3 2,046 0.342 0.899 0.328 0.523

Swat 28.7 23.9 73.4 96.3 1,062 0.271 0.894 0.162 0.442

Tank 26.3 20.6 53.9 96.3 530 0.244 0.836 0.072 0.384

Upper Dir 21.2 20.3 64.1 96.3 293 0.209 0.866 0.033 0.369

Notes:1. HDI calculation uses Life Expectancy data for determining the Health Index. Since this was not available at the district level, the Immunization Ratio has been used as a proxy.2. Enrolment rate is for primary level only.3. Immunization refers to fully immunized children based on record and recall having received BCG, DPT1, DPT2, DPT3, Polio1, Polio2, Polio3 and Measles.4. District-wise Real GDP per capita (PPP$ 1998) has been calculated by multiplying the ratio of the respective district’s cash value of crop output and its manufacturing Value

added to the national values, into Pakistan’s GDP per capita in PPP$ (1998) of $1,715 reported in the HDR 2000, UNDP.5. Estimation by Umar Zafar, Wasay Majid and Akmal Hussain.Sources: Population Census Organization, Statistics Division, GoP 1998-2000; HIES: 1998-99, Federal Bureau of Statistics, GoP; Human Development Reports, UNDP, 1996 &2000; and World Development Indicators, 2001.

ANNEXURE I (a)TABLE 2 (c)HUMAN DEVELOPMENT INDEX FOR NWFP DISTRICTS

CHAPTER 1: ANNEXURE I 137

District Literacy Enrolment Immunization Infant Real GDP Educational Health Income HDIRatio % Ratio % Ratio % Survival per capita Attainment Index Index

1998 1998 1998 Ratio % (PPP$) Index1998

Awaran 14.8 12.2 31.3 96.4 1,490 0.139 0.769 0.234 0.381

Barkhan 15.7 18.0 52.6 96.4 1,652 0.165 0.833 0.261 0.420

Bolan 15.7 17.7 48.9 96.4 664 0.164 0.822 0.095 0.360

Chagai 26.9 27.7 63.1 96.4 1,688 0.272 0.864 0.267 0.468

Dera Bugti 11.7 7.5 27.3 96.4 78 0.103 0.757 (0.004) 0.285

Gwadar 25.5 28.8 65.5 96.4 337 0.266 0.871 0.040 0.392

Jaffarabad 18.5 17.5 49.4 96.4 2,230 0.182 0.823 0.359 0.454

Jhalmagsi 12.3 4.1 32.1 96.4 1,093 0.096 0.771 0.167 0.345

Kalat 19.8 15.3 50.8 96.4 1,437 0.183 0.827 0.225 0.412

Kech 27.5 34.2 63.2 96.4 2,321 0.297 0.864 0.374 0.512

Kharan 15.1 14.1 49.2 96.4 503 0.148 0.822 0.068 0.346

Killa Abdullah 16.1 14.9 49.9 96.4 1,159 0.157 0.825 0.178 0.387

Killa Saifullah 17.5 21.2 46.3 96.4 2,254 0.187 0.814 0.363 0.455

Kohlu 12.2 5.2 22.7 96.4 1,303 0.099 0.743 0.202 0.348

Lasbela 22.3 19.7 43.6 96.4 3,206 0.214 0.806 0.523 0.514

Loralai 20.5 18.1 58.2 96.4 3,798 0.197 0.849 0.623 0.556

Mastung 27.6 22.5 54.3 96.4 2,992 0.259 0.838 0.487 0.528

Nasirabad 12.7 8.2 52.6 96.4 3,253 0.112 0.833 0.531 0.492

Panjgur 31.4 36.8 65.9 96.4 1,783 0.332 0.873 0.283 0.496

Sibi 25.5 19.1 32.2 96.4 1,452 0.234 0.771 0.228 0.411

Zhob 16.8 14.8 53.3 96.4 1,889 0.161 0.835 0.301 0.432

Ziarat 34.3 41.6 71.6 96.4 5,046 0.367 0.890 0.833 0.697

Notes:1. HDI calculation uses Life Expectancy data for determining the Health Index. Since this was not available at the district level, the Immunization Ratio has

been used as a proxy.2. Enrolment rate is for primary level only.3. Immunization refers to fully immunized children based on record and recall having received BCG, DPT1, DPT2, DP3, Polio1, Polio2, Polio3 and Measles.4. District-wise Real GDP per capita (PPP$ 1998) has been calculated by multiplying the ratio of the respective district’s cash value of crop output and its

manufacturing value added to the national values, into Pakistan’s GDP per capita in PPP$ (1998) of $1,715 reported in the HDR 2000, UNDP.5. Estimation by Umar Zafar, Wasay Majid and Akmal Hussain.Sources: Population Census Organization, Statistics Division, GoP 1998-2000; HIES: 1998-99, Federal Bureau of Statistics, GoP; Human DevelopmentReports, UNDP, 1996 & 2000; and World Development Indicators, 2001.

ANNEXURE I (a)TABLE 2 (d)HUMAN DEVELOPMENT INDEX FOR BALOCHISTAN DISTRICTS

138 POVERTY, GROWTH AND GOVERNANCE

I Human Development Index (HDI) – Composition and Calculation

The HDI comprises of three main components each affecting, in one way or another, a human being’slife by way of his/her access to ‘means’ and/or desired ‘ends’.

The three main components of the HDI are:

(i) Health(ii) Education(iii) Income

The indicators used for measuring and consequently calculating their respective composite indices forthe compilation of the HDI are:

a. Life expectancyb. Adult literacy and combined enrolment rate; andc. Adjusted GDP per capita in PPP$

For the construction of each index, fixed minimum and maximum values have been established.

(i) Health IndexLife expectancy is calculated by choosing a global acceptable range, which suggests a maximumof 85 years and a minimum of 25 years.

Therefore the Life Expectancy Index is calculated as:

= X – 25/ 85 – 25 = X – 25/ 60

(ii) Educational Attainment IndexThis component of the HDI is calculated by using 100 per cent as a maximum and 0 per cent as aminimum for levels of educational attainment. It gives two-third weight to adult literacy andone-third weight to combined enrolment rates.

Therefore the Educational Attainment Index is calculated as:

= X – 0/ 100 – 0 = X / 100

(ii) Income IndexThe construction of the income index is a bit more complicated. The fixed minimum and maximumvalues for the income index are US$100 and US$40,000. The average world income of PPP$5,711is taken as the threshold level, and any income above this level is discounted using the Atkinson’sformula for the utility of income.The discounted value of the maximum income of PPP$40,000, using the Atkinson formula isPPP$6,040. As Pakistan’s GDP per capita in PPP$ is $1,715 (1998), we do not need to calculatethe adjusted GDP per capita PPP$.

Therefore the Income Index for Pakistan is calculated as:

= X – 100 / 6,040 – 100 = X – 100 / 5,940

Now to arrive at an HDI value, we simply calculate the arithmetic mean of the three indices.

ANNEXURE I (b)Calculation Procedure for HDI Estimates at the National, Provincial and District Levels

CHAPTER 1: ANNEXURE I 139

II Data used for calculating Pakistan’s HDI – at Province and District level.

As there is no data available on life expectancy either for provinces or districts of Pakistan, weconstructed a Health Index using Infant Survival rates (available only at the provincial level) andImmunization rates (available at District level).

Our index gives a 70 per cent weigh to Infant Survival rates and consequently a 30 per centweight to the Immunization rates. The range or ‘goal posts’ for both the indicators are a 100 percent for a maximum level of health and 0 per cent for no level of health.

Note that as Infant Survival rates are available only at the provincial level, therefore, whenconstructing the HDI at district level, the component of the Health Index used the value of therespective province for each of its districts.

III Rationale for using Immunization rates for the HDI

Prior to the 1998 census, there was no data available on Health that could be used for calculatinga HDI at the district level. The inclusion of Immunization rates in the latest census provided uswith an opportunity, for the first time, to be able to construct a HDI at the district level.

Immunization rates used in our study are based on full immunization, which involves a childhaving received all of the following: ‘BCG’, ‘DPT1’, ‘DPT2’, ‘DPT3’, ‘Polio1’, ‘Polio2’, ‘Polio3’,and ‘Measles’.

Acknowledging that it is not the conventional indicator used in the construction of the HDI, itnevertheless gives us some information on health.

Immunization rates may very well suggest future preservation from deadly diseases and ailmentsthat may handicap a person which could lead to a deteriorated life style and consequently hardshipin acquiring income and furthermore utilizing this income in its most productive and satisfactorymanner. It also implicitly suggests an element of awareness towards accepting the wonders ofmedical science by the uneducated rural poor. This may translate into higher social returns.Furthermore, rates of immunization give us the actual number of people that have ‘accessed’ thehealth care system. It does not reflect just an average figure based on a group of peoplerepresenting the region who apparently only have ‘access’ to the health care system, as is reflectedin part by the life expectancy statistic.

A possible reason for the inclusion of Immunization rates in the latest national census may verywell be critically analyzed as a one off policy measure of the Government at the time. It could bepart of a government agenda, which required penetrating a large part of the rural population to beimmunized. Such one off inconsistent policy measures do not reflect the true extent of past andfuture conditions. Keeping this in mind, we gave a lower weight to immunization rates in thecalculation of the health index.

IV Calculation of Real GDP per Capita (PPP$) at District Level

Calculation of the Real GDP per Capita in Purchasing Power Parity in US Dollars (PPP$)requires data on GDP per capita. This data was available only at the national and provinciallevels, but not at the district level in Pakistan. Therefore, for district level estimates, we used thecash value of crop output and the manufacturing value added at the district level. Its ratio to thenational value of the crop output and the manufacturing value added was multiplied into Pakistan’sReal GDP per Capita (PPP$ 1998), which is US$ 1,715.

The Real GDP per capita (PPP$) at the district level was aggregated at the provincial level andcompared with the Province Real GDP per capita (PPP$) computed earlier by multiplying theratio of the province income per capita to the national income per capita, into Pakistan’s RealGDP per capita (PPP$ 1998). Since the GDP estimate at the provincial level was morecomprehensive than at the district level, the Real GDP per capita (PPP$) at the district level wasthen adjusted by a factor that was the ratio of the ‘actual’ Province Real GDP per capita (PPP$)calculated from the income per capita data to the value obtained by aggregating the district RealGDP per capita (PPP$) in the first round.

140 POVERTY, GROWTH AND GOVERNANCE

V A Note on District, Provincial and National HDI Estimates

The all Pakistan HDI differs slightly from the figure estimated by the UNDP Human DevelopmentReport 2002. This is because the district and provincial HDI estimates in the Pakistan NHDR usea proxy for life expectancy in the health index based on immunization rates and infant survivalrates (in the absence of district and provincial level life expectancy figures). To achieve consistencyin the National HDI estimates so as to enable HDI comparison at district, provincial and nationallevels, the same proxy was used in the all Pakistan HDI estimate given in table 4(a) in the text ofChapter 1. Similarly in the absence of district level real GDP per capita, (in PPP$) figures, aproxy based on value added in agriculture and industry respectively was used. This proxy wasalso reflected in the NHDR estimate of the all Pakistan HDI.

The robustness of our estimation procedure using proxies at the district level, is indicated bythe fact that the consequent national estimate of HDI (0.541) does not differ very much from theUNDP Human Development Report where only the directly available figures of life expectancyand real GDP per capita (in PPP$) are used.

CHAPTER 1: ANNEXURE II 141141

CHAPTER 1

Annexure II

Children in Hazardous Industries

CHAPTER 1: ANNEXURE II 143

ANNEXURE IITABLE 1NUMBER OF CASUALTIES LAST YEAR DUE TO ANY HAZARD AND NUMBEROF WORKPLACES, BY TYPE OF INDUSTRY

(a) (b) (c)Reported Number* Number of Number of

Industry of Casualties during Workplaces Casualties perlast year Workplace

last year

Construction 677 58 12

Steel Window Manufacture 752 48 15

Electrification 60 23 3

Furnishing 125 17 7

Tiles 111 11 11

Cement 64 8 8

White Washing 160 35 5

Source: Akmal Hussain, Field Survey on Child Workers in Construction and Construction-related Industries, September 1992.*Note: Respondents reported that an individual child worker experiences repeated injuries during the year, and returns to workafter first aid or medical treatment.

144 POVERTY, GROWTH AND GOVERNANCE

ANNEXURE IITABLE 2LETHALITY INDEX OF HAZARDS AND DANGER INDEX OF INDUSTRIES

(A) (B)Hazard Standardized Standardized Danger Index of Industry

Index of Construction Steel Electrification Furnishing Tiles Cement Whitehazards Window Washing

Insufficient Light at Workplace 5 2.68 3.96 2.70 0.79 4.80 4.25 4.46

Workplace hazards due toincorrect location of Equipment 4 2.65 3.74 — 1.18 2.92 3.6 2.38and other Protuberances,Electricity, Wires, Switches, etc.

Lack of Protective devices whileusing dangerous Equipment and 3 2.46 2.34 1.85 2.52 2.77 — 0.16Material

Workplace dangers due to 2 0.95 1.43 0.62 1 — — 10.54Proximity to Road, etc.

Unsafe Machinery without 1 0.50 1.23 0.54 0.61 0.38 0.80 0.46Safety devices

Composite Danger Index — 9.24 12.7 5.71 6.1 11.33 9.05 8.00

Source: Akmal Hussain, Field Survey on Child Workers in Construction and Construction-related Industries, September 1992.

CHAPTER 1: ANNEXURE II 145

ANNEXURE IITABLE 3NUMBER OF CHILD WORKERS REPORTING CASUALTIES*DUE TO SELECTED HAZARDS BY EDUCATION LEVEL OF EMPLOYER

Hazards All Illiterate Primary Middle Matric F.A. B.A.

Inadequate light at workplace 173 1 37 37 79 17 2

Proximity to Road 16 0 0 3 8 3 2

Dangerous Building Structure 18 0 4 4 9 1 0

Source: Akmal Hussain, Field Survey on Child Workers in Construction and Construction-related Industries, September 1992.* Casualties occurred in last year. The numbers refer not to the number of casualties, but the number of respondents in each case reporting one or more

casualties.

146 POVERTY, GROWTH AND GOVERNANCE

ANNEXURE IITABLE 4SEX ABUSE AT WORK PLACENumber of Children Reporting Sex Abuse Against Them as a Percentage ofRespondents in the Industry by Age and Type of Industry

Industry All Age Groups Age Group 8–10 Age Group 11–15(%) (%) (%)

Construction 15 6 9

Steel Windows 4 2 2

Electrification 2 — 2

Furnishing 15 6 9

Tiles 11 5 6

Cement 13 — 13

White Washing 4 1 3

Source: Akmal Hussain, Field Survey on Child Workers in Construction and Construction-related Industries, September 1992.

CHAPTER 1: ANNEXURE II 147

ANNEXURE IITABLE 5EMPLOYER VIOLENCENumber of Child Workers Reporting Employer Violence Against Them by Industry and Age of Child

Employer Violence against Child Workers by Industry Employer Violence by Ageof Child Worker

All Construction Steel Electrification Furnishing Tiles Cement White Others All Ages 8–10 11–15Industries and Wood Windows Washing

Work

20 7 7 1.3 5 0 0 1 0 20 7 13

(5) (4) (7) (4) (15) (0) (0) (1) (0) (5) (5) (5)

Source: Akmal Hussain, Field Survey on Child Workers in Construction and Construction-related Industries, September 1992.Note:1. Figures in brackets refer to the number of child workers reporting employer violence against them as a percentage of the total number of respondents in

that category.2. Violence including punching with fist or use of sticks, and chains.

CHAPTER 2: ANNEXURE 149149

CHAPTER 2

Annexure

CHAPTER 2: ANNEXURE 151

Period Small Scale Large Scale Total ManufacturingManufacturing Manufacturing

1959/60 to 1969/70 2.85 12.43 9.24

1970/71 to 1979/80 7.21 4.84 5.50

1980/81 to 1989/90 8.40 8.16 8.21

1990/91 to 1995/96 7.88 4.40 5.59

1996/97 to 1999/2000 5.31 2.21 1.29

Source: Federal Bureau of Statistics, GOP, and Economic Survey, Economic Advisor’s Wing, Ministry of Finance, GOP, 2000-2001.

ANNEXURETABLE 1GROWTH RATES OF THE MANUFACTURING SECTOR

Period Small Scale Large Scale Total ManufacturingManufacturing Manufacturing

1949-50 4.56 1.83 6.39

1959-60 4.18 5.60 9.78

1969-70 2.92 10.23 13.14

1979-80 3.54 9.46 13.00

1989-90 4.36 11.32 15.68

1994-95 5.15 11.22 16.37

1998-99 4.55 11.10 15.65

Source: Federal Bureau of Statistics, GOP, and Economic Survey, Economic Advisor’s Wing, Ministry of Finance, 2000-2001.

ANNEXURETABLE 2PERCENTAGE SECTORAL SHARE OF MANUFACTURING IN GDP (CONSTANT PRICES)

152 POVERTY, GROWTH AND GOVERNANCE

Years 1959/60 1969/70 1980/81 1985/86 1990/91 1995/96

All Industries 100.00 100.00 100.00 100.00 100.00 100.00

Food Manufacturing 8.33 14.78 20.12 17.65 14.05 15.19

Tobacco Manufacturing 5.56 7.96 13.26 10.15 6.35 6.18

Manufacturing of Textiles 40.19 32.30 15.93 15.54 26.35 22.31

Chemicals & Chemical Products 8.42 8.92 8.00 11.82 10.41 11.51

Basic Metal Industries 3.13 2.41 3.98 3.97 5.54 4.15

Manufacturing of Metal Products 3.91 1.79 1.06 0.85 0.86 0.71

Electrical Machinery 2.43 3.33 3.47 3.36 4.11 7.67

Transport Equipment 3.30 1.39 2.47 2.50 2.59 3.50

All Others 24.74 27.13 31.71 34.16 29.74 28.77

Source: Census of Manufacturing Industries, FBS, Statistics Division, GOP, Various Issues.

ANNEXURETABLE 3SHARES OF DIFFERENT MANUFACTURING INDUSTRIES IN THE VALUE ADDED ORIGINATING IN THEMANUFACTURING SECTOR

Years Agricultural & Food Intermediate Capital goods as a Textile & Related& Live Animals goods as a % of % of Total Goods as a % of

Exports as a % of Total Exports Exports Total ExportsTotal Exports

1960-1970 55 8 0.87 30

1973-1977 35 7 0.73 31

1978-1987 33 6 1.14 29

1988-1999 17 4 0.33 50

Source: Federal Bureau of Statistics, Statistics Division, GOP.

ANNEXURETABLE 4PERIOD AVERAGES OF EXPORTS OF VARIOUS COMMODITY GROUPS AS A PERCENTAGE OF TOTALEXPORTS OF PAKISTAN

CHAPTER 2: ANNEXURE 153

ANNEXURETABLE 5GOVERNMENT EXPENDITURE OF DEFENCE AND GENERALADMINISTRATION AS A PERCENTAGE OF TOTAL GOVERNMENTREVENUE (CONSOLIDATED FEDERAL AND PROVINCIAL)

1980-81 351981-82 361982-83 341983-84 351984-85 371985-86 341986-87 341987-88 301988-89 321989-90 321990-91 311991-92 301992-93 321993-94 311994-95 291995-96 291996-97 301997-98 341998-99 36

1999-2000 33

Source: Economic Survey, Government of Pakistan (GOP), Economic Advisor’s Wing, Finance Division, Various Issues.

CHAPTER 3: ANNEXURE I 155155

CHAPTER 3

Annexure I

Survey Design

CHAPTER 3: ANNEXURE I 157

ANNEXURE ISURVEY DESIGN

The survey was designed to generate both quantitative and qualitative data sets. The quantitativecomponent was generated through the NHDR/PIDE 2001 Survey covering eight poor communities ofthe country; of which two were urban while the rest of the six communities were rural. The fieldworkfor the NHDR/PIDE 2001 Survey was carried out in July-August 2001. It can be said that this surveywas a complete census, since it covered all households located in the sampled communities.

Two stage stratified sample design was adopted for the survey. At the first stage, seven districts ofthe country, Lahore and Muzaffargarh in Punjab, Badin, Mirpur Khas and Karachi in Sindh, Dir inNWFP and Khuzdar in Balochistan, were selected. In each district, a poor community was selectedrandomly at the second stage, except Lahore district where two communities, one rural and one urbanwere included in the sample. Karachi and Lahore were included in the sample because large slumareas have developed over time in these two largely urban districts of the country. There are more than500 Katchi Abadis in Karachi alone. It is believed that an overwhelming majority of householdssituated in slum areas are poor and live in unhealthy conditions.

The rest of the five districts (Muzaffargarh, Badin, Mirpur Khas, Dir and Khuzdar) were selectedfor the rural sample; they are among the poorest districts of the country, as revealed by the lastavailable ranking of districts, carried out by A.F. Aisha Ghaus, Hafiz A. Pasha and Rafia Ghaus.1 Thisranking was based on eleven indicators related primarily to education, health and water supply. Whilethis study focuses on social indicators rather than poverty profiles as the basis of district ranking,nevertheless it provides valuable insights into differential between districts with respect to their socialdevelopment.

In Punjab, the least developed districts, according to the above study, were Rajanpur, Pakpattan,Muzaffargarh, Lodharan, D.G. Khan, Vehari and Layyah. All these districts are located in SouthPunjab region.

In Sindh, Jacobabad, Mirpur Khas (Tharparkar), Badin, Sanghar, Thatta and Dadu were ranked asthe least socially developed districts of the province. The results of a few recent studies are also in linewith the above-mentioned ranking. For example, a survey done by the School of Nutrition Programmeof Aga Khan University in seven districts of Sindh (including Badin, Thatta, Mirpurkhas and Dadulocated in both regions of Sindh) indicates that 70-80 per cent of the rural households were poor.

In NWFP, the identified least developed districts were Kohistan, Dir and Mansehra. All districts ofBalochistan except Quetta, Sibi and Ziarat were grouped in the least developed category.2

It appears from these regional (as well as district) differentials that poverty is concentrated incertain regions of the country. Within Punjab, based on both regional level poverty indicators anddistrict ranking, southern Punjab appears to be a relatively poor area. In Sindh certain districts seem tobe poor while in NWFP, Dir, Kohistan and Mansehra are the poor districts. The whole province ofBalochistan is poor by all indicators of poverty and development. By taking into account these regionalvariations, five districts, Muzaffargarh, Badin, Mirpur Khas, Dir and Khuzdar, were selected for theNHDR/PIDE 2001 rural sample in order to generate data on different poverty indicators at thehousehold as well as community level. As pointed out earlier, in each of these five districts, onecommunity was selected randomly.

The size of villages in terms of population varied across and within the selected districts. It wastherefore inappropriate to select villages which varied substantially in size. A medium-sized villagecomprising approximately 300 households was selected randomly from each of the above-mentionedfive districts by using the village level data given in the 1998 district census reports. For the urbansample, two poor communities consisting of approximately 300 households were selected from theslum areas of Karachi and Lahore. Moreover, by way of comparison, a rural community from Lahoredistrict was also included in the sample.

The size of the NHDR/PIDE Survey 2001 sample by community is reported in Table 1. In total,2,240 households were covered; of which 1623 households were from rural areas, while the urbansample consisted of 617 households. The total number of households in seven communities rangedfrom 267 in Muzaffargarh to 344 in Lahore. In Khuzdar, however, a village with only 183 householdswas included in the sample. In Balochistan villages are relatively small in terms of population.

Since the NHDR/PIDE Survey 2001 is a sample survey of seven districts of Pakistan, it cannot beclaimed that it is representative either for rural or for urban areas of the entire country. However,

158 POVERTY, GROWTH AND GOVERNANCE

systematic and careful selection of poor communities from all provinces of the country does provide arich source of data to examine the nature of poverty and the processes of poverty generation.

TABLE 1THE SIZE OF THE PCSP SAMPLE BY PROVINCE, DISTRICT, COMMUNITYAND URBAN/RURAL

Province District Community UrbanRural Sample

Punjab Muzaffargarh Kotla Afghan Rural 267Lahore Shamapura Urban 310Lahore Aasulpur Rural 344

Sindh Karachi Quaid-i-Azam Colony Urban 307Badin Jharkandi Rural 282Mirpur Khas Ghamau Kalvoo Deh 322-A Rural 273

NWFP Dir Shah Alam Baba Rural 274Balochistan Khuzdar Bajori Rural 183

Total: Urban 617Rural 1623Total 2240

For the qualitative component of the study, data were generated through in-depth interviews andfocus group discussions.3 In each sampled community, 10 to 15 households were selected for in-depthinterviews. This selection was made with the consultation of key informants of the respective areas.An anthropologist worked in each community for more than one month to carry out the in-depthinterviews and to moderate focus group discussions. Finally, the community level data for limitedvariables was also collected through administering a structured questionnaire to a key informant ineach sampled community.

The NHDR/PIDE Survey 2001 used a structured questionnaire that was a multidimensionalinstrument for gathering comprehensive information on socio-economic characteristics of the targetpopulation. It was divided into several sections including household composition, education,employment and income, land utilization, non-farm activities, consumption, transfer income, credit,household assets, dispute resolution, health status of all individuals and housing conditions (seeAnnexure 2).

Notes:1. A.F. Aisha Ghaus, Hafiz A. Pasha and Rafia Ghaus, ‘Social Development Ranking of District of Pakistan,’ The

Pakistan Development Review (Winter 1996), Vol. 35, No. 4, Islamabad, pp. 593-614.2. Ibid.3. A few clarifications regarding these qualitative methods seem to be in order. In current social sciences research

there are three basic uses of qualitative methods. Firstly they are used as a self-contained method in studies inwhich they serve as the principal source of data. Secondly they are used as a supplementary source of data instudies that rely on some other primary source. Thirdly, they are used in multi-method means of gathering datain which no primary method determines the use of others. In this study, qualitative methods are used as part ofa supplementary source of data. The qualitative data is presented in chapter 5.

CHAPTER 3: ANNEXURE II 159

CHAPTER 3

Annexure II

Variables Contained in Questionnaires

CHAPTER 3: ANNEXURE II 161

I. Household Composition

Relationship to the head of householdSexAge (in completed years)ReligionMarital statusLiteracy and level of educationSchool enrolmentType of school and medium of instructionVocational/technical education

Employment and Earnings

Activity statusEmployment statusIndustry statusOccupational status of main jobOccupational status of secondary jobNumber of hours worked on main jobNumber of hours worked on secondary jobTotal work experienceOn the job trainingLabour market earnings from first jobLabour market earnings from the second jobEarnings from other activities

II. Household Expenditure

FoodClothing and FootwearFuel and LightingTransportHousingHousehold EffectsPersonal EffectsRecreationMedicalEducationMiscellaneous ItemsDurable Goods

Ownership of Durable Items of the Household

BicycleRadioTelevisionVideo Cassette RecorderSewing MachineKnitting MachineWashing MachineElectrical appliancesCamera

ANNEXURE IIVARIABLES CONTAINED IN QUESTIONNAIRES

162 POVERTY, GROWTH AND GOVERNANCE

RefrigeratorGas stoveCar / JeepMotorcycle/scooterPersonal ComputerAir-conditionerOther items

Transfer Income

Zakat, Ushr, Nazrana, or FitranaDomestics and Foreign RemittancesAssistance from Government / other SourcesGrants / InheritancePension

Ownership of Land and Property

Rent from Property and LandValue of the Property SoldValue of the Property PurchasedMoney spent on renovationsValue of the Property or Land Received as GiftValue of the Property or Land Lost

Financial Assets and Liabilities

Total bank DepositsTotal savingsTotal Interest / Profit ReceivedTotal WithdrawalTotal Securities, Types and ValueProfit / Interest on SecuritiesTotal Loans to PayAmount PaidAmount RemainsTime Period for payment and Interest RatePurpose and Institution From which Loan ReceivedLife InsuranceAnnual Installments and DurationTotal Payment MadeProvident FundAnnual ContributionBalance

III. Balance Sheet

Total IncomeTotal ExpenditureIncome / Expenditure Ratio

IV. Health Information and Housing Facilities

(i) Illness

Illness in the last two weeksType of illnessConsultations with health attendantRecovery time from the illness

CHAPTER 3: ANNEXURE II 163

(ii) HousingPresent occupancy statusNumber of roomsSource of drinking waterSanitation systemType of toilet facilitiesGarbage collection

Agricultural

Agricultural landownershipLand rented outLand rented inHarvesting of different crops during the last yearLivestockAgricultural operating expenses during the last yearPersons working and labour costs

Non-Agricultural Establishment

Major activity of the businessPersons working during the last working monthGeneral operating expenses and revenues

ManufacturingMining and quarryingService related businessTransportWholesale and retail tradeHotels and restaurantsConstruction

Land, building, equipment and other items owned

Migration

In-migrationOut-migration

CHAPTER 3: ANNEXURE III 165

CHAPTER 3

Annexure III

(a) Micro-Enterprises and Profitability(b) Distribution of Transfer Incomes(c) Outmigrants by Economic Status(d) Employment Status(e) Percentage Distribution of Agricultural and

Non-Agricultural Workers by EconomicStatus

(f) Type of Enterprises in Rural and UrbanAreas

(g) Timely Repayment of All Loans byEconomic Status

(h) Sources of Loans by Economic Status(i) Reason for Rejection of Loan Application

CHAPTER 3: ANNEXURE III 167

ANNEXURE III (a)MICRO-ENTERPRISES AND PROFITABILITY

Problem Faced in Running Business Extremely Poor Poor Non-Poor Total

ALL PAKISTANLess Demand 6.5 64.5 29.0 100.0Transport Problems — 80.0 20.0 100.0Inflation 12.0 64.0 24.0 100.0Police Disturbance — 100.0 — 100.0Change in Locality of Shop — 100.0 — 100.0Other Shopkeepers Disturbance 33.3 55.6 11.1 100.0Lack of Funds 33.3 44.4 22.2 100.0Decline in Purchasing Power 3.8 50.0 46.2 100.0Too Old 4.3 70.0 25.7 100.0Health Disturbance 11.1 77.8 11.1 100.0Municipal Committee Disturbance — — 100.0 100.0Input Price Increased 25.0 50.0 25.0 100.0Business split — 3.8 2.9 3.2GST — — 100.0 100.0Location — — 100.0 100.0Increase in Petrol Prices — 66.7 33.3 100.0Others 8.7 56.5 34.8 100.0Total 17.7 125.8 60.5 204.0URBANLess Demand 21.7 65.2 13.0 100.0Transport Problems 60.0 40.0 — 100.0Inflation 22.7 63.6 13.6 100.0Police Disturbance — 100.0 — 100.0Change in Locality of Shop — 100.0 — 100.0Other Shopkeepers Disturbance 42.9 42.9 14.3 100.0Lack of Funds 40.0 60.0 — 100.0Decline in Purchasing Power 25.0 70.0 5.0 100.0Too Old 47.7 45.5 6.8 100.0Health Disturbance 25.0 75.0 — 100.0Municipal Committee Disturbance — 100.0 — 100.0Input Price Increased 40.0 40.0 20.0 100.0Business split — 50.0 50.0 100.0Increase in Petrol Prices — 100.0 — 100.0Others 37.0 51.9 11.1 100.0Total 68.2 116.5 18.8 203.5RURALLess Demand 12.5 37.5 50.0 100.0Inflation — 66.7 33.3 100.0Police Disturbance — 100.0 — 100.0Other Shopkeepers Disturbance 50.0 50.0 — 100.0Lack of Funds 25.0 25.0 50.0 100.0Decline in Purchasing Power — 16.7 83.3 100.0Too Old 7.7 42.3 50.0 100.0Health Disturbance 100.0 — — 100.0Input Price Increased — 66.7 33.3 100.0Business split — 100.0 — 100.0GST — — 100.0 100.0Location — — 100.0 100.0Increase in Petrol Prices — — 100.0 100.0Others 10.15 26.3 63.2 100.0Total 20.5 74.4 110.3 205.1

CAUSES REPORTED FOR THE DECLINE IN PROFIT BY ECONOMIC STATUS

168 POVERTY, GROWTH AND GOVERNANCE

Average Receipts of the Group Respective ShareExtremely Poor Non-Poor Total Extremely Poor Non-Poor

Poor Poor

ALL PAKISTAN

Boarders or Lodgers 7904 18364 65000 13827 63.6 31.8 4.5

Zakat from Government 897 908 917 904 44.6 46.2 9.2

Zakat from Private Sources 2337 673 1000 1792 66.7 30.6 2.8

Ushr, Fitrana 765 1750 — 952 81.0 19.0 —

Nazrana 445 750 — 492 84.6 15.4 —

Remittances from within Pakistan 20245 30280 48882 28303 51.6 31.3 17.2

Remittances from outside Pakistan 55545 73042 181944 83864 40.0 43.6 16.4

Gifts Assistance 10608 5519 1833 8285 59.5 33.3 7.1

Pension 7950 9334 69100 24103 12.5 62.5 25.0

Total 13050 21934 72044 22235 53.7 36.2 10.1

URBAN

Boarders or Lodgers 1533 12000 — 4150 75.0 25.0 —

Zakat from Government 300 3333 — 2575 25.0 75.0 —

Zakat from Private Sources 3971 400 1000 3244 77.8 11.1 11.1

Ushr, Fitrana 1300 — — 1300 100.0 — —

Nazrana 500 1000 — 667 66.7 33.3 —

Remittances from within Pakistan 1900 24000 — 5583 83.3 16.7 —

Remittances form outside Pakistan — 10000 — 10000 — 100.0 100.0

Gifts Assistance 5875 5875 1833 5237 42.1 42.1 15.8

Pension 9900 2533 — 4375 25.0 75.0 —

Total 3397 5895 1625 4144 57.4 35.2 7.4

RURAL

Boarders or Lodgers 8668 18854 65000 14795 62.5 32.5 5.0

Zakat from Government 919 639 917 795 45.9 44.3 9.8

Zakat from Private Sources 1665 700 — 1307 63.0 37.0 —

Ushr, Fitrana 600 1750 — 871 76.5 23.5 —

Nazrana 433 500 — 440 90.0 10.0 —

Remittances from within Pakistan 23521 30611 48882 30653 48.3 32.8 19.0

Remittances form outside Pakistan 55545 75783 181944 85231 40.7 42.6 16.7

Gifts Assistance 12835 5043 — 10803 73.9 26.1 —

Pension 6000 12249 69100 30678 8.3 58.3 33.3

Total 14920 24704 80847 25551 52.8 36.5 10.6

Source: NHDR/PIDE Survey 2001.

ANNEXURE III (b)DISTRIBUTION OF TRANSFER INCOMES

CHAPTER 3: ANNEXURE III 169

ANNEXURE III (c)OUTMIGRANTS BY ECONOMIC STATUS

Extremely Poor Poor Non-Poor Total

ALL PAKISTAN

Average age of migrants (Years) 31 25 28 28

Sex of the migrants (%)

Male 100.0 87.1 92.2 93.2

Female — 12.9 7.8 6.8

Marital Status

Married 65.2 47.3 68.6 58.9

Unmarried 32.6 50.5 31.4 39.4

Others 2.2 2.2 — 1.7

Education level of outmigrant (%)

No education 48.9 44.1 27.5 42.4

Upto Primary 25.0 17.2 15.7 19.9

Middle 7.6 11.8 7.8 9.3

Matric 10.9 15.1 17.6 14.0

Higher education 7.6 11.8 31.4 14.4

URBAN

Average age of migrants 39 26 — 36

Sex of the migrants

Male 100.0 66.7 — 93.8

Female — 33.3 — 6.3

Marital Status

Married 76.9 — — 62.5

Unmarried 23.1 33.3 — 25.0

Others — 66.7 — 12.5

Education level of outmigrant (%)

No education 76.9 66.7 — 75.0

Upto Primary 23.1 — — 18.8

Middle — — — —

Matric — — — —

Higher education — 33.3 — 6.3

RURAL

Average age of migrants 29 25 28 27

Sex of the migrants

Male 100.0 87.8 92.2 93.2

Female — 12.2 7.8 6.8

Marital Status

Married 63.3 48.9 68.6 58.6

Unmarried 34.2 51.1 31.4 40.5

Others 2.5 — — 0.9

Education level of outmigrant (%)

No education 44.3 43.3 27.5 40.0

Upto Primary 25.3 17.8 15.7 20.0

Middle 8.9 12.2 7.8 10.0

Matric 12.7 15.6 17.6 15.0

Higher education 8.9 11.1 31.4 15.0

Source: NHDR/PIDE Survey 2001.

170 POVERTY, GROWTH AND GOVERNANCE

ANNEXURE III (d)EMPLOYMENT STATUS

Average of Sample Extremely Poor Poor Marginally TotalNon-Poor

ALL PAKISTANEmployees

Regular paid employee with fixed wage 13.4 19.1 30.0 18.6Casual paid employee 36.9 22.5 13.8 26.6Paid worker by piece rate of service performed 17.4 14.4 8.9 14.7Paid non-family enterprise 0.1 0.3 — 0.2Total 67.8 56.3 52.7 60.1

EmployersEmployer employing less than 10 persons 0.3 0.5 1.8 0.6Employer employing >= 10 persons — — 0.6 0.1Total 0.3 0.5 2.4 0.7

Independent WorkersOwn account non-agriculture worker 12.5 17.4 19.3 15.8Own Cultivator 6.3 15.3 19.9 12.6Share Cropper 11.9 8.2 3.7 8.9Contract Cultivator 0.5 0.6 0.9 0.6Total 31.2 41.5 43.8 32.9

Unpaid Family worker 0.3 1.3 1.2 0.9Others 0.5 0.3 — 0.3URBANEmployees

Regular paid employee with fixed wage 6.3 9.6 17.4 9.2Casual paid employee 33.9 28.7 33.3 31.3Paid worker by piece rate of service performed 31.8 26.3 15.9 27.3Paid non-family enterprise 0.4 — — 0.2Total 72.4 64.6 66.6 68.0

EmployersEmployer employing less than 10 persons 26.4 33.4 30.4 30.3Employer employing >= 10 persons — 0.3 2.9 0.5Total 26.4 33.7 33.3 30.8

Independent WorkersOwn Cultivator 0.8 1.4 — 1.0Share Cropper — 0.3 — 0.2Total 0.8 1.7 — 1.2

Others 0.4 — — 0.2RURALEmployees

Regular paid employee with fixed wage 16.4 23.3 33.3 22.5Casual paid employee 38.3 19.9 8.5 24.8Paid worker by piece rate of service performed 11.2 9.2 7.0 9.6Paid non-family enterprise — 0.4 — 0.2Total 66.9 52.8 48.8 57.1

EmployersEmployer employing less than 10 persons 0.4 0.6 1.6 0.7Employer employing >= 10 persons — — 0.8 0.1Total 0.4 0.6 2.4 0.8

Independent WorkersOwn account non-agriculture worker 6.5 10.4 16.3 10.0Own Cultivator 8.7 21.4 25.2 17.3Share Cropper 17.0 11.6 4.7 12.4Total 32.2 43.4 46.2 39.7Contract Cultivator 0.7 0.9 1.2 0.9Unpaid Family worker 0.4 1.9 1.6 1.3Others 0.5 0.4 — 0.4

Source: NHDR/PIDE Survey 2001.

CHAPTER 3: ANNEXURE III 171

Extremely Poor Poor Non-Poor Total

Agri. Non-Agri Agri. Non-Agri Agri. Non-Agri Agri. Non-Agri

Total 62.0 38.0 59.1 40.9 48.2 50.8 57.3 42.7

Male 60.8 39.2 53.5 46.6 46.3 23.0 53.6 46.4

Female 72.1 27.9 85.5 14.5 72.9 27.1 80.2 19.8

Source: NHDR/PIDE Survey 2001.

ANNEXURE III (e)PERCENTAGE DISTRIBUTION OF AGRICULTURAL AND NON-AGRICULTURAL WORKERS BY ECONOMICSTATUS

172 POVERTY, GROWTH AND GOVERNANCE

ANNEXURE III (f)TYPE OF ENTERPRISES IN RURAL AND URBAN AREAS

Average of Sample Extremely Poor Poor Non-Poor Total

PAKISTAN

Farm 40.4 30.3 28.6 33.9

Non-financial, non-farm employing <10 persons 39.8 39.1 29.9 37.9

Non-farm, non-financial establishment employing >= 10 persons 3.7 8.2 11.9 7.0

Financial institutions (banks, insurance company, pension fund) — 0.1 0.6 0.1

Federal, provincial or local government or defence forces 0.4 6.8 14.5 5.5

Non-profit institutions 0.6 0.5 0.3 0.5

Household (servants) 2.3 1.3 0.6 1.6

Others 12.8 13.8 13.5 13.4

URBAN

Farm 1.3 1.7 1.5 1.5

Non-financial, non-farm employing <10 persons 57.0 52.1 46.3 53.4

Non-farm, non-financial establishment employing >= 10 persons 8.9 13.4 14.9 11.8

Financial institutions (banks, insurance company, pension fund) — 0.3 — 0.2

Federal, provincial or local government or defence forces 0.4 3.1 3.0 2.0

Non-profit institutions 1.7 — — 0.7

Household (servants) 4.6 1.7 3.0 3.0

Others 26.2 27.6 31.3 27.4

RURAL

Farm 57.2 42.7 35.9 47.0

Non-financial, non-farm employing <10 persons 32.4 33.4 25.5 31.7

Non-farm, non-financial establishment employing >= 10 persons 1.4 5.8 11.2 5.1

Financial institutions (banks, insurance company, pension fund) — — 0.8 0.1

Federal, provincial or local government or defence forces 0.4 8.4 17.5 6.9

Non-profit institutions 0.2 0.7 0.4 0.5

Household (servants) 1.3 1.0 — 1.0

Others 7.1 7.8 8.8 7.7

Source: NHDR/PIDE Survey 2001.

CHAPTER 3: ANNEXURE III 173

ANNEXURE III (g)TIMELY REPAYMENT OF ALL LOANS BY ECONOMIC STATUS

Extremely Poor Poor Non-Poor Total

Pakistan 3.3 4.4 9.2 4.9

Urban — — 10.0 1.1

Rural 4.0 5.0 9.1 5.4

REASONS

Pakistan

Crop Failure 27.6 17.3 17.8 21.1

Enterprise/Shop not making profit 13.8 7.6 4.7 9.3

Expenses on wedding, death, births, etc. 30.0 22.4 23.4 25.3

Business Expansion 5.5 4.7 7.5 5.5

Insufficient funds to repay loan 54.8 49.8 57.0 52.9

Others 15.7 12.6 8.4 13.0

No Response 152.5 185.6 181.3 172.9

Urban

Crop Failure 5.1 — — 2.4

Enterprise/Shop not making profit 17.9 10.8 22.2 15.3

Expenses on wedding, death, births, etc. 51.3 45.9 55.6 49.4

Business expansion 7.7 8.1 11.1 8.2

Insufficient funds to repay loan 61.5 59.5 66.7 61.2

Others 23.1 29.7 11.1 24.7

No Response 133.3 145.9 133.3 138.8

Rural

Crop Failure 32.6 20.0 19.4 24.2

Enterprise/Shop not making profit 12.9 7.1 3.1 8.3

Expenses on wedding, death, births, etc. 25.3 18.8 20.4 21.3

Business expansion 5.1 4.2 7.1 5.0

Insufficient funds to repay loan 53.4 48.3 56.1 51.6

Others 14.0 10.0 8.2 11.0

No Response 156.7 191.7 185.7 178.5

Source: NHDR/PIDE Survey 2001.

174 POVERTY, GROWTH AND GOVERNANCE

ANNEXURE III (h)SOURCES OF LOANS BY ECONOMIC STATUS

The loans obtained from various agencies Distribution of loans of agencies by various categoriesExtremely Poor Marginally Total Extremely Poor Marginally Total

Poor Non-Poor Poor Non-Poor

ALL PAKISTANADBP 1.0 2.7 5.1 2.5 13.6 50.0 36.4 100.0Commercial Banks — 0.2 3.2 0.7 — 16.7 83.3 100.0NGO 0.3 0.7 1.9 0.8 14.3 42.9 42.9 100.0Input Supplier 1.9 3.0 4.5 2.9 24.0 48.0 28.0 100.0Landlord 10.9 4.7 5.1 7.0 55.7 31.1 13.1 100.0Profit Money Lender 2.2 0.5 1.9 1.4 58.3 16.7 25.0 100.0Shopkeeper 39.1 37.2 26.1 35.9 39.1 47.8 13.1 100.0Factory/Mill 0.3 0.7 3.8 1.1 10.0 30.0 60.0 100.0Commission Agent 1.0 0.5 1.9 0.9 37.5 25.0 37.5 100.0Friends/Relatives 40.4 49.1 45.9 45.4 31.9 49.9 18.2 100.0Others 2.9 0.5 0.6 1.4 75.0 16.7 8.3 100.0Total 100.0 100.0 100.0 100.0 35.9 46.1 18.0 100.0URBANNGO — 2.3 — 1.0 — 100.0 — 100.0Input Supplier 2.2 2.3 — 1.9 50.0 50.0 — 100.0Profit Money Lender 6.7 4.5 7.1 5.8 50.0 33.3 16.7 100.0Shopkeeper 8.9 — 14.3 5.8 66.7 — 33.3 100.0Factory/Mill — — 7.1 1.0 — — 100.0 100.0Commission Agent — — 7.1 1.0 — — 100.0 100.0Friends/Relatives 73.3 90.9 64.3 79.6 40.2 48.8 11.0 100.0Others 8.9 — — 3.9 100.0 — — 100.0Total 100.0 100.0 100.0 100.0 43.7 42.7 13.6 100.0RURALADBP 1.1 3.1 5.6 2.9 13.6 50.0 36.4 100.0Commercial Banks — 0.3 3.5 0.8 — 16.7 83.3 100.0NGO 0.4 0.6 2.1 0.8 16.7 33.3 50.0 100.0Input Supplier 1.9 3.1 4.9 3.0 21.7 47.8 30.4 100.0Landlord 12.7 5.3 5.6 8.0 55.7 31.1 13.1 100.0Profit Money Lender 1.5 — 1.4 0.8 66.7 — 33.3 100.0Shopkeeper 44.2 41.7 27.3 39.9 38.6 48.7 12.7 100.0Factory/Mill 0.4 0.8 3.5 1.2 11.1 33.3 55.6 100.0Commission Agent 1.1 0.6 1.4 0.9 42.9 28.6 28.6 100.0Friends/Relatives 34.8 44.0 44.1 40.8 29.7 50.2 20.1 100.0Others 1.9 0.6 0.7 1.0 62.5 25.0 12.5 100.0Total 100.0 100.0 100.0 100.0 34.8 46.5 18.6 100.0

Source: NHDR/PIDE Survey 2001.

CHAPTER 3: ANNEXURE III 175

ANNEXURE III (i)REASON FOR REJECTION OF LOAN APPLICATION

Extremely Poor Poor Non-Poor Total

Reasons for not Applying for Loan

No need of loan (sufficient funds) 35.5 27.8 39.0 32.6

Don’t want to pay interest for religious reasons 42.4 43.6 35.3 41.9

Don’t know from where to get a loan form 48.2 44.4 26.6 43.5

Don’t believe that people will give me loan 45.3 46.6 29.4 43.7

Service charges/interest rates too high 39.8 47.0 36.7 42.6

Others 15.2 14.3 15.6 14.9

Reasons for Rejection of loan application

Don’t have the collateral 60.0 66.7 75.0 66.7

Limited knowledge and no proper guidance 40.0 33.3 50.0 40.0

Officer/lender asking bribe 20.0 16.7 — 13.3

Previous loan was outstanding 40.0 16.7 25.0 26.7

Others 20.0 16.7 25.0 20.0

No Response 40.0 33.3 100.0 53.3

Total 220.0 233.3 300.0 246.7

Source: NHDR/PIDE Survey 2001.

CHAPTER 5: ANNEXURE I 177

CHAPTER 5

Annexure I

Growth Nodes for Small Scale Enterprises

CHAPTER 5: ANNEXURE I 179

ANNEXURE IGROWTH NODES FOR SMALL SCALE ENTERPRISES

The proposed growth nodes for rural industrialization where the new Industrial SupportCentres (ISC’s) could be located are as follows:

PUNJAB

(1) Lahore-Chunian Axis. Centre: Bhai Pheru.(2) Lahore-Sheikhupura Axis. Centre: Sheikhupura(3) Gujranwala-Sialkot Axis. Centre: Sialkot.(4) Rawalpindi-Mianwali Axis. Centre: Mianwali.(5) Bahawalpur-Bahawalnagar Axis. Centre: Bahawalnagar.

NWFP

(1) Haripur-Abbottabad Axis and Haripur-Havelian Axis. Centre: Haripur.(2) Islamabad-Nowshera-Peshawar Axis. Centre: Peshawar.(3) Peshawar-Kohat Axis. Centre: Kohat.

BALOCHISTAN

(1) Lesbela-Quetta Axis. Centre: Lesbela.(2) Lesbela-Mekran Axis. Centre: Mekran.

SINDH

(1) Hyderabad-Nawabshah Axis. Centre: Nawabshah.(2) Nawabshah-Sanghar Axis. Centre: Sanghar.(3) Nawabshah-Larkana Axis. Centre: Larkana.(4) Larkana-Sukkur Axis. Centre: Sukkur.