Agriculture is usually the stepchild of the development process.

As countries grow, its importance shrinks while that of the

manufacturing and services sectors expand. However, Pakistan
has failed to make this transition. It has failed to build up an
efficient competitive manufacturing or services sector; it has
failed to develop its exports of high value goods and services; and
it has failed to keep up with neighbouring countries in terms of
high and sustained growth.
There is no doubt that over the medium to long term, Pakistan has to
develop an efficient and export-oriented manufacturing and services sector.
However, this will require overcoming a plethora of structural constraints.
These include poor infrastructure, unreliable energy supplies, a lack of
skilled and educated manpower, a heavy dependence on imported inputs,
and limited access to global value chains. Even if appropriate policies and
programme are set in place, overcoming these constraints will take time.
In the interim, could agriculture play a greater role? Currently, Pakistan has
a bloated and inefficient agriculture sector. It employs about 40% of the
labour force but produces only a quarter of GDP. The vast majority of
farmers cultivate small plots which become increasingly uneconomic with
each passing generation. The lack of capacity of small farmers to earn and
invest in machinery, land improvement and training is a major bottleneck
to growth.
Deprived of investment, skilled labour and entrepreneurship, inefficiencies
abound. Yields on major agriculture products are well below their potential
and critical resources such as land, water and energy are utilised
inefficiently. The result is a consistently anemic growth of between 2% and
3% — barely above population growth.
There are several reasons for prioritising agriculture in the current
economic environment. First, higher agriculture growth would generate
many positive effects: it would reduce our dependence on imported food
and on cotton — an essential raw material for our textile industry; it would
help enhance exports of high value fruits, vegetable and livestock products;
and, most importantly it would raise incomes and nutrition level among the
rural poor — a large and particularly vulnerable group in our society.
Second, agriculture growth would improve our foreign exchange situation.
Agriculture does need some imports such as machinery and chemicals but
the main inputs — land, water and labor — are domestic. Higher growth
would help save on imports and enhance exports; and the overall impact on
the balance of payments is likely to be positive.
Third, there has been a rising interest from the private sector in agriculture
over the past 2-3 years. This is due to shortages and high prices for food
and other agricultural commodities resulting from Covid, the conflict in
Ukraine and various trade disputes. Private sector operators have seen the
scope for expanding investments in the sector.
Increasing interest in agriculture can be seen, for example, in the creation
of production clusters. In suitable areas, farmers, traders and transporters,
as well as new investors and entrepreneurs, work together to specialise in
production and marketing a particular crop. Examples of such production
clusters include bananas in lower Sindh, potato in Punjab and cherries in
Gilgit Baltistan. Another way has been through “diversified farming” where
several crops on the same plot of land. The mix of crops is chosen with the
help of seed suppliers, market agents and transporters in such a way that
they have different planting and harvesting times. This means that farmers
have a smooth cash flow over the year, and that agronomic and market
risks and reduced.
But these developments, while innovative and exciting, are still not enough
to bring about strong growth in the entire sector. Much more has to be done
and Government has a key role to play.
Among the most important policy change would be to remove distortions
and allow markets to work. Currently restrictions on internal and
international trade create production and consumption distortions. The
ongoing chaos in the wheat market is a case in point where bans and
controls are creating local shortages and price spikes. Similarly, in the case
of sugar, import restrictions, the occasional export subsidy and virtually
free supply of irrigation water has artificially raised the profitability of
sugarcane production to the more economically viable cotton crop.
There is also a need improve markets for key inputs. Sale and lease of
agricultural land should be made easier, for example by greater use of
computerised land records; surface irrigation water should be priced closer
to its true price which would encourage better and more equitable use; and
credit flows to small farmers should be increased for example greater use of
financial intermediaries.
Finally, there is a need is to improve the impact of public expenditures
allocated to agriculture. Over the past decades, billions of rupees have been
spent on fertiliser subsidies and public procurement of wheat. Both have
largely benefited the larger farmers who are more interested in maintaining
rental incomes than in enhancing productivity. Similarly, the benefits of
irrigation development have been largely hijacked by large landholders to
the detriment of small farmers who often live in the tail end of canal
systems. The Government also spends large amounts on maintaining
support services such as extension, research and animal health which are
inefficient and largely ineffective.
Public money saved from cutting back on the above expenditures should be
redirected.
Among high priority actions are technology generation for products with
high potential which have received little or no attention such as fruits,
vegetables and livestock; development projects aimed primarily at creating
services and facilities for small scale farmers and the rural poor; and for
improving the regulatory framework in areas such as control of animal
diseases which cripple our exports, or in the area of food safety.
Published in The Express Tribune, May 24th, 2023.
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his writer has borrowed the title for his article from the
autobiography of Syed Babar Ali titled ‘Learning From Others’ as
this approach appears to be the most suitable solution in
country’s current environment.

Pakistan seeks advice and plans for economic revival from various places
such as the USA, UK and other European countries which have completely
different historical, cultural, political and social background and structures.
We do not seek guidance from experience of our next-door neighbour,
India. In his previous articles carried by this newspaper, the author tried to
draw some parallels between two economies (2002 and 2022), reaching the
conclusion that common steps towards liberalisation, privatisation, and
globalisation of economy that commenced almost at the same time in 1990s
brought about a sea change in the Indian economy for the better whereas
Pakistan is on the brink of an economic collapse.

The steps undertaken were identical; however, the results are diametrically
different. The reasons behind this divergence will be spelled out by the
author in an upcoming series of articles in this newspaper.

Therefore, as a first step, the speech that the then finance minister, Dr
Manmohan Singh, delivered while presenting his country’s Budget in Lok
Sabha on July 24, 1991 for fiscal year 1991-92 that changed the course of
the Indian economy irrevocably has been analysed.

His speech and policy guidelines are extremely relevant for the reason that
in 1991 the state of the Indian economy was hardly different from present-
day Pakistan’s economy. It is, however, interesting to note that Pakistan’s
economic indicators in 1991 were better than India’s.

Humility, commitment and confidence

At the outset, the concluding paragraph of Dr Singh’s speech is reproduced

below to reflect his personal commitment:

I was born in a poor family in a chronically drought prone village which is

now part of Pakistan. University scholarships and grants made it possible
for me to go to college in India as well as in England. This country has
honoured me by appointing me to some of the most important public
offices of our sovereign Republic. This is a debt which I can never be able to
fully repay.

The best I can do is to pledge myself to serve our country with utmost
sincerity and dedication. This I promise to the House. A Finance Minister
has to be hard headed. This I shall endeavour to be.

I shall be firm when it comes to defending the interests of this nation. But I
promise that in dealing with the people of India I shall be soft hearted. I
shall not in any way renege on our nation’s firm and irrevocable
commitment to the pursuit of equity and social justice. I shall never forget
that ultimately all economic processes are meant to serve the interests of
our people.
It is only through a commitment to social justice and the pursuit of
excellence that we can mobilise the collective will of our people for
development, to give it a high moral purpose and to keep alive the spirit of
national solidarity. The massive social and economic reforms needed to
remove the scourge of poverty, ignorance and disease can succeed only if
backed by a spirit of high idealism, self-sacrifice and dedication.

Then at the end of the speech he tries to instill among people much-needed
hope during a period of profound despair. His optimism stemmed from the
line of actions the government had decided to take itself; it was not due to
any commitments of loans from the foreign countries or lenders. He stated:

Sir, I do not minimise the difficulties that lie ahead on the long and arduous
journey on which we have embarked. But as Victor Hugo once said, “no
power on earth can stop an idea whose time has come.” I suggest to this
august House that the emergence of India as a major economic power in
the world happens to be one such idea. Let the whole world hear it loud and
clear. India is now wide awake. We shall prevail. We shall overcome.

Results of reforms:

On thirtieth anniversary of the reforms in 2021, Dr Singh, the former prime

minister, who as finance minister in 1991 led the reforms under the then
prime minister Narasimha Rao, said:

“India has grown to be a US Dollar 3 trillion economy and lifted nearly 300
million Indians out of poverty in the last three decades”. Then he spoke
about the economic liberalisation policies of 1991 and said that those
reforms “paved a new path for our nation’s economic policy”.

Description of state of the economy:

In the first part, explaining the state of economy of India in 1991, he had
stated:

“The balance of payments situation is precarious. …However, due to the

combined impact of political instability witnessed thereafter, the
accentuation of fiscal imbalances and the Gulf crisis, there was a great
weakening of international confidence.

There has been a sharp decline in capital inflows through commercial

borrowing and non-resident deposits. As a result, despite large borrowings
from the International Monetary Fund in July 1990 and January 1991,
there was a sharp reduction in our foreign exchange reserves.

Due to the combination of unfavourable internal and external factors, the

inflationary pressures on the price level have increased very substantially.”
We have not experienced anything similar in the history of independent
India.”

In 2023 Pakistan is facing an identical situation. The first cause identified

was political instability. In those days, India had been witnessing very weak
successive coalition governments.

Today we are facing a similar situation, so to

speak. We have current and fiscal account deficits
and there is erosion of trust of Pakistanis at home
and abroad in the state of country’s economy and
its viability. This means that whatever Pakistan is
facing nowadays is not unusual at all. The only
problem is that we are not ready to accept the
challenge and devise a strategy accordingly. That
we do not have an erudite and skilled economist
like Dr Manmohan Singh in our midst is also a
fact.
The reasons for crises:

The reasons were then explained as:

The origins of the problem are directly traceable to large and persistent
macroeconomic imbalances and the low productivity of investment, in
particular the poor rates of returns on past investments.

There has been an unsustainable increase in Government expenditure.

Budgetary subsidies, with questionable social and economic impact, have
been allowed to grow to an alarming extent.

The tax system still has many loopholes. It lacks transparency so that it is
not easy to assess the social and economic impact of various concessions
built into its structure.
The public sector has not been managed in a manner so as to generate large
investible surpluses.

The excessive and often indiscriminate protection provided to industry has

weakened the incentive to develop a vibrant export sector.

Pakistan is now facing similar problems:

a. macroeconomic imbalances;

b. poor rates of real return on past investments;

c. budgetary subsidies;

d. inefficient tax system;

e. loss-making and inefficient public sector; and

f. excessive and often indiscriminate protection provided to industry

Calling a spade a spade

This is the most important part of his speech. Unlike our leaders Dr Singh
told the people that things are bad and there is no time to be complacent.

‘There is no time to lose.

Neither the Government nor the economy can live beyond its means year
after year. The room for manoeuvre, to live on borrowed money or time,
does not exist anymore. This process would, inevitably, need at least three
years, if not longer, to complete. But there can be no adjustment without
pain.

The people must be prepared to make necessary sacrifices to preserve our

economic independence and restore the health of our economy.”

(To be continued)

Copyright Business Recorder, 2023

n Pakistan we do not appreciate the fact that we have lived
beyond our means’ for far too long at our own peril. Ways and
means as well as the room to manoeuvre do not exist anymore.

Secondly, the people have to be prepared to be ready for the pain. If the
matter of living beyond our means is analysed then it shows that Pakistan
has a history worse than India’s.

Nevertheless, there is always a terminal point which incidentally has

arrived in Pakistan in 2023. Dr Manmohan Singh was and still is a
politician. But his vision was different.

‘Learning From Others’–I

Principles of Reform

The principles of the reform agenda are well prescribed as under:

Macroeconomic stabilisation and fiscal adjustment alone cannot suffice.

“The thrust of the reform process would be to increase the efficiency and
international competitiveness of industrial production…to utilise for this
purpose foreign investment and foreign technology to a much greater
degree than we have done in the past, to increase the productivity of
investment, to ensure that India’s financial sector is rapidly modernised,
and to improve the performance of the public sector, so that the key sectors
of our economy are enabled to attain an adequate technological and
competitive edge in a fast changing global economy.”

This is the most important part of his speech. It has been clarified that
macroeconomic stabilisation is always a temporary phase. If fundamentals
are wrong then any temporary repair cannot produce the desired results. If
a country has to stand firm in this integrated world then it would have to:

a. increase the efficiency and international competitiveness of industrial

production;

b. utilise foreign investment and foreign technology to increase the

productivity of investment,

c. and to improve the performance of the public sector to attain an adequate

technological and competitive edge in a fast changing global economy.
Pakistan’s industrial sector has failed to achieve this aim in all the
segments. We have not used foreign investment and foreign technology to
increase the productivity of investment.

Deregulation

This was, perhaps, the most important subject for India as it was a heavily
regulated society with a huge public sector or State-Owned Enterprises.

“We have developed a well-diversified industrial structure. This constitutes

a great asset as we begin to implement various structural reforms.

However, barriers to entry and limits on growth in the size of firms have
often led to a proliferation of licensing and an increase in the degree of
monopoly.

This has put shackles on segments of Indian industry and made them serve
the interests of producers but not pay adequate attention to the interests of
consumers.

There has been inadequate emphasis on reduction of costs, upgradation of

technology and improvement of quality standards. It is essential to increase
the degree of competition between firms in the domestic market so that
there are adequate incentives for raising productivity, improving efficiency
and reducing costs.

For example, at present, Non Resident Indians (NRIs) of foreign nationality

are required to obtain specific permission under section 31 of the Foreign
Exchange Regulation Act (FERA) to acquire residential property. It is now
proposed to provide general exemption from this provision to such persons.
However, rental income and proceeds from the sale of such housing will be
non-repatriable”.

This is the biggest difference between India and Pakistan. In the first forty
years after independence, India had developed a reasonable industrial base
with a highly protective environment which only required deregulation and
modernization.

Insofar as Pakistan is concerned, there is no industrial base except for a few

sectors; therefore, the question of reform is effectively irrelevant.
Furthermore, whatever industrial we have, it operates in a protected
environment and is not capable of facing competition.
Protection to domestic industry/competition/basis of FDI

The policy objective to reforms and their interconnectivity is explained as

under:

“The policies for industrial development are intimately related to policies

for trade. There can be no doubt that protection was essential in the initial
phase of our industrial development, so that we could go through the
learning period without disruption. The past four decades have witnessed
import substitution which has not always been efficient and has sometimes
been indiscriminate.

“The time has come to expose Indian industry to competition from abroad
in a phased manner.

“…the Government has introduced changes in import export policy, aimed

at a reduction of import licensing, vigorous export promotion and optimal
import compression.

“After four decades of planning for industrialisation, we have now reached

a stage of development where we should welcome, rather than fear, foreign
investment. Our entrepreneurs are second to none. Our industry has come
of age.

Direct foreign investment would provide access to capital, technology and

markets. It would expose our industrial sector to competition from abroad
in a phased manner.

“Cost, efficiency, and quality would begin to receive the attention they
deserve. We have, therefore, decided to liberalise the policy regime for
direct foreign investment in the following manner.

“First, direct foreign investment in specified high priority industries, with a

raised limit for foreign equity at 51 per cent, would be given prompt
approval, if equity inflows are sufficient to finance the import of capital
goods at the stage of investment and if dividends are balanced by export
earnings over a period of time.

“Second, foreign equity up to 51 percent would be allowed for trading

companies primarily engaged in export activities.

“Third, a special board would be constituted to negotiate with a number of

large international firms and approve direct foreign investment in selected
areas; this would be a special regime to attract substantial investment that
would provide access to high technology and to world markets”.

There are two aspects to this part. Firstly, it has been acknowledged that
the country is ready to remove protectionism. Not under the pressure of the
WTO (World Trade Organisation) but as a sensible economic decision.
Allowing foreign investment in various sectors is the other aspect.

Unfortunately, however, Pakistan, in both the cases or areas, acted in a

hasty and an imprudent manner. There is compliance to the WTO without
looking at the status of the national industrial base and its competitiveness.

Foreign Direct Investment (FDI) policies constitute

the biggest disaster. We allow 100 percent foreign
ownership in companies making ordinary FMCG
products whereas India does not allow even 50
percent ownership in these sectors. They allow
foreign investment only for the purpose of
industrial growth. In short, it is a consideration of
economic stability in India, whereas in Pakistan
we consider purchase of already existing shares of
listed companies as FDI.
Public sector in business:

“The public sector has made an important contribution to the

diversification of our industrial economy.…the portfolio of public sector
investments would be reviewed so as to concentrate the future operations of
the public sector in areas that are strategic for the nation, require high
technology for the economy, and are essential for the infrastructure.

“Public enterprises which are chronically sick and which cannot be turned
around, will be referred to the Board for Industrial and Financial
Reconstruction (BIFR), or to a similar high-powered body to be set up, for
the formulation of revival or rehabilitation schemes; a social security
mechanism will be created to fully protect the interests of the workers likely
to be affected by the rehabilitation packages of the BIFR.
“Autonomy in management, and corresponding accountability, would be
provided through a system of memorandums of understanding between the
Government and public sector enterprises”.

The policies were more or less identical during the 2002-2020 period;
however, the number of industries privatized in India in various modes was
substantially higher than in Pakistan.

Importance of economic planning:

“The most important thing that comes out clearly is that we cannot realise
our goal of establishing a just society, if we abandon the planning process.
…future development depends crucially on how well the planning process is
adapted to the needs of a fast changing situation.

“…without an intelligent and systematic coordinated resource use in some

major sectors of our economy, development will be lopsided. It will violate
deeply cherished values of equity and it will keep India well below its social,
intellectual and moral potential.

“But our planning processes must be sensitive to the needs of a dynamic

economy. Over-centralisation and excessive bureaucratisation of economic
processes have proved to be counter-productive”.

(To be continued)

Copyright Business Recorder, 2023

India is under a regular five-year plan, which is based on well

researched and informed decisions. Priorities there are not set
at the whims of politicians. In Pakistan’s case, however, setting
up of a coal-fired power plant in Sahiwal was the result of a
whimsical decision, so to speak.

If anyone other than Dr Singh can be treated as the architect of modern

Indian economic structure then he is Dr Montek Singh Ahluwalia, who like
Dr Manmohan Singh, was born in our part of Punjab (the 1947 partition of
the Subcontinent divided Punjab into two parts—the West Punjab
belonging to Pakistan and the East Punjab, which became part of India).

‘Learning From Others’—II

Free Market and Socialism

Socialism remained the backbone of Indian society

for over 40 years. Pakistan tried to copy the Indian
model in the 1970s. The most difficult task for Dr
Manmohan Singh was to get away from this
mindset. The presence of Communists in the
government as coalition partners had added to the
enormity of his task.
He stated: “We need to expand the scope and the area for the operation of
market forces. A reformed price system can be a superior instrument of
resource allocation than quantitative controls. But markets can only serve
those who are part of the market system. A vast number of people in our
country live on the edges of a subsistence economy. We need credible
programmes of direct government intervention focusing on the needs of
these people.

We have the responsibility to provide them with quality social services such
as education, health, safe drinking water and roads. In the same way, the
development of capital and technology intensive sectors, characterised by
long gestation periods, such as transport and communications and energy
will need to be planned with much greater care than ever before.

‘Learning From Others’–I

The socialist experiment in charting a new path for accelerated industrial

transformation of an underdeveloped economy and polity did achieve
considerable success in developing technological and military capabilities,
accumulation of capital for rapid industrial growth and human resources
development, in countries such as the USSR. But recent developments have
shown that this approach too suffered from major weaknesses, particularly
in its allocative efficiency, in the management of technical change, control
of environmental degradation and in harnessing the vast latent energy and
talents of individuals.”

This is the most important and visionary statement of Dr Singh. He had

admitted that the era of radical socialism had come to an end.

However, he, like Thomas Piketty, that “unbridled capitalism suffers

weaknesses, particularly in its allocative efficiency, in the management of
technical change, control of environmental degradation and in harnessing
the vast latent energy and talents of individuals”.

Wealth Creation & Consumerism

Wealth creation has been socially considered as a sinister objective in the

subcontinent’s society. This mindset persists in both the countries. On this
matter, it is stated:

“For the creation of wealth, we must encourage accumulation of capital.

This will inevitably mean a regime of austerity. We have also to remove the
stumbling blocks from the path of those who are creating wealth. At the
same time, we have to develop a new attitude towards wealth.

In the ultimate analysis, all wealth is a social product. Those who create it
and own it, have to hold it as a trust and use it in the interest of the society,
and particularly of those who are under-privileged and without means.

In highlighting the significance of reform, my purpose is not to give a fillip

to mindless and heartless consumerism we have borrowed from the affluent
societies of the West.

My objection to the consumerist phenomenon is two-fold. First, we cannot

afford it. In a society where we lack drinking water, education, health,
shelter and other basic necessities, it would be tragic if our productive
resources were to be devoted largely to the satisfaction of the needs of a
small minority.”

This taboo against wealth creation and accumulation appeared to have been
eliminated by removing the stumbling blocks from the path of those who
are creating wealth.

However, it has been suggested that there has to be a new attitude towards
wealth and those who create and hold it must remember that they hold it as
a trust and use it in the interest of society, and particularly of those who are
under-privileged and without means.

(To be continued on Sunday)