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1947-1958 Industrialization of Pakistan
1947-1958 Industrialization of Pakistan
1947-1958 Industrialization of Pakistan
Introduction
The presentation is divided into the following parts: Problems faced at the time of partition Economic and Financial Development
Influx of Refugees
Till the end of 1955 it is estimated that about 7 million refugees entered West Pakistan (in East Pakistan it was 1.25 million) as compared to about 5.6 million Hindus and Sikh refugees who had left Pakistan for India.
The extent of the impact of the refugee influx on the local population can be gauged by the fact that (according to the 1951 census) the migrants, as a percentage of the total population of Karachi, were 55 per cent and, in the case of the Punjab, 25.6 per cent.
A year later, when the State Bank of Pakistan was established, the number of branches of scheduled banks had dwindled to only 195, of which only 65 existed in Pakistan
The only scheduled bank that remained in Pakistan was the Muslim-owned Australasia Bank - too small and ill-equipped to handle the business. The acute shortage of skilled staff was a key factor in inhibiting the evolution of even a basic system of banking.
India and Britain now no longer reigned supreme as Pakistan was able to diversify into new areas
Pakistani exports consisting of jute and cotton rose by 109%. BOP improved.
India also recognized Pakistan's new exchange rate, and trade was resumed after a suspension of eighteen months, but on a smaller scale than earlier
By mid 1951 world prices of raw materials began to decline and export earnings also saw a decrease. But Pakistan was too slow to react, and policies continued as if nothing had changed. In 1952 jute and cotton prices fell, as did export earnings and Pakistan was facing a serious balance of payments crisis and sharply falling reserves
Industrial Development
Background
The Korean War export boom resulted in traders and merchants amassing considerable amounts of wealth. Conversion of merchant capital into industrial capital due to collapse in prices. With controls imposed on imports, especially on consumer goods the Prices of these goods increased sharply in the domestic market which changed the terms of trade in favor of industry and against agriculture
Industrial Development
The Trade Policy Three major aspects: overvaluation of the rupee relative to other countries use of quantitative controls on imports to regulate the level and composition of imported goods highly differentiated structure of tariffs on imports, and export taxes on the-two principal agricultural exports: jute and cotton
lower tariffs on intermediate and capital goods tight controls over the import of luxuries controls on other consumer goods easier access to capital goods and industrial raw materials
Industrial Development
Import licensing system as exchange-saving device Direct quantitative controls were dominant in setting prices and incentives. Through their substantial impact on relative prices, these controls speeded the process of structural change both by imposing the inducements to invest in various industries and by transferring substantial amounts of income to industrialists who reinvested them in the profitable manufacturing sector
Industrial Development
Import substituting industrialization The policy pursued can be put simply as follows: Produce anything that can be reasonably produced domestically. Once production has started domestically, ban imports of competing goods so as to save foreign exchange.
Industrial Development
Industrial Development
Industrial Development
Results Towards the end of the 1950s, Pakistan was in a position to produce export surpluses as well. foreign exchange could be saved regardless of cost, and its desire to produce domestically almost anything that technologically could be produced. Private sector initiative in economic growth. The annual returns on investment ranged from 50 to 100 per cent in the early 1950s, but dropped to between 20 and 50 per cent in the latter part of the decade.
Private industrialists were not very keen to invest. Large number of set up by the PIDC in the area of cement, pharmaceuticals, iron and steel which were then over to the private sector.
The government ensured that the prices of agricultural commodities continued to remain low through combination of price controls and export duties on agricultural products.
"Development Board" was established in 1948 under the Minister for Economic Affairs, with Secretaries of development ministries as members. D.B was directly answerable to the Cabinet or the "Economic Committee of the Cabinet".
Monetary Policy
One of the objectives of money policy was to develop the various aspects of financial sector particularly the banking system. In the early years of the country's economic history size of private sector was small and banks were very conservative in lending so the private sector used only 25% of the total bank credit during 1947-58. Government used 75% of the bank credit during 1948-58.
Monetary Policy
Bulk of the credit was used by the government to meet its expenditures; it was used to finance foreign trade and commerce. Though the private sector got very small parts of the bank credit. The number of branches of the commercial banks expanded in the 1950s, these banks continued to mobilize increasing domestic saving and also supplied credit to domestic industries. In 1952 the total advances made to different sectors were from: 38% by Pakistani banks 22% by Indian banks 40% by foreign banks In 1953, 48% of all advances by banks were focused on commercial activity. The bulk of loans were utilized in financing the wholesale and retail trade of the country. Advances were made: 16% to manufacturing One third for metal products and one fifth for textiles. Not surprisingly, a greater share of credit was extended to West Pakistan to East Pakistan.
Monetary Policy
Percentage Share in Total Credit 1950-51 to 1959-60
Government Sector Private Sector Other Items
5% 24%
71%
Public sector
Monetary policy gave importance to asset side of the banking system and up to 1960 bulk of monetary expansion was on account of credit to the government sector- used 75% of the bank credit during 1948-58
Private sector
Size of private sector was small and banks were very conservative in lending so the private sector used only 25% of the total bank credit during 1947-58
Period
1951-55 1956-60
Conclusion
Between 1949 and 1958 the growth rate of industry in Pakistan was amongst the most rapid for any country in the world. Large-scale manufacturing grew at a phenomenal 23.6 per cent between 1949 and 1954, and afterwards, by the still very impressive 9.3 per cent up to 1960. With industry growing at high rates, there was' a reverse picture in the agricultural sector. The most developed areas within the year 1948 to 1958, was the rehabilitation of the banking sector which improved gradually because most of the banks were dominated by non Muslims of United India. Investments in education and health were minimal and they had very low priority in the total development expenditure. This era also marked the reason for the now independent Bangladesh, because of the biasness showed by the government to West Pakistan.