Poverty alleviation has become a buzzword these days. There is lot of talk on this subject by government officials day in and day out, waxing eloquence on the need for poverty alleviation and some measures have also been initiated to that end. A large loan from IMF has been obtained under its Poverty Reduction and Growth Facility (PRGF) programme.

The State Bank of Pakistan (SBP) in its latest Annual Report for 2002-03 has also touched upon this issue and the observations made are worth reproducing. It says, “Despite the impressive improvement in the macroeconomic fundamentals, a strong and secure external sector, increased development expenditure by the government, upsurge in growth, easy monetary policy and a quantum jump in private sector credit, the popular perception about the economy amongst the media and commentators does not reflect the improvement. It is true that the incidence of poverty in the country has risen from almost 20 percent to 33 percent, but this happened over last 15 years and is not a result of the policies in last four years.

“The reversal of this trend cannot take place until economic growth is put back on the trajectory of a sustained rate of 6 percent and pro-poor interventions are faithfully implemented, the current rate of growth can only arrest a further rise in the poverty incidence. It is therefore important for the country to have realistic expectations rather than to hang on to false pretensions or indulge in fanciful speculation. Given the carryover of the past legacy, and current institutional capacity, it will be a pipe dream to expect an accelerated fall in the incidence of poverty in Pakistan in the short term. The biggest challenge facing the economic managers in the short term is to create as many jobs as possible. The policy focus therefore should shift to (1) increased government spending on human resource development and infrastructure and (2) greater investment by the private sector.”

These are sombre thoughts, even if they depict the ground reality. The statement that the incidence of poverty is falling and cannot be accelerated is contradicted by an earlier statement that the reversal of the trend cannot take place without adequate growth. Is there a suggestion that the deterioration has been arrested? This would be against the general perception and refuted by the rapidly increasing incidence of economic suicides not only by the individuals, but also their entire families.

Suicide in a Muslim society is a very extreme desperate recourse as it is strongly condemned by Islam. Such persons cannot be asked to wait for the growth rate to go up to 6 per cent and sustained at that level for some years. In this extremely explosive perspective, arresting the deterioration, before daring to expect improvement, is the dire necessity of time brooking no delay and not a pipe dream.

No realistic strategy can be evolved to effectively address this serious problem without going into the fundamental causes of the rot. National average of poverty indicators do not reveal the regional disparity pointing to a far more serious situation in certain regions of the country. The incidence of poverty ranges from a low of 16 per cent in the northeastern areas to 44 percent in NWFP and FATA, as compared with the overall average of about 33 percent.

At the government level, an Interim Poverty Reduction Strategy Paper was prepared in November 2001, to serve as a basis for discussions with the IMF for its PRGF, which was sanctioned in December 2001. Its final version is still under preparation. According to the IMF, “This outcome (poverty) mostly reflects insufficient private investment and growth, the impact of drought on the rural regions and inadequate provision of basic social services, as public spending on human development remains too low. Some of the institutional causes of poverty, such as ownership of land, other assets and deep-rooted gender issues have yet to be fully addressed.” (Business Recorder, World Bank\IMF Supplement, September 23, 03)

Economic managers in Pakistan seem to believe that stepping up the rate of growth to 6 per cent and sustaining it will be the panacea. This view is based on the old, but now universally discarded, trickle-down theory. The problem is not that simple. What is the guarantee that the benefits of growth would not gravitate towards the higher income brackets, as has been the bitter experience in developing countries as well as in Pakistan, but trickle down to the lowest rung? Much more will have to done to ensure equitable distribution of income and wealth, a process likely to be frustrated by powerful vested interests, which are now deeply entrenched in the political system in the name of democracy.

In addition, some of the economic measures initiated by the government for macro stability are obviously anti-poor. The increasing reliance on indirect taxes through value added tax only burdens the common man and not the businessmen and so is the ultimate incidence of corruption. Cheap credit policy is to the benefit of the borrower but to the detriment of the lender- the saver who is now getting a negative real rate of return from commercial banks. A good portion of the income of the poor has been knocked off by the sharp reduction in return on Small Saving Schemes with good prospects of further drop. The new schemes for pensioners and widows are nothing but just an eye-wash and do not in any way compensate their true loss.

Moreover, the withholding tax makes a mockery of equity and justice. The threshold for income tax is Rs. 80,000 and the rate up to Rs150,000 of the taxable income is 7 percent. No such relief is available to the small saver. They are charged 10 percent even if they get the measly sum of only Rs. 10, which cannot pay for even a cup of tea. Now they will have to pay service charges on their meagre deposits with commercial banks. With such anti-poor measures, poverty alleviation would certainly be a pipe dream

Apart from changes in macro economic policies, specific measures are needed for addressing the regional problems. There should be a two-prong approach to take into account the fact that rural and urban poverty has different character and dimensions. Rural incomes are basically determined by the terms of trade between agricultural and non-agricultural products. There is no reliable study about the trend of these terms of trade, but the general impression is these have been unfavourable to agriculture and are deteriorating.

For this wholesale prices of agricultural products should not be taken, but the actual price received by the farmer. For some products, which are perishable like vegetables and fruits, the farmer hardly gets one-third of the market price. The suppliers of cotton to ginneries and sugar cane to mills get a raw deal from them. Among other things, payment is often delayed not by months but by years and many of them are forced to sell their “chits”,receipt for supply, at a deep discount. Non-payment to them, especially in Sindh, is very much in the news these days as an element of the sugar crisis.

Farmers’ holding power is extremely limited for want of resources whether own or borrowed. They are often heavily indebted to non-institutional creditors who in the interior of Sindh and other remote areas of the country are plain blood-suckers. Farmers have to pay a very high cost either in advance sale at ridiculously low prices or monetary return by way of interest. To add to their woes, the latest development is the supply of substandard or adulterated fertilizer, pesticides and insecticides, which are costly but grossly ineffective. The feudal culture in rural areas is to the detriment of the poor small farmer.

In canal-irrigated areas, they are often deprived of their share in water at the very crucial stage of production and the tail-enders are the worst sufferer. They, along with their families, are also frequently called upon to render free service. In short, they are in the iron grip of the village influential, call them waderas, feudal lords, Khans, Chaudharies, Makhdums, Quraishis, Lagharis, Mazaris, Bugtis, Mengals, Marris or what you may. They control by mixing a streak of compassion with cruelty and have the local administration at their back and call. One very prominent wadera politician of Sindh once wrote an article counting the blessings of feudalism and had the audacity to assert that people have more confidence in them, seek justice through them and do not go to police. Yes, the hapless do so knowing full well who holds the lever.

They thrive on poverty of the small farmer. The culture has not changed much after the creation of Pakistan. If any thing, this class has become all the more powerful by branching out into bureaucracy, industry, commerce, finance and politics at all levels Their dominance in the present so-called democratic parliament fully mirrors the situation. They pay lip service to reform but frustrate it when it touches their jurisdiction. Education in some rural areas is a prime example So long as this culture persists, there can be little hope of poverty alleviation in rural areas.

Land reform is often suggested to deal with the problem of land-lords. As indicated above, the IMF wants this to be a policy plank This has already been attempted in Pakistan but, as the schemes were riddled with loopholes and not enforced sincerely for want of will and determination, they could not make any dent. Islam provides a far more potent weapon in its system of inheritance, which is non-discriminatory in regard to the source of wealth and economic sectors. It is a sad commentary that in an Islamic Republic the Quranic injunctions and their elaboration by the Holy Prophet (pbuh) in this regard may be blatantly violated. The strong in the family often usurps the inherited wealth depriving the weak, particularly the ladies. Some times they are married to the Quran to retain the wealth in the family. This neglected area is crying for action, which apart from removing injustice would be economically beneficial to the nation through dispersal of wealth.

Equally important are measures to make the small farmer stand on their own. Institutional credit can play a vital role by enhancing their holding capacity and encouraging the spirit of enterprise. Largely at the initiative of the State Bank, there has been a significant increase in agricultural credit. Who stands to benefit is an interesting question and may be attempted in another articles. There can be no denying the fact that institutional agricultural credit stops at the door of the big farmer and does not percolate to the small farmer.

They are to be reached and this would not be possible without a radical change in the banking culture to wean it from the elite, who are often defaulters, and make it serve the currently despised small man. It is very significant, rather startling and disturbing, that banks are prepared to write off debt of the big guy, who often defaults, and not lend to the small guy who never defaults. Under the guidance of the State Bank of Pakistan loans worth Rs. 25 billion have been written off in recent years. If the earlier write-offs, which have never been made public, are added the amount should be at least twice as much. As against this, total outstanding scheduled banks advances of up to Rs 25,000 each, a figure close to the per capita income in the country, as of end June 2003, were only Rs4.6 billion, of which commercial banks accounted for Rs2.7 billion The present policy of closing the rural branches of commercial banks will have to be reversed.

They are mostly loss-making simply because they do not lend there. Once they go into that field, with the proven credit worthiness of the small man, they would become profit-making. It would be very useful if the State Bank would institute some mechanism to regularly monitor the actual use of institutional and non-institutional credit in rural areas. This task can be sourced out to some reliable economic research institutions like PIDE. They have recently done a study on this very subject. What is needed is regular monitoring on a permanent basis like the poverty profile in the country.

The spectacle of an army of garbage pickers and hordes of beggars at traffic crossings is a telling indicator of urban poverty. Inadequate employment opportunities to absorb the rapid pace of urbanization, on top of high rate of population growth, and high cost of living, most of it not captured by CPI, are the basic causes. The problem is compounded by rampant corruption and existence of all sorts of mafias imposing bhatta in various forms mostly in sprawling katchi abadis. To this may be added the increasing incidence of drug addiction among the unemployed poor taxing the already meagre family resources or encouraging petty thefts as well as serious crimes.

The pace of migration from rural to urban areas can be slowed down by improving living conditions in rural areas and by providing employment opportunities there. Labour intensive agro-based industries in rural areas offer tremendous scope. This will also help make use of agricultural products, which at present go waste for want of simple processing and marketing. Dates in Baluchistan are a glaring case.

The problem of unemployment in urban areas is directly related to industrial investment. In the past, employment in public sector enterprises was offered as political patronage and this was on a mass scale regardless of the need and the means to pay. Large-scale downsizing in them was necessary to make them economically and financially viable. Privatization of some of them speeded up the process. In pursuance of the new philosophy of government getting out of running business, fresh industrial investment in the public sector is shriveling and had come down from Rs. 8.7 billion 1996-97 to Rs1.6 billion in 2002-03.

Private sector investment in manufacturing first declined from Rs65.1 billion in 1996-97 to Rs59.9 billion in 1998-99, but tended to pickup subsequently and was up to Rs129.5 billion in 2002-03. The ratio of total industrial investment, public as well as private, to GNP was 3.1 per cent in 03 as against 3.2 in 1998-99 and 3.1 per cent in 1996-97. The corresponding ratios for the private sector were, 3.1 percent, 2.7 percent and 2.1 percent respectively. The industrial investment in the private sector in recent years has been in the textile and that too by way of balancing and modernization. This is not job creating, but, on the contrary, might end up in redundancies.

The utilization of existing industry leaves much to be desired. According to the latest SBP Annual Report capacity utilization in some industries during 2002-3 was as follows: food (sugar, ghee and cooking oil), 48.6 per cent; sugar, 64.5 per cent; Textiles (spinning), 83.7 per cent; textile (weaving), 47.6 per cent; cement, 67.8 per cent; electronics, 34.1 per cent; and automobiles, 60.4 per cent. Thousands of industrial units have been lying closed for years and it would be a wonder if there is left any life in the machinery. Highly leveraged as these are, the owners’ with nominal equity are least bothered about them. They are holding on to them for their real estate value seeing the not unlikely prospect of bank loan write-off.

The government does not tire of making announcements of being business friendly but has gone too far to allow itself to be practically black mailed. This has happened twice; first in regard to the recovery of bad debt and now complete surrender to sugar mill owners ignoring the interest of farmers and the irreparable damage late crushing would do to the forthcoming wheat crop, which would miss the proper sowing time.

The government should keep balance in dealing with industry and ensure that it works properly so that the employment of labour is not compromised. One area with strong backward linkages and can help poverty alleviation in urban areas but practically ignored is ready made garments which had tremendous export potential. The performance of Bangladesh in this area puts Pakistan to shame.

Islam is a religion of the poor and for the poor. It is against extreme both in wealth and poverty. The Quran and the Holy Prophet (PBUH) have strongly urged to look after the poor and a comprehensive system has been laid down. Of this, Zakat is an important element. In Pakistan the government has instituted an official system for this purpose and a sum of Rs. 6.3 billion was collected during 2002-3. The way it was conceived and is administered, is open to serious criticism and has not won public confidence.

It is a very useful tool for poverty alleviation and must be made full use of This would only be possible if, to give it credence, it is taken out of public administration and entrusted to an autonomous organization run by those who have nothing to do with government, bureaucracy, business and politics whether secular or religious. It should not be impossible to find a dozen or so honest and trustworthy persons devoted to the cause of the poor from a population of about 150 million. Once this organization proves its worth in reaching the genuinely needy, strictly conforming to the pristine principals of Zakat, not tainted by any other consideration, it can venture to cover the hitherto untouched but liable assets like the stocks in trade and jewellry, which would yield a tremendous amount. What is needed is confidence building, not an easy task

A lot can be done for poverty alleviation in the short run, if economic managers get out of the shadow of the barons, take genuine interest in the welfare of the down-trodden, who have no lobby but are in overwhelming majority in the country, and ensure justice and fair play. All this is to be done to seek the pleasure of Allah alone expecting no worldly reward or honour.