Pakistan’s dual economy

BOEKE, a Dutch economist, enunciated the concept of duality in colonial developing countries. The two sectors which he identified were the metropolitan sector and the indigenous sector. By metropolitan sector he meant the thriving cities of Calcutta (Kolkata), Madras (Chenai), Bombay (Mumbai), Karachi, Delhi and few other big cities. The indigenous sector meant the vast backward rural country side.

This duality in the economy exists in almost all developing countries — between the industrial-cum-urban sector and the rural-cum-agricultural sector. As the majority of the population — more than 60 per cent in Pakistan, — still lives in rural areas, this duality is still a striking feature. In developed countries there is no such duality because the rural population depending on agriculture and agriculture’s contribution to the GDP is less than five per cent. In fact, in developed countries services’ contribution to the GDP is more than twothirds.

In China and India there is geographical duality also. In China the eastern sea board provinces are glowing with economic progress whereas the western landlocked provinces are still relatively backward. In India the southern states of Tamil Naidu, Karnataka, Maharashtra and Andhra Pradesh have much better economic and social indicators than the northern states of Uttar Pradesh, Bihar, Rajasthan and Madhya Pradesh. The southern states have also much better gender empowerment and religious tolerance.

Pakistan is no exception to this general duality in the economies of developing countries. The economic progress of Pakistan during the last six years has exacerbated this differential. There has been commendable progress in the industrial-cum-financial sector. Large-scale manufacturing during this period has grown at an average rate of 11 per cent. Exports have more than doubled from eight billion dollars to $17 billion a year. The profits of the banking sector have almost tripled. The foreign exchange reserves have risen from one billion dollars to $ 12 billion, though the latest figure seems to have been artificially boosted by selling valuable national assets at throwaway prices to foreign firms.

The asset owners, whether of real estate or shares, have never had it so good as under the present regime in the entire history of Pakistan. The share index has multiplied by eight times — from 1,500 to more than 12,000. The real estate prices have skyrocketed by four to five times, especially in urban areas. The increase in remittances from one billion to more than four billion dollars after 9/11 has contributed to this golden period for asset owners. The business-friendly and stable economic policies of the present government have also contributed to this asset boom.

The cement production and demand in Pakistan has increased from 12 million tons a few years ago to about 20 million tons now. The surge in cement demand indicates a spurt in construction activity which reflects a higher level of investment in both the public and private sectors.

There has been a stark and equally significant stagnation in the rural-cum-agriculture sector. The average growth rate of agriculture during this period is only two per cent and if we exclude the freak growth rate (7.5 per cent) in agriculture during 2005 the growth rate in agriculture in the remaining five years is just under one per cent. Even the average of two per cent for the whole period is less than the rate of population growth in rural areas of more than two per cent.

Hence, despite the government’s claims to the contrary, rural poverty has risen as indicated by the official figures of agricultural and population growth. Development economists all over the world are unanimous in stating that for rural poverty to decrease in a sustained manner, the agricultural growth rate must be more than four per cent. Pakistan’s performance in this vital sector is much below the norm.

It is often stated that rapid growth in industrial-cum-urban sector has a trickle-down effect on the rural sector. The trickle effect is both horizontal and vertical. Horizontally, the rapid industrial growth leads to a spurt in demand for agricultural products and induces underemployed rural population to migrate to the urban areas which offer better utilities and education-cum-health facilities. As there has been stunted agricultural growth, the increase in demand for agricultural products which are mainly food has led to inflation at an average rate of 10 per cent during financial years 2005 and 2006. Hence there has been a negative impact on consumers all over the country by this sharp differential in industrial and agricultural growth rates.

The State Band of Pakistan in its latest second quarterly report for 2006 has stated, “it is important to note that monetary policy alone will not be able to contain all of the rise in inflationary pressures. In particular, there is an urgent need for the government to supplement its very laudable supply-side measures with policies to address market structure problems. Specifically, anecdotal evidence clearly suggests that in recent years, speculative hoarding and collusive price setting have been significant contributors to domestic inflationary pressures in markets. Such pressures respond more to legal and administrative measures, and are less sensitive to monetary tightening”. The SBP could not have been more blunt in criticising the government’s failure to control “speculative hoarding and collusive price setting”. The failure of the government to control the sugar cartel led to reduction in sugarcane output, doubling of sugar retail prices and sugar import of more than $ 450 million so far in fiscal 2006. The uncertain policy towards wheat procurement and the greater role given to the private sector is helping neither consumers nor producers.

The vertical trickle-down effect takes a lot of time to materialise and that too with limited impact. Famous economist John Galbraith lampoons, saying that “trickle down is like giving lots of grains to horses so that birds may have extra food on the streets”. If a person earns an additional crore in urban areas, he is most likely to spend it on buying better cars, houses and foreign travels. The real trickle down effect will be in employing more domestic workers or security personnel or construction workers. There will be an impetus for workers to migrate to big cities as Pathan workers have moved to Karachi but the overall impact in such cases is small and limited.

The spurt in construction activity has strong trickle down effects as it has maximum forward and backward linkages in the economy and it is also more employment-intensive than large-scale manufacturing.

The agricultural stagnation in Pakistan stems from policy failures. Our economic policymakers who have excellent urban background have neither the understanding nor the urge and sensitivity towards improving the lot of the rural poor. The GST on fertiliser and raising the price of gas for fertiliser factories has led to a sharp increase in fertiliser prices. The same is true of energy inputs of diesel and electricity for the agricultural sector. The spike in the price of agricultural inputs is far higher than a small increase in the prices of agricultural products especially for the small tenant farmers with no title to land which is a prerequisite for agricultural loans have been doubly hit.

The GDP growth rate in 2006 will be slightly above six per cent and has fallen by more than two per cent as compared to last year’s stellar GDP growth of 8.4 per cent. Our economic policymakers need to understand the basic fact that high GDP growth of eight per cent plus cannot be sustained without a medium four per cent plus agricultural growth. The policies they have pursued in agricultural sector have failed to deliver.

There is an old economic adage, “The rich get richer and the poor get children”. With rising inequalities in income distribution and the highest rate of population growth among major developing countries, this adage is truer about Pakistan than about any other developing country.

The writer is a former secretary, planning.

Modi could not care less

DIPTI, a Narmada Bachao Andolon (NBA) activist, rang me up to inform that their office at Vadodara was ransacked and the furniture destroyed. The police force, she said, was on the side of the vandals. The police chief did not want to be disturbed and suggested that the NBA workers call 100 to lodge their complaint.

Obviously, the Gujarat police would not want to take notice of anything that the state Chief Minister Narendra Modi did not approve. If the police could connive at the ethnic cleansing and continue to sustain the anti-Muslim environ, how would the force dare to save the NBA office when Modi considered such places an affront to his authority? The situation in the state is so vitiated that the chief minister turns anything which he does not like into an emotive issue and a question of state pride. The Gujaratis, too, lap up his antics. Sometimes, I wonder whether Gujarat is part of India or whether India is part of Gujarat.

The entire debate on Narmada dam has been debased and distorted. The thesis that Modi and his party, the BJP, have built is that the dam’s height has been challenged. But this is not true. Had this been the case, the dam would not have gone up to 110 metres.

The point at issue is the rehabilitation of those who are ousted in the process. Every additional slab placed on the dam submerges some land and throws out a certain number of families. What about those who have to move to elsewhere? Don’t the Gujaratis, leave the authoritarian Modi aside, have any moral obligation towards them? Poor they may be but they are human beings and as much Indians as the Gujaratis are.

This is not the first time that the Gujarat government has gone back on its obligation to resettle those who have been ousted from their places because of the Narmada dam. Gujarat is responsible for rehabilitating even those whom Madhya Pradesh and Maharashtra, the two beneficiary states, cannot settle. There are umpteen numbers of awards and judgments on this point. As recent as March 5, 2005, the supreme court said that “submergence would not be allowed to take place until complete settlement and rehabilitation of oustees is done.”

When Medha Patkar, the NBA leader, went on an indefinite hunger strike, her case was that an additional height of nearly 13 metres, from 110 metres to 122.9 metres, had been sanctioned despite the fact that the families who were ousted because of the earlier increase in the dam’s height had remained unsettled. It is estimated that the additional height will add 16,000 families to the 14,000, already waiting to be rehabilitated. This would mean 30,000 families. These are facts which even the supreme court said it might check through its own team.

Medha Patkar’s fast forced three central ministers to visit at least one state, Madhya Pradesh, to find out the truth. They found her contention true. In their report, they have said that the Narmada Control Authority (NCA) gave permission to raise the height on the basis which “has largely been based on paperwork and it has no relevance to the situation on the ground.” The Madhya Pradesh government acted in haste and allotted the land which was totally uncultivable. This throws up the question of credibility of the NCA. An inquiry should be ordered to verify the credentials of officers who constitute the body.

By running down Saifuddin Soz, the minister for water resources, who did an objective, bold and honest job, non-rehabilitation does not become rehabilitation. It is like comparing Modi’s soap opera with Medha Patkar’s fast. All the three governments in Gujarat, Madhya Pradesh and Rajasthan have indulged in fabrication. When pointed out by the central ministers’ team, Madhya Pradesh chief minister Shivraj Singh Chauhan has brought in the federal structure of the constitution.

Big river valley projects are on the concurrent list of the constitution. Even otherwise, the Narmada dam is supervised by two committees, one comprising central and state bureaucrats and the other ministers from New Delhi and the states. The Supreme Court was frank enough to say that the divisions in the central review committee were “on political lines. You have to accept it.”

It is shocking that the leaders of the BJP, which rules the three states, have not uttered a word on the shoddy job done even after thousands of complaints. They can ignore the central ministers’ report but not the ground reality. Atal Behari Vajpayee should have reacted and assured those ousted from their homes that he would himself see to their proper rehabilitation. This would have been in the spirit of federalism.

Why can’t political parties take to task the states run by them over rehabilitating the uprooted? Were they to do so, they would go up in the people’s estimation. At least the mess created in the wake of the Narmada dam would have been comparatively less than what it is today. But then the BJP has to reckon with Modi who doesn’t give a damn.

The larger question the Narmada dam has thrown up is about those ousted from different projects, whether connected with industry, mine, jungle or water. Thousands of people are being displaced in the name of development. No one is against development but what happens to those who have lost their land, house and, more importantly, their neighbours? For centuries they have lived together at a place but displacement has meant that they have to plant themselves at new surrounding and environment. The government should be generous, not niggardly.

That development at the expense of social justice has far-reaching consequences. The Naxalite phenomenon is only one of them. Medha Patkar has warned that a bigger movement, not confined to the Narmadha oustees, is inevitable. It is fair as well as necessary that people ousted from a place to make room for a project are fully rehabilitated before they are disturbed. Already in some tribal areas the slogan is: no displacement without prior rehabilitation. This may well become a war cry if the government in the states or at the centre is not mindful of the sufferings of the people who are disturbed.

Prime Minister Manmohan Singh has said that the cost of development should not be borne by the weakest section of the people and a credible rehabilitation policy should be in place. But he must set up some machinery for that. Understandably, ministers and bureaucrats have to be part of it because they possess the authority. But if the past is any guide, such machinery becomes too mechanical. Human rights activists should also be engaged in the process because their contact with grassroots is direct and intimate.

The writer is a leading columnist based at New Delhi.

Strangers at our gatesStrangers at our gates

THE latest report by the UN High Commissioner for Refugees makes grim reading, but for novel reasons. Its headline good news is that the return of millions of people to countries recovering from conflict, such as Afghanistan, Angola and Bosnia, has contributed to a sharp global decline in the number of refugees and asylum seekers, now at a 25-year-low of 9.2 million.

There are two big pieces of bad news: one is that many many more — 25 million according to the UNHCR — are now displaced within the borders of their own countries and do not qualify for help under the 1951 refugee convention. The other is that the “war against terrorism” is having a markedly negative impact on refugees’ rights.

Refugees and internally displaced persons have always been with us: 60 years ago DPs, as they were then called, were a familiar part of the landscape of a Europe laid waste by the second world war. Nowadays these wretched of the earth mostly come from further afield, on the dark underside of a globalised planet where technology and easy travel has made almost anything possible — if the price is right.

Our TV screens regularly display some of the heart-wrenching results: desperate Africans paying exorbitant fees to risk everything sailing in tiny boats from Mauritania to the Canary Islands in order to reach a safe haven in Europe; drowned Iraqis and Chinese washed up on the shores of Italy. Organised criminal gangs prey on the most vulnerable, exploiting their tragedies and human desire for safer, freer, wealthier lives.

Increasingly, the distinction between economic migrants and those fleeing fear, conflict and persecution is confusingly — and sometimes deliberately — blurred. Because many use the same routes and intermediaries, genuine refugees can end up being crudely labelled “bogus”. Governments under populist and tabloid pressure can be blinkered in defining what constitutes repression or safety to justify keeping unwelcome strangers from their gates.

This is the first UNHCR report in five years — and a serious new problem, warns the Portuguese commissioner, Antonio Guterres, is the way, since the September 11 2001 attacks on the US, that many states have invoked security concerns to justify new restrictions, even though real terrorists would be likely to use other less obvious routes. States are responsible for controlling their own borders but they are still legally “obliged to provide basic safety and assistance to those deemed in need of international protection”. Refugees and asylum seekers, the report sternly reminds us, are the victims, not the agents, of insecurity.

It is timely to focus attention on the millions of internally displaced, notionally under the protection of their own governments but in reality often victims of them. This will require new powers for the UNHCR and changes to old notions of sovereignty to allow intervention on humanitarian grounds. Southern Sudan is a case in point, with up to four million internally displaced people likely to return home in the next few years and unlikely to trust the regime which drove them away in the first place. Darfur may one day face similar problems.

Europe, that prosperous, democratic and multicultural magnet for so many, should stop demonising migrants and refugees as a problem.

—The Guardian, London