October 1, 2007	Monday	Ramazan 18, 1428

The growth experience of countries at different stages of economic development teaches us an important lesson. The sustained growth in a country over a long period of time must result in fundamental changes in the structure and composition of its GDP.

These changes generally synchronise with a steep decline in the share of the agricultural sector and rising shares of industry and services sectors in the GDP. This transformation becomes more viable and visible as economies rise in the scale of development from take-off to drive-to-maturity and finally to the stage of mass consumption.

The global GDP for 2005 has been estimated at $45 trillion. The four industrial countries namely the US with GDP of $13.0 trillion, Japan ($5 trillion), Germany ($2.8 trillion) and UK ($2.2 trillion) have a combined GDP of $23.0 trillion which is more than 50 per cent of the global GDP. The common and distinguishing feature of these economies is the share of agricultural sector equivalent to one per cent with industry and services sector contributing roughly 99 per cent to GDP. However, the relative shares of industry and services sector in the GDP of these countries show significant variation.
The agriculture sector in countries like Australia, Austria, Denmark, Hungry, Ireland, Canada, France, Italy, Korea, Norway, Sweden, Netherlands, Spain etc. with large GDPs has a maximum share of 3-4 per cent.

Now let us look at economic growth of Pakistan in juxtaposition to the structural changes it has registered over time. First, we have to look at the overall growth rate. The average annual growth rate for the period 1950-51 to 2006-07 comes to around 5.5 per cent with population growth rate being 2.2 per cent during the period, the annual growth rate in the real per capita income comes to be 3.3 per cent. When compared to the growth rates of counties like China, Singapore, South Korea, Malaysia, Thailand etc, Pakistan’s economic growth does not appear impressive.

The growth performance plan-wise depicts wide fluctuations. The high growth rate of 6.8 and 6.7 per cent achieved during the second plan (1960-65) and the third plan (1965-70) could not be sustained during the non-plan period of 1970-78 as it fell to 4.4 per cent. It was revived in the fifth Plan (1978-83) and sixth Plan (1983-88) to the level of 6.6 and 6.2 per cent respectively but from 1988-89 onward, the growth rate followed a downward trajectory with the result that for the seventh (1988-93) and the eighth plan (1993-98) it declined to 5.1 and 4.5 per cent respectively. During the period 1998-03, it was further reduced to 3.7 per cent per annum even through it recovered significantly in the four year period of 2003-07 with the average rate reaching seven per cent per annum.

As the Table indicates, growth rate of agricultural sector and the manufacturing sector from the 1950’s onward have fluctuated substantially. In case of agriculture, the growth rate has been extremely low in case of the first plan, non-plan period (1970-78) and the five years of 1999-03 spanning the otherwise abortive ninth Plan. The growth rate of agriculture during the third, fifth and eighth plan was reasonable. However, the overall average growth rate for the agriculture sector for the 55 years starting with the first Plan comes to only 3.7 per cent, which is quite inadequate considering the rising demand for food for the burgeoning population as well as the growing demand for raw materials to sustain the growth of the industrial sector. The services sector registered an annual average growth rate of 6.5 per cent in this period.

As regards the manufacturing sector, it could register double digit growth only during the two distinct spans of the economic development i.e. the second plan and the non-plan period of 2003-07. For the rest of the plan periods, the growth rates have been quite low with the result that on the average, this critical sector grew by only 7.3 per cent per annum during the last 55 years or so. This indeed reflects a poor performance of this vital sector which is supposed to spearhead the structural transformation of the economy.

The historical transformation of the economy has not resulted in the large scale industrialisation of the economy which keeps its agrarian structure and form. The share of agriculture has declined from 45.8 per cent in the early 1955’s to 20.9 per cent in the year 2006-07 while the share of services sector has gone up from 30 to 53 per cent. The fact that agriculture still contributes one-fifth to its GDP is a clear indicator of the country’s continuing backwardness and underdevelopment.

The manufacturing sector contributes only 19 per cent to GDP against a share of 12 per cent during the first plan (1955-60), an increase of seven per cent in the 50-years period. Paradoxically, the share of large-scale manufacturing sector which is the principal sub-sector of the manufacturing sector remained at 10.6 per cent of GDP from 1962-63 to 2002-03 a long period of 40 years and only in recent years it has shown some upward movement. The manufacturing sector which is concentrated within a few industries such as textiles, food, beverages, tobacco, fertilisers and pharmaceuticals, is highly under-developed and narrow-based with the result that the whole economy remains entrapped in an abysmally low level of productivity.

There is an aura of mystique about Pakistan’s historical growth experience. At the time of independence, it did not inherit any viable industrial and technological base and it seriously lacked in social, financial and physical infrastructure. The “initial conditions” were highly unfavourable and the industrial-cum technological gap was unusually large. However, this does not make a complete story. There have been many countries in the world which had faced initial conditions worse than those of Pakistan. Still these countries have registered unprecedented growth in the recent past and have moved up the highest stage of economic development. The question therefore remains unanswered: Why the take-off stage has been elusive for Pakistan for such a long period of time?

The writer is consultant/economist working in the Planning Commission.