Last week, Lums hosted Dr Salman Shah, adviser to the Punjab chief minister on economic affairs, for a presentation of the freshly minted “Business Plan of Punjab”.
Though Dr Shah delivered the message with candour and conviction, the plan came across as nothing but a skilful patchwork of past consultancy reports devoid of a pragmatic road map for policy reforms.
To be fair, words like “great plan” and “impressive plan” rang out a few times from among the audience. However, the presentation simply boiled down to a laundry list of (textbook) economic problems and failed to recognise the entrenched political economy barriers that inhibit economic growth and development.
On a facetious note: the title slide displayed the word “Punjab” surrounded by pictures of rugged, snow-capped mountains and a cargo ship on water — for most people, Punjab evokes neither of these images, unless it plans to usurp the country’s northern and coastal territories.
The Punjab government must rethink why identical policy prescriptions have failed in the past
Dr. Shah spent considerable time highlighting the stagnant state of Punjab’s agricultural sector, pointing out weak markets, low productivity and poor crop choice as the contributing factors. This is nothing new; we’ve known the reasons for the depressed state of the agricultural sector since the late 1980s — one can read the Punjab Agricultural Policy 2018 and its many precursors to identify these factors.
A refreshing discourse would instead address the following: if we’ve known the issues plaguing the agricultural sector for decades, why do they still persist? Specifically, if sugar cane and wheat subsidies disincentivise the adoption of high-value crops, why hasn’t the government abolished them yet? If middlemen impede the growth of agricultural markets, what’s stopped the government from curtailing their market power?
A host of political economy constraints explain why Punjab’s agrarian economy is stuck in a rut. Powerful, politically affiliated agriculturalists never lend support to legislation eliminating agricultural subsidies. As beneficiaries of inefficient subsidies, many have created empires in the form of value-added industries — sugar-processing mills are a prime example. Dismantling this infrastructure requires political muscle and appetite that few policymakers (and advisers) possess.
Successive governments — compelled by International Monetary Fund (IMF) support programmes — have half-heartedly tried but failed to tax agricultural incomes under the normal tax regime. Notwithstanding the revenue potential and fairness of taxing agricultural incomes — why should tax authorities treat a farmer who earns Rs600,000 a year any differently from a schoolteacher who earns Rs600,000 a year — lawmakers have swiftly shot down proposals to bring agricultural incomes under the normal income tax regime.
Continuing on, Dr Shah mourned the poor state of water management in the province. Given his faith in markets and their power to efficiently allocate resources, he must know that economists have argued for years that the absence of (unit) pricing is a major reason for water mismanagement in the province. In fact, Pakistani researchers, including this writer, have estimated ranges for economically sustainable water prices and proposed mechanisms for implementing these price structures.
Proposals to price irrigation water in the province never see the light of day. Even attempts to raise the abysmally low abiana (fixed water charge) — which is highly inefficient since it’s not a per-unit charge — by a paltry amount have fallen flat. How does Dr Shah propose to reverse legislators’ vehement opposition to water pricing reforms? Moreover, his lamentations on poor natural resource management seem ironic considering that as finance minister during the Musharraf period, he oversaw massive subsidies for natural gas consumption — subsidies that gave rise to a coterie of CNG profiteers and crony capitalists.
The Punjab government and its advisers must go back to the drawing board and rethink why identical policy prescriptions have failed in the past. As a first step, they must recognise that the process of reforms is not purely economic in nature — it requires forceful political interventions.
The ruling party should demonstrate commitment to its ideals by taking on entrenched interests and powerful institutions that continue to derail market reforms. This fight will not come cheap, but the party will have to bear the high political costs if it is serious about implementing policy measures that put the country on a definitive path to growth and development. Enough of the banal laundry lists — it’s time for action.
The writer is an environmental economist. He teaches at Lums
Published in Dawn, The Business and Finance Weekly, February 24th, 2020