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Vigorous pursuit of the IMF-sponsored policies of liberalization in Pakistan during the last decade and a half or so are clearly reflected in the long-term trends of such important basic indicators as the industry and agriculture sectors and the overall GDP growths; the ever-growing size of the so-called "reservoir of the unemployed, both the educated and the illiterates" and the rates of poverty.
Such trends are indicative of a roll-back of the forces of economic diversification and industrialization which for long was considered as the main vehicle for employment generation in a labour surplus situation and a road map to achieve self-reliance. As a matter of highest national importance, this should pose grave concerns for the country's policy-makers and planners.
Ironically, official versions of the state of the economy as in the Annual Economic Survey, 2003-04 issued last June as part of the federal budget documentation and other official reports have presented quite a rosy picture of the current economic situation in terms of macroeconomic gains such as the attainment of "higher than targeted growth in real GDP", made possible by the 13.4 per cent sectoral growth in manufacturing against 7.8 per cent target resulting from "the highest-ever growth of over 17 per cent in the large-scale industry sub-sector" and so on. All this, according to such presentations, has given, a "generally feel good mood" in the economy.
However, a deeper look into the basic information which is normally used in making such overall averages of growth, reveals that the state of buoyancy reported for various segments of the economy, specially with regard to its large scale manufacturing is unrealistic and highly exaggerated.
More importantly, such presentations fail in highlighting areas of major policy concerns, especially in the two leading productive sectors, namely agriculture and manufacturing. Some of the findings of a closer scrutiny of the data and methodology used in the analysis are listed as under:
* In the manufacturing, some 20 industries among the 100 selected for compiling the Quantum Industrial Index (basis of the above mentioned 17.1 per cent rate of growth) stagnated, as many of these which belong to the engineering goods, manufactures reported zero or negative growth during 2003-04. It is noteworthy that these are the industries with backward and forward linkages and considered as the main vehicle for employment generation.
* On the other hand, just four industries among the 100 selected, reported abnormally high growths (above 90 pc) during 2003-04, (Table III) operating on a rather modest scale as their combined contribution was a meagre one per cent of the industrial sector's total gross value added (GVA).
* another group of industries which in fact are the 'core'of the industry sector, including textile, spinning and weaving and certain other consumer/intermediate goods producers, reported less than eight per cent growth which is less than half of the 17 per cent presented in the official versions for the entire sub-sector of large industries.
* A trend of de-industrialization is indicated by the shrinkage in the large industrial sub-sector's share in the total GDP by one percentage point from 12.7 in 1990-91 to 11.7 per cent in 1999-00 (Table II).
* In agriculture, failure of policies is clearly visible from the drastic deterioration in yields of the three major crops of wheat, rice and cotton by 73 kg, 80 kg and 70 kg per hectare in 2003-04 compared with their respective yield levels in 1999-00.
Such deterioration is the direct outcome of the failure of policies, like fertilizer availability and their use through optimal combination of its, two main types i.e. nitrogenous and phosphatic.
Published data reveals that the price of a bag of urea went up from less than Rs200 in 1990-91 to Rs420 in March 2004, whereas, the price of DAP rose from Rs250 to Rs910 in the same period- exactly opposite of what is desired for optimal combination.
* The size of the unemployed has risen from less than one million in 1990 to four million in 2003.
* The price of wheat flour was Rs2.5/kg in mid-80's which is now around Rs.15/kg or more in free market.
The position emerging out of an objective assessment of the current situation is provided in subsequent paragraphs.
Growth analysis: The national development policy and programmes (NDPP) in the past, focused mainly on two leading sectors: agriculture and manufacturing and aimed at (a) improving crop yields and (b) diversification through the process of industrialization in phases.
Agriculture policy sought to achieve optimization of crop yields through measures such as (a) augmenting supplies of modern inputs like fertilizers through domestic production and/or imports and more importantly through their use by the farmer in proper combination of the two main types - nitrogenous and phosphatic; (b) increasing irrigation water supply (by canals and tube-wells) and (c) disbursement of agriculture credit at concessionary rates.
During the recent 4-year period, from 1999-00 to 2003-04, agriculture policy which had played quite an effective role in raising crop yields in the past failed, especially during the 80's, miserably. It may be observed that the 2003-04 output level of the two most important sub-sectors of crops- major and minor, being lower than that reached four years earlier in 1999-00 as shown in Table-I.
It is important to note that despite such a poor performance of the crop sub-sectors as in Table I, it is the livestock sub-sector which is made to make up for the loss in crop productions to give some positive growth in agriculture sector as a whole.
Impact of deliberate policy in the past has often been more pronounced in crop-sectors. Livestock sub-sector which, though the heaviest-weight is hardly subjected to policies the way the crop sub-sectors are.
Yearly increases in livestock shown in Table 1 are in fact, largely the result of extended coverage in the context of changing base of time series from 1980-81 to 1999-00 and to include such items as animals' dung and urine and net sale of animals which were ignored previously in the national income accounting.
Failure Of the policies: The decline in growth of crop sub-sectors is the result of policy failures as explained below: During the 4-year period, a serious decline in yields per hectare of three major crops, wheat, rice and cotton, by 73 kg, 80 kg and 70 kg respectively in 2003-04 compared with their respective yield levels in 1999-00, is clearly a reflection of the government's failure to implement a proper fertilizer policy.
In the 1980's increase in crop yields was achieved by a substantial improvement in the ratio of fertilizer use between the two main types of fertilizer brought about through the mechanism of price and subsidy incentives combined, of course, with others like tube well water and credit at concessionary rates. Such a policy was greatly responsible for achieving an annual average of around 3.5 per cent growth in crop production during the entire decade of the 80's.
Failure of fertilizer policy using the price mechanism is clearly brought out by the published data, as the price of a bag of urea went up from less than Rs200 in 1990-91 to Rs420 in March, 2004. Price of DAP, on the other hand rose from about Rs250 a bag to more than Rs910 during the same period.
Instead of narrowing the gap between the prices of the two types so that the farmer could use more of DAP, the policy obviously widened the price gap manifold. A subsidy of Rs100 per bag of DAP in the current year's budget is unlikely to have any perceptible impact on the gap between the two types referred to above.
Importance of incentives such as agricultural subsidy is also evidenced from India where the amount of fertilizer subsidy, not only on imported but also on domestic production, runs into thousands of crores of Indian rupee disbursed through the budget.
In the area of irrigation water, a lot of time and resources have been wasted in resolving issues of building dams for reservoirs of water. Half of that time and resources used in improving water efficiency in existing water channels could have yielded tremendous benefits.
Again, disbursement of agriculture credit shows a sizeable expansion during the last four years from just under Rs40 billion in 1990-00 to nearly Rs59 billion in 2003-04, mostly for the benefit of influential farmers. Not much is accessible to the small farmer.
In view of the above observations, the overall average sectoral growth of about two per cent becomes meaningless as it fails to identify precisely the underlying weaknesses of the sector to guide appropriate agricultural policy.
In the manufacturing an overall sectoral growth of 13.4 per cent reported in various official documents, comprises 17.1 per cent growth of large scale sub-sector and a 7.5 per cent constant annual growth rate in small industry sub-sector. The average growth of 17.1 per cent of large-scale industries is presented as indicative of "sharp acceleration" and 'highest ever recorded upsurge" in industrial activity during 2003-04.
Needless to say that the overall average sectoral growth rate is irrelevant as shown in agriculture in preceding paragraphs unless a closer look at the detail of its main components helps to identify areas of concern for the policy maker in this segment of manufacturing.
| Table I: Gross Value Added in Agriculture Sector (Rs. in billion rounded) |
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| 1990-00 | 2003-04 | ||
| Total Agriculture | 924 | 960 | |
| Major Crops | 342 | 330 | |
| Minor Crops | 127 | 120 | |
| Livestock | 417 | 474 | |
| Others | 39 | 41 | |
Closer scrutiny of the available data on which the overall sectoral growth as quoted above is calculated, shows areas of major concern which are ignored in the official versions as explained below:
De-industrialisation: Long term trend of deterioration in industrial activity may be observed in two important phenomena: (i) s'hare of large-scale industry in total national output and (ii) zero or negative rate of growth reported for some 20 different industries - mostly in engineering goods production as discussed under the Quantum Industry Index later in the article.
Process of de-industrialization which had set in during the 1990s as is evident from the decline in the percentage share of the large-scale industries in terms of the sectoral gross value-added shown in Table-II.
| Table-II: Sectoral Shares in GDP (Real) In percent |
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| 1990-91 | 1999-00 | ||
| A: Commodity Producting Sectors | 51.6 | 50.9 | |
| i. Agriculture | 25.7 | 25.9 | |
| ii. Manufacturing | 17.7 | 16.7 | |
| Large-Scale | (12.7) | (11.7) | |
| Small Scale | (5.0) | (5.0) | |
| 8.0 | |||
| iii. Construction electricity & mining | 8.4 | ||
| B: Services Sectors | 48.4 | 49.1 | |
| Total GDP (fc) | 100.0 | 100.0 | |
| A+B | |||
| Source: Federal Bureau of Statistics | |||
As shown in Table-II, during the decade of 1990's, the share of large-scale industries declined by one percentage point, while the share of agriculture remained more or less the same. The loss in large industrial activity is reported as the gain mainly of services sectors.
Contrary to the impression given in the official versions of the current economic situation that there has been an "upsurge of industrial activity", the above decline, in fact, continued into the 21st century.
Critical examination of the statistical data and the methodology used in constructing the so-called "quantum industry index (QII) subsequently would bring out the exact position regarding the large-scale manufacturing and confirm the seriousness of the challenges confronting the planners and policy-makers with particular reference to the engineering goods manufactures included in the discussion later in this article.
Quantum Industry Index: As referred to above the 17.1 per cent rate of growth reported for the large scale industry sub-sector is derived from the so-called "quantum industry index". The index is, in fact, the average of widely differing rates of growth of some 99 selected industries (sugar industry is excluded) 2003-04.
Among the selected industries, some reported abnormally high rates of growth, there are others which constitute a sizeable component of the sub-sector have deteriorated over the years and are stagnating and thus become the cover for de-industrialization in the country.
Besides the above two types of 'high growth' industries at the one extreme and those which are stagnating at the other, there is a third type comprising a large number among the industries selected for constructing the index, which are indeed considered to be the CORE of large-scale manufacturing.
It is noteworthy that this third type, in fact, is by far the biggest group among the selected industries which are relatively well-established since these stood the test of time all through the 1st phase of the industrialization of economy during 1960-90.
For a better comprehension of the exact position regarding performance evaluation of the various industries which were selected under QII, these are grouped into three broad categories as under:
Category i: Exceptionally high-growth industries in this category reported abnormally high growth but their contribution to gross value-addition was meagre. These are sub-divided into three 3 groups as under: (i) Durable Consumers including air conditioners, refrigerators, deep freezers and electric bulbs.
(ii) machinery and equipment like tractors, jeeps and cars, motor cycles, power looms, diesel engines, meters, transformers, and switch gear and
(iii) consumer goods manufactures, including matches, cooking oil, soaps and detergents, etc.
Category 2: Hard-core industries which comprise industries such as spinning, weaving and ginning; cement; cigarettes; paper and paper board; nitrogenous fertilizers; petroleum and jute goods; pharmaceuticals, pig iron, coke, billets; tea blending and wheat milling.
Category 3: Stagnating industries that include all those which yielded zero or negative rate of growth during 2003-04 making insignificantly small contribution to the overall industrial sector value-added; They comprise industries such as trucks, buses, sheets and strips, plywood, sugarcane machines, wheat threshers, bobbins, electric motors, TV sets and bicycles.
It is important to note that, contribution of industries to value-addition differ widely in each category. For instance, industries included under Category One make relatively small or insignificant contribution to the total GVA for the sub-sector as a whole.
On the other hand, an overwhelmingly large proportion of total GVA for the sub-sector as a whole originated from industries in the Second Category, whereas insignificantly small contribution of the 3rd category further confirms the stagnating nature of such industries.
Performance of industries in the large scale manufacturing category-wise in terms of their respective rate of growth in the year 2003-04 over the preceding year and their relative contributions to GVA are summarized in Table-III.
| Table-III: Category-wise Large Scale Manufacturing; 2003-04 |
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| Weight Share in Sectoral GVA |
Rates of Growth % |
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| Category I: Execptionally High Growth | 9.4 | 63.2 | |
| (i) Durable Consumers | (1.1) | (91.3) | |
| (ii) Machinery & Equip | (4.2) | (63.4) | |
| (iii) Consumer | (4.1) | (55.0) | |
| Category II: Hard Core Industries | 56.10 | 7.7 | |
| - spinning, weaving & ginning, cement, paper, petrol, jute & fertilizers |
(44.2) | (7.8) | |
| - Caustic Soda, pigiron coke, billets, lcvs, coil, trucks etc. |
(4.8) | (7.8) | |
| - Tea, wheat, milling, woolen, carpets, tincture, chlorine etc. |
(7.1) | (5.5) | |
| Category III: Stagnating Industries | 5.4 | 2.2 | |
| All (99 Industries) | 70.9 | 17.1 | |
| The Rest: un-reported | 29.1 | ? | |
| Total sub-sector (Large scale) | 100.0 | 17.1 | |
An important outcome of the analysis of a vast amount of data on the 99 selected industries grouped into three broad categories and summarized in Table-III above is to highlight the wide differences in the growth performance of industries in one category from those in the other during the year under review.
Summary results in this way, make it abundantly clear that important segment (category three) of the sub-sector comprising as many as 20 out of 99 have little growth. Several in this category refer to the all important engineering goods manufacturing, showing zero or negative growth.
These include naptha, diesel oil, furnace oil and kerosene in petroleum refining; pig iron; sugarcane machinery; wheat threshers, sheets/strips in engineering and a couple of pharmaceuticals.
Twenty out of a total of 99 selected industries showing virtually no growth give added evidence of not so happy a situation in large scale manufacturing sub-sector, contrary to the official version of the highest ever industrial growth recorded in 2003-04.
The role of engineering goods industries is perhaps the serious most challenge confronting Pakistan's policy makers raising questions of de-industrialization badly affecting the segment of industry which perhaps has been considered to possess the highest potential for job creation because of its backward and forward inter-linkages.
Another important feature of the analysis is the growth performance of hard core industries under Category 2 which are established since long and have stood the test of time and the rate of growth obtained under this category may be termed as truly representative.
These carry the heaviest weight (constituting nearly four-fifths of the total GVA of all selected industries to compile QII) and its 7.7 per cent growth may be termed as truly representing the large scale manufacturing sub-sector as a whole which is less than half of the overall average of 17.1 per cent quoted above for the sub-sector in the official document.
It is the phenomenally high rate of growth experienced by a small group of engineering goods industries plus half a dozen consumer goods manufactures (with a relatively small weight in value addition) which in fact, raised the overall average to 17.1 per cent growth.
Just four engineering goods industries manufacturing durable consumers (air-conditioners, deep freezers, refrigerators and electric bulbs) have yielded the highest average growth of more than 91 per cent (one of the component i.e. air conditioners increased by as much as 815 per cent).
Their scale of operation, however, was insignificantly small as clear from the share of a mere 1.2 percentage points in the aggregate Gross Value Added of all selected industries.
Another sub-group of capital goods in the same Category-1 manufacturing tractors, jeeps/car and motor cycles generated the second highest average growth rate (63.4 per cent). The scale of operation was slightly better than that of the first group as their share in total GVA is reported as 4.2 percentage points in the total. The sub-group of five consumer goods industries in category-1 yielded 55 per cent rate of growth; share in total GVA was about the same as that of the group of engineering goods.
| Table-IV-A | Table-IV-B | |||||
| Average Retail Price of 'Atta' |
Daily Wages of Construction workers | |||||
| (Rs) | ||||||
| Rs. Per kg. | ||||||
| 1991 | 2003 | |||||
| 1984-5 | 2.50 | Karachi | 59.2 | 183.3 | ||
| 1990-91 | 3.66 | Lahore | 71.0 | 145.0 | ||
| 2002-03 | 10.14 | Peshawar | 47.0 | 90.0 | ||
| Quetta | 51.0 | 111.0 | ||||
| September 2004 | 13.50 | |||||
The industries in Category-I are peculiar in more than one way. Firstly, because of their relatively small scale of operations, comparatively small increase in absolute terms has given rise to exceptionally high growth.
More importantly, growth rate for a number of industries in this category in the year 2003-04 gets a boost simply because of their depressed level in the preceding year. This is particularly true of such industries as air conditioners, deep freezers, tractors & electric bulbs reporting abnormally high growth in 2003-04, because their production level in preceding year was lower even than in 1999-00.
Knowledgeable businessmen familiar with production lines abroad of similar durable consumers on mass production working with highest efficiency and speed believe that our producers of these goods on relatively small scale shall face extremely hard times in years to come.
It is possible for a short time to manage control of a limited market for small production. In the face of international competition, such a market is most likely to be overwhelmed by rival competitors from abroad.
Reservoir indicators: Important indicators of massive unemployment and price escalation of wheat flour the mainstay of the poorest in society are the two most alarming indicators virtually ignored in the official version.
Doling out money by making micro-credit available through banks or extending small loans on commercial rates in collaboration with NGOs, in the absence of viable avenues of investment are measures hardly adequate to make any dent into the twin menace of unemployment and poverty. It is generally believed that the "Reservoir of the Unemployed- educated as well as illiterates" on the contrary is growing out of all proportions for the last two decades.
The number of the unemployed is officially reported as 3.7 million in 2004. This figure rose from less than one million in 1990. In the year 2002-03, the last year for which a break-up of the unemployed into the rural-urban is available shown in the Table V.
| Table V | ||||
| 1990 | 2003(mln) | % increase | ||
| Unemployed | 0.98 | 3.65 | 272 | |
| Rural | (0.60) | (2.27) | 278 | |
| Urban | (0.38) | (1.38) | 263 | |
It may not be out of place to quote a few statistics regarding escalation of price of wheat flour and the corresponding purchasing power of the poorest in society whose only source of calorie-intake is "Atta". These are indicated in Table-IV-A & IV-B.
No precise information exists to ascertain as to how much the manifold increase in prices of wheat flour during the last decade and a half has affected the life of those living from hand to mouth.
Media reports of despondency on those among the unemployed, however, present a picture much is too different from the one painted by the official version of the state of economic indicators and the burden of price inflation on the poorest in society is too obvious to need any statistical evidence.
To meet the various challenges highlighted above, the need to re-energize the industrial sector and restoration of the growth momentum in Agriculture, the two leading productive sectors can hardly be over-emphasized.
Toward this end, design and effective implementation of a comprehensive industrial strategy, oriented primarily to job creation with particular reference to vendor industries which are scattered all over in cities big and small is imperative.
Vendorization is relevant not only to Engineering Goods Manufacturing with its vast inter-linkages as referred to earlier, but also directly connected with other areas such as Leather and Leather goods, garment making, plastics and wood works, two and three wheelers and so on.
Similarly serious efforts are required to restore appropriate incentives in the fields of fertilizer production and distribution, agriculture credit for small farmers and irrigation water supply. Effective implementation of the charters of organizations like the Small and Medium Industry enterprises and SME Bank could be a step in the right direction.
Devolution of political and economic authority at the grass roots provides an infrastructure to implement anti-poverty programs and other social welfare meaningfully. To conclude, it is no exaggeration to state that the nature of policy issues of highest national concern facing the policy makers are so complex, intricate and alarming that these require serious thought and planning and cannot be wished away simply by ignoring ground realities.
The writer is former Economic Adviser, Government of Pakistan.
