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Economic Survey, 1956

The following economic survey was written by H.A. Alavi, former Secretary, State Bank of Pakistan, and appeared in The British Commonwealth 1956 published by Europa Publications Limited, London (1956).

See the Synopsis of Subjects on the left for other items on Pakistan from The British Commonwealth 1956.

Economic Survey

The Economic Background

At the time of the partition of India, in 1947, the outstanding feature of the territories which came to comprise Pakistan was an almost complete absence of modern industry. The Muslim communities, which constituted the predominant element in Pakistan's population, were backward and played little part in trade and industry. Many opponents of the idea of Pakistan were reconciled to it only because it was widely believed that the new state would not be economically viable. Pakistan has always been conscious of the need to proceed with economic development at the highest possible rate and also to demonstrate economic strength. Its record is at once impressive and punctuated by crises, caused by the strains to which the economy is being subjected, in the course of the drive to build up military strength as well as to bring about a balanced development of industries and agriculture in the quickest possible time.

The first census, taken in 1951, showed that of its total population of 76 million the civilian labor force numbered only 22 million: 17 million were engaged in agriculture and of the remaining 5 million not more than 950,000 workers were employed in factories, plantations, transport and mining. The bulk of these were, in fact, employed on railways and port establishments. These figures indicate the low level of industrial development and the very high proportion of the dependent population, the latter being partly explained by the non-employment of women in many communities. The number engaged in agriculture is excessive in relation to the amount of land available for cultivation, so that, for example, in East Pakistan 9-5 million cultivators have on an average only 2.18 acres of crop land whereas it is estimated that, for the type of cultivation that is carried on, a minimum of 4 acres is required per cultivator to provide him with reasonably full employment. The result of such disguised unemployment on land, the low level of industrial growth and the high proportion of dependent population is reflected in the extremely low average life expectancy of 27 years and the estimated per capita national income of Rs.230.

The first two years of Pakistan's existence were characterized by a complete disruption of her economic life and a desperate struggle to pull herself together. Following on widespread communal rioting in India and Pakistan, several million people left their homes and sought refuge across the border. Statistics of the number of refugees vary considerably but the magnitude of the numbers involved may be judged by Pakistan official figures of 6 million evacuees from West Pakistan to India, and 8 million refugees from India to West Pakistan. All normal economic activity was disrupted in West Pakistan, and the disruption was greatest in the fields of communications and commerce and what little there was of industry. The social and occupational pattern of the population involved was far from being complementary. The Hindu and Sikh evacuees from Pakistan were largely urbanized communities engaged in trade, finance and banking. The Muslim refugees from India were, on the other hand, predominantly agriculturists and artisans. For the new government there was not only the task of an unprecedented magnitude of reorganizing normal economic activity, but an immediate one also of providing and financing relief. But expenditure on refugees had priority only after defense. Government expenditure on defense has overshadowed everything else and has constituted an excessive burden on the finances of the government and on the economy as a whole. As a result the country has been experiencing inflation at home and a series of foreign exchange crises. The financial difficulties which the country is facing have, given the defense expenditure, proved insoluble.

It is against this background that we can see Pakistan proceeding with its program of industrialization to emerge from its status of a backward agricultural country, barely self-sufficient in food and largely dependent for paying for its requirements of manufactured goods on the export of two commodities, cotton and jute, both of them subject to the vicissitudes of wide variations in prices in the markets of the world.


The characteristic feature of agriculture in Pakistan is cultivation by peasant farmers of smallholdings, which are very often subdivided into several small fragments. In "Zamindari" areas, Zamindars, who are absentee landlords, receive from the tenant 50 per cent of the gross produce (often more). The tenant has to meet out of his share his expenses of cultivation. There is a rich variety of systems of land tenure in existence, and from time to time they have undergone changes designed to confer on the tenant some permanence of interest in his holding. But he is never quite free from the risk of eviction. He has thus neither the resources nor the permanency of interest to carry out any substantial improvements. On the other hand, the Zamindars (who have recently been subjected to nominal rates of income tax) have been content to live in luxury and ease, and have found little reason to trouble themselves to improve their land. The other system of land settlement is known as "Ryotwari", which is supposed, in principle, to be one of owner-cultivators. But even here letting and sub-letting is widely practiced. Where this is not so, the owner-cultivator is probably struggling to eke out a bare existence from his patch of land and his resources are too meager to permit much in the way of development. Plantations run on capitalist lines are a rarity, except in the case of the cultivation of tea, which is produced entirely on plantations, many of which are owned and managed by Europeans. The main bulk of the agriculture is conducted on rather primitive lines on small holdings, which generations of inheritance have subdivided and split up into little collections of non-contiguous plots.

Crop yields in Pakistan are among the lowest in the world. Thus wheat yields average about 768 lb. per acre as against 2,166 Ib. in the U.K. and 1,620 Ib. per acre in Egypt. Again, rice yields in Pakistan average 1,249 Ib. of paddy per acre as against 4,552 Ib. in Italy, 3,361 Ib. in Japan and 3,519 Ib. in Egypt. This very low level of agricultural efficiency has been the subject of periodical inquiries and reports for the last 100 years (led by the Bengal and Orissa Famine Commission of 1866), but progress has not been spectacular. The major work on the subject has been the report of the Royal Commission on Agriculture (1926-27), whose findings have not lost all their freshness, thanks to lack of progress. The latest examination of the situation in Pakistan was made by the Pakistan Agricultural Enquiry Committee, under the chairmanship of the Rt. Hon. Lord Boyd-Orr. The committee could but scratch at the surface of the problem; it was not among its terms of reference to examine the question of land tenures. Its recommendations covered measures for improving government research in developing better varieties of crops and in cattle breeding; the setting up of an institute to introduce mechanized farming, but "Mechanization of agriculture should, in order to avoid unemployment problems, be introduced gradually; better marketing and grading facilities; refrigerated road and rail transport and cold storage for vegetables and fruit; more warehouse accommodation at assembly markets and ports; and measures to encourage the use of fertilizers, etc.

The Six-Year Development Plan of the Pakistan Government envisaged an expenditure of Rs.92 million on the provision of subsidized chemical fertilizers. Despite the subsidized supply at one-half to one-third of the real cost, for some years the response to the scheme has been very meager and only a negligible quantity of fertilizers is used. The committee considered the reasons to have been, (i) insufficient propaganda, (ii) inefficient marketing, (iii) the high cost of the fertilizer (i.e. in relation to the cultivator's share of the gross produce) and (iv) the low purchasing power of the farmer. Emphasis is put also on the need for "extension" work to bring the fruits of research to the knowledge of the farmer. Considerable hopes are based on the village AID (Agricultural Industrial Development) program, the first phase of which is the training now of village workers, each of whom will be attached to five villages, to which he will bring the knowledge of modem scientific practices. It is too early to judge the scheme. In the past agricultural extension work has made little headway.

The Report of the Economic Appraisal Committee, issued in 1953, finds it "strange that in spite of the efforts of research workers and the Department of Agriculture, extending almost over half a century, the yields of the crops are what they are". It goes on to say, "We recognize that without creating in the peasant real interest in his cultivated land and providing him with an adequate return, no appeals for increased production and no measures for improvement will be fully effective." But the report does not make any specific recommendations about the measures of reform that are required.

In the absence of any radical measures to increase crop yields, the agricultural policy of the government leans heavily on efforts to extend the area under cultivation, in order to feed a population increasing at the rate of i per cent per annum, to provide raw materials for its growing industries and to maintain exports. The target suggested by the Agricultural Enquiry Committee is an increase of 5 to 10 per cent per annum. The Grow More Food Conference, held in 1952, aimed at increasing production by 25 per cent by 1956-57. Apart from the supply of cheap fertilizers, government efforts are directed mainly at better irrigation facilities, improved drainage and soil conservation. As a result of these efforts the area under 15 major crops increased from 45 million acres in 1948-49 to 50 million acres in 1953-54.

Agricultural conditions differ materially in East and "West Pakistan both in regard to climate and to land available for extending cultivation. Through East Pakistan lies the outlet of the two main river systems of northern India, the Ganges and the Brahmaputra. The province constitutes what is probably the largest delta in the world. Rainfall is heavy; 75 per cent of the total area is already under cultivation so that very little is available for extending the cultivated area. An ambitious multipurpose scheme known as the Brahmaputra Project, which would reclaim large cultivable areas rendered useless by flooding is expected to take 20 to 30 years to complete and will, it is hoped, increase production by 100 per cent in the area concerned. The first part of this project, known as the Ganges-Kobadak Scheme, is due for completion by 1956, and will bring under cultivation over 175,000 acres. It is also planned to extend the area under double cropping by increasing lift irrigation. A Lift Irrigation Project aims at the installation of 500 power pumps in 5 years. The Karnaphuli Hydro-electric Project includes a scheme to install 2,500 pumps to drain areas liable to flooding in the wet season; and during the dry season to lift water for irrigation of a million acres of land. The Teesta Barrage, which is due for completion in 1960, will serve an area of 1.125 million acres, for which it will provide controlled irrigation.

West Pakistan, by contrast, is dry, some of it arid desert. The rainfall varies from an average of 4 to 40 inches, and the climate is one of extremes of temperature. The Indus and its tributaries, Jhelum, Chenab, Ravi and Sutlej, have brought life to this arid land and an extensive network of canals has been developed. At the time of partition Pakistan had about 22 million acres of irrigated land, about two-thirds of the cultivated area. Crop yields in the area dependent on rainfall are about one-half of the yields in the canal-irrigated area. The frontier with India cuts across the river and canal system in the Punjab, and Pakistan sometimes has apprehensions that the canals serving Pakistan which have their head works in India may be deprived of their share of water. The dispute with India arising from this situation has been the subject of negotiations through the World Bank. Meanwhile it has given an added sense of urgency to schemes for supplementary irrigation. Many of the new projects, notably the Lower Sind Barrage (serving 2-75 million acres) are already in operation. The Punjab Tube-Well Project will provide 2,000 tube-wells to irrigate 1-8 million acres. The government is particularly proud of the Thal Project: under an Act of 1949, the Thal Development Authority was set up, charged with the reclamation and colonization of the Thal, a treeless desert covering 5 million acres. The scheme involves irrigation from the waters of the Indus, construction of roads and buildings, afforestation and the setting up of industries; 250,000 refugees are to be settled in the Thai, and in all 1.5 million acres will be brought under cultivation.

Soil erosion, water logging and salinity, which is associated with it, take a severe toll in the irrigated areas. In the Punjab alone, water logging is estimated to have taken 40,000 acres out of cultivation and 2 million acres have been rendered barren by salinity. It is believed that 20,000 to 30,000 acres a year are lost from these causes, and that 8 million acres have been lost through soil erosion in a few years. Thus the schemes for bringing new land under cultivation barely make up for the land lost. Power from the newly developed Hydel project is being used to reclaim waterlogged land. But prevention of both water logging and soil erosion is bound up with the general problem of improving methods of cultivation.

Food grains

Food crops account for more than 85 per cent of the total cultivated area. East Pakistan produces annually About 7-5 million tons of rice, which is the main food crop. There is usually a small deficit in requirements of rice which is met by imports from West Pakistan, which produces about 0-7 million tons annually. The production of food grains in West Pakistan has fluctuated considerably, partly due to natural causes and partly also to differentials between controlled food grain prices and uncontrolled prices of cash crops. The staple food in West Pakistan is wheat of which between 3.3 and 4 million tons are produced annually. About 14 million tons of coarse grains are also produced in the country, most of it in West Pakistan.
The consumption of food grains in Pakistan has been a little less than the average of 16 oz. per day, the figure aimed at in the Six-Year Plan for Development. This high rate of consumption of cereals is necessary in view of the very low rate of meat consumption (0-06 oz, per capita daily in West Pakistan as against 5-2 oz. in the U.K. and 7*6 oz. in the U.S.A.) and of fruit and vegetables. Before partition, the area now comprising Pakistan was known as the granary of India, and it was believed that Pakistan would have a food surplus. In the event, during the years 1949-53, Pakistan was able to export in all 270,000 tons of food-grains. This was possible partly because consumption was slightly below the figure of 16 oz. per day considered to be the necessary minimum. However, by 1952 the food situation began to deteriorate seriously, and substantial quantities of wheat had to be imported to avert famine. The reasons for this were partly the failure of rains and the low level of water in the canals, and partly also the diversion of land from food crops to cash crops like cotton, sugar cane, oilseeds and tobacco, whose prices were more favorable. Smuggling of food grains across the border to India also contributed to the difficulties. In the first seven years of Pakistan's existence, she had imported nearly 1.3 million tons of food grains in five of those years, as against the export of 0.5 million tons in the other years. As a result of the increase in population food grain requirements are estimated to rise at the rate of about 150,000 tons annually.


Vegetable oils constitute an important item of food in Pakistan, but there is a large deficiency. The oilseeds produced in the country are rape, mustard, sesamum, linseed and cottonseed. Production is between 230,000 and 300,600 tons of rape and mustard seed, about 12,000 tons of linseed, about 35,000 tons of sesamum. The output of cottonseed varies widely, but it is estimated that about 375,000 tons are available annually for crushing and export.


Jute is the principal source of income for the cultivator in East Pakistan, and accounts for about 43 per cent of the foreign exchange earnings (with raw cotton contributing another 43 per cent). At the time of partition. East Pakistan produced about 73 per cent of the total production of world's jute, but now, Indian production having increased, the figure is 60 per cent. India, however, ceased to export raw jute in 1950, and Pakistan is the sole supplier to the rest of the world. India herself still imports considerable quantities from Pakistan, being dependent on her for the better qualities. The production of jute is subject to restrictions imposed by the provincial government of East Pakistan with a view to maintaining prices at fair levels. The control is, however, not fully effective, which is not surprising in view of the slender resources of the government and the fact that cultivation is carried on in a large number of very small units by peasants. In normal years the production has ranged between 6.0 and 6.8 million bales (of 400 lb). Jute prices and exports have been subject to wide fluctuations, and as a result the 1952-53 season ended with a carryover of 2.8 million bales. For the following season it was decided drastically to restrict production which, largely because rice prices were attractive at the time, proved successful and the output for the year was officially estimated to be only 2.5 million bales. Crop forecasts, traditionally under-estimates, are issued periodically by the government. Fairly reliable estimates are issued by the Pakistan Jute Association at Narayanganj. The 1954-55 year ended with no carry-over. The Jute year is reckoned from July 1st to June 3oth.


Pakistan produces about 5 per cent of the world's supply of raw cotton, about 40 per cent of the production of undivided India. Its pre-partition average was 1.5 million bales (of 400 Ib). but the disturbances following partition brought production down to 1 million bales. In the first five years production rose steadily to1.8 million bales in 1952-53, but there was a marked decline in 1953-54 due partly to reversion of land to food production, but mainly to adverse weather. Cotton is the principal cash crop of West Pakistan, and contributes 43 per cent of the foreign exchange earnings of the country. Ninety per cent of the crop consists of what are known as the American varieties, grown under irrigation. The bulk of the crop is of 15/16 in. staple, but a fair quantity of the 289F variety of 1 to 1 15/16 in. is also produced. Under the quality development program longer staple varieties are being developed.


Tea is grown entirely on plantations, of which about 70 per cent of the acreage is owned and managed by European companies. Production is about 50 million Ib. Pakistan teas emphasize bulk and color and are used for blending with more highly flavored varieties. About half of the production is consumed locally. Small amounts are exported directly to the Middle East and South America but the main bulk is exported to the U.K. Tea is sold through auctions at Chittagong or London. The fact that Pakistan did not follow suit when many currencies of the world devalued in line with the pound sterling, led to drastic cuts in the rupee prices of exportable commodities. This affected the production of tea more than anything else. During 1950 to 1952, the industry passed through a critical period and a number of small estates had to close down. The situation improved only after world tea prices began to rise in 1953 and 1954.


The area planted in sugar cane has steadily increased with the growth in the number of sugar mills. The acreage in 1947-48 was less than 700,000. In 1952-53, it was 870,000 acres. The yield of raw sugar has not, however, kept pace because of variations in the extraction rate as a result of the pyrilla pest. The extraction rate of sucrose was about 8-4 per cent in 1952-53. It fell to 6-9 per cent in 1952-53 as a result of the pest but the extraction rate improved to 7*8 per cent in 1953-54. This compares with about 10 per cent in the West Indies. The yield of sugar cane is also very low, about 12 tons per acre as against 56 tons in Java. Efforts are being made to develop higher-yielding varieties.


Total production is about 165 million Ib., of which about 100 million Ib. are grown in East Pakistan. The cultivation of tobacco in West Pakistan is mainly a post-partition development. Here Virginia-type tobacco is grown for the cigarette industry which has now come into being.


Agriculture in Pakistan depends upon livestock, not only as a source of milk, meat, hides, skins and wool, but also as the main source of power. Pakistan possesses some of the finest breeds of milch cattle, such as the Red Sindhi and Sahiwal cows and Nili Buffalo. Some of these are exported for cross-breeding. Among the leading breeds of draught animals are the Bhargani and Dhani bulls. The Tharparker is a dual-purpose breed. There are no breeds developed for beef. The government plays a leading part in developing breeds and, when the Agricultural Enquiry Committee emphasized the urgency of improving the dairy industry, had to decide the breeds on which the future of the industry was to be based. Buffalo milk is of the highest quality, yielding 5 to 8 per cent butter fat, as compared with 4 to 6 per cent in cows milk: but in its natural state it is believed to be too rich for human consumption so that it would not be practicable to depend entirely on buffaloes for the increased demand for milk. In view of the urgency of increasing the milk supply, present policy concentrates on milch stock, regardless of the effect on the working capacity of the bullocks. The cattle population is large but underfed and, particularly in East Pakistan, of. poor quality. About 860,000 buffalo hides, 4-5 million cow hides, 5-6 million goatskins and 2.1 million sheepskins are produced annually, and Pakistan is the third largest exporter of hides and skins in the world, following Argentina and South Africa, but exports are likely to fall with the present expansion of the tanning industry. Of raw wool, between 24 and 30 million Ib. are produced annually. The average yield of wool per sheep is 4 Ib.


Industrial Policy

At the time of partition there was very little industry in Pakistan, although the territory was rich in many industrial raw materials. From the outset the government announced its determination to promote industrial development and invited business men to enter industry. It was believed that to bring about rapid industrial development the government would need to play an active role, but under the existing constitution (of 1935) industries were a provincial subject. An Industries Conference, consisting of representatives of the central and provincial governments, was convened at the end of 1947, and it was decided that 27 industries would be subject to central planning. In the budget of March 1948, tax concessions were given to new industrial undertakings. In April 1948, a comprehensive statement of industrial policy was issued, (followed by a supplementary statement in September) designed to encourage private enterprise and the foreign investor. The main feature of the statement was that, "Free play will be given to private enterprise and individual initiative", but this was to be in conformity with the broad principles of central planning which were set down in the statement. These related to fixation of industrial targets and allocation of materials in short supply, the location of industry and the maintenance of fair labor standards. The arms and munition, industry, manufacture of railway wagons, telephones, telegraph and wireless apparatus, and the generation of hydel power were to be operated by the State. The government also reserved the right to take over, or participate in, any other industry "vital to the security or the economic well-being of the state". The rest of the field was open for private enterprise. In the event of private capital not coming forward in adequate measure for the development of any industry of national importance, the government might set up "a limited number of standard units more as a means of attracting private enterprise than for any other object".

In February 1949,the government appointed a committee to investigate the reasons for the apparent reluctance of the Pakistani business man to invest in industry. (The Committee found that the foreign investment since partition had been directed into financial and commercial concerns rather than into industry.) In July 1949, an Advisory Council of Industries, comprising officials and business men was set up to advise the government on industrial policy. The Pakistan Industrial Finance Corporation was established, with 51 per cent government participation, to provide credit to industrial concerns. The fiscal policy of the government was reorientated to provide incentives to promotion of industry. Beginning with the budget presented in March 1948, a series of tax concessions were granted to industrial concerns and on incomes from investments in industry. The rates of depreciation allowances were also made very generous. Investment in certain specified industries was also exempted from estate duty.

With the exception of the cotton textile industry, industrial growth was very slow in the early years. Unfamiliarity of Pakistani business men with industrial enterprise and shortage of trained personnel contributed a little to this, but mainly the early years were taken up with planning and obtaining machinery at long delivery dates, and in addition avenues for investment in trade, with prospects of large and immediate profits, were so great that there was little incentive to make longer-term industrial investments. In the spring of 1950, the Pakistan Industrial Development Corporation Act was passed, but the Corporation itself was brought into existence only in 1952. Its purpose was to provide leadership in the industrial sphere by building up industries with government finance, with or without private participation in the first instance, but with the ultimate intention of handing over the concerns to private ownership. It would also carry out investigations and assist private capital in its enterprises. In the first instance it was to promote jute, paper, heavy chemicals, fertilizers, heavy engineering and shipbuilding industries. In 1952, iron and steel, sugar, cement and textiles were added to its list, and in 1954 natural gas, production of power from natural gas, chemicals, pharmaceuticals, and dyestuff industries were included. The Government also set up factories for the manufacture of armaments, telephone and telegraph equipment, while some of the provincial and state governments have established textile mills.

Under the stimulus of government encouragement, tax concessions, tariff protection reinforced by import licensing, and provision of credit facilities, private industry continued to grow steadily. After 1952, however, when the country passed through severe foreign exchange difficulties, import restrictions had to be intensified. The business man could no longer employ all his capital in the import trade. It appeared that the import restrictions were likely to be prolonged. This opened up favorable opportunities for local industries; modern industry which hardly existed on the eve of partition now plays an important part in the economic life of the country.

Foreign Capital

In the statement of industrial policy the Government declared that it would welcome foreign capital seeking investment from purely industrial and economic motives and not claiming special privileges. There were however, requirements as to the participation of Pakistani nationals, both in the administrative and the technical services of the industry, and for their training. In certain industries, it was also laid down that Pakistani nationals should ordinarily be given the option of providing up to at least 51 per cent of the capital; in other industries at least 30 per cent. There were to be exemptions from this condition if sufficient indigenous capital was not forthcoming. In 1954, it was declared that foreign participation would be permitted up to 60 per cent of the total investment in approved industries. It was also stated that no restrictions would be imposed on the remittance of profits except those of general application arising from foreign exchange limitations and policy, to which such remittances are subject everywhere. A further announcement, in 1954, was that capital invested in or profits ploughed back info certain approved industrial projects would be allowed repatriation at any time, and under certain conditions also the amount of appreciation of such capital. Since 1953, foreign investors have shown an increasing interest in industrial investment in Pakistan, particularly following the severe import restrictions.

Colombo Plan and Foreign Aid

Pakistan received during the three years 1951-52, 1952-53 and 1953-54 the equivalent of Rs.828 million in the form of loans and aid from abroad. Loans and credit made available by the U.K. Government, the International Bank for Reconstruction and Development, and the U.S. Export-Import Bank together amounted to Rs.289 million. Under the Colombo Plan grants of equipment and supplies were made, equivalent to Rs.i44 million, by Australia, Canada and New Zealand. Under the U.S. Mutual Security Program Pakistan received the equivalent of Rs.i49 million. From the U.S.A., Australia and Canada gifts of wheat were received during 1953-54 to the value of Rs.242 million. Although not all of these funds were fully utilized during the period, the importance of foreign capital as a source of financing the country's development program may be judged by comparison with the total of Rs.2065 million spent during the same three-year period by the central and provincial governments on development.

Under the Colombo Plan and also under the U.N. Expanded Program of Technical Assistance, the U.S. Program of Technical Aid and the Ford Foundation, Pakistan has received technical assistance on a substantial scale. This includes the training abroad of Pakistan nationals, the provision of foreign technical experts and technical equipment.

Development Planning

Pakistan's first Six-Year Plan, to run from. 1951 to 1957, was born out of the meeting of Commonwealth Foreign Ministers at Colombo in January 1950, where the Colombo Plan for Co-operative Economic Development in South and South-East Asia was mooted. The Six-Year Plan envisaging an expenditure of Rs.2600 million was then hurriedly drawn up. It was soon reviewed and in 1951 a Two-Year Priority Program of selected projects was set up. In the course of implementation this program too underwent modifications. In some cases targets were exceeded and new industries added and some other schemes omitted or postponed. The Two-Year Priority Program was to cost Rs.5oo million. The main Six-Year Plan envisaged 32 per cent of the development expenditure on agricultural development, 20 per cent on transport and communications, 18 per cent on fuel and power, 19 per cent on industry and mining, and 11 per cent on "social capital". The emphasis was shifted considerably in the Two-Year Priority Program which provided for 48 per cent to be spent on industry and mining, 25 per cent on transport and communications, 25 per cent on fuel and power, leaving a very small amount for agriculture. But following food shortages renewed emphasis was put on short-term schemes to raise food production, with the adoption of the Five-Year Food plan in 1952. The original Six-Year Plan and the revised higher targets were fulfilled much earlier than planned. By the middle of 1955 the cost of schemes executed or approved totalled Rs.5231 million as compared with the estimated cost of Rs.2600 million for the entire six-year period. Of this, schemes costing about Rs.2000 million were for agriculture and irrigation, Rs.1500 million for power, Rs.940 million for communications and Rs.525 million for industry.

The planning organisation consists of the Economic Council presided over by the Prime Minister and having as its members the Central Ministers in charge of Agriculture, Industries, Communications, Education, Finance and Economic Affairs), the Planning Commission (having as its members secretaries of central ministries concerned and Development Commissioners of provincial governments, presided over by the Central Minister for Economic Affairs) and a number of sub-commissions. In 1953 a Planning Board was set up to make a detailed survey of resources of the country and to draw up a fresh five-year plan. The Board was due to place the first draft of the plan before the country by the end of 1955.

Cotton Textiles

At the time of partition the cotton textile industry in Pakistan consisted of 17 mills, with 177,000 spindles and 4,800 looms. By the beginning of 1955 the installed capacity of the industry stood at 1,3183,444 spindles and 19,040 looms. In addition there is a handloom industry. The number of handlooms in the country is estimated to be about 500,000, about half of which are in East Pakistan. Handloom cloth is exempted from sales tax and excise duty and 25 per cent of the output of the spinning mills is reserved for the handloom industry. The target of the Six-Year Plan for the textile industry was one million spindles, later increased to two million. With two million spindles working Pakistan would expect to be self-sufficient in cloth, at a level of 18 yards per head. Nearly half of the textile machinery was obtained in 1951-52 from Japan, the share of the U.K. being about a quarter; the rest came from Germany and the U.S.A. In later years the relative share of the U.K. has increased substantially and has amounted to nearly two thirds of the total.

Jute Goods

There were no jute mills in Pakistan at the time of partition. The target set by the Six-Year Development Plan was 6,000 looms, (rising to 10,000 looms in 10 years). The Plan target had already been achieved by the middle of 1955, two and a half years ahead of schedule. It is estimated that the industry will consume about 1.2 million bales of raw jute annually and will produce over 200,000 tons of jute goods. Pakistanis own requirements of jute goods are estimated at about 40,000 tons a year. In 1954 about 11,000 tons were exported. The total capital invested in the industry is estimated at Rs.165 million, of which about Rs.100 million have been subscribed by private enterprise and the balance by the government.


Pakistan's requirements of writing and printing paper, excluding newsprint, are estimated to reach 25000 tons annually. Early in 1950 the government decided to set up a paper mill in the Chittagong Hill Tracts and in 1952 the construction of the mill was taken over by the Pakistan Industrial Development Corporation. It is planned for an annual productive capacity of 30000 tons, and is now in full production. The P.I.D.C. is also constructing two strawboard and paper mills in West Pakistan, each with a capacity of 7,500 tons. In addition it is engaged on investigations for a proposed newsprint factory with a capacity of 30,000 tons annually.


At the time of partition cement production in the country amounted to 324,000 tons. Output increased steadily and up to 1950 was sufficient to cover home consumption and permit limited exports. As a result, however, of a large increase in construction work considerable quantities of cement had to be imported in subsequent years. In 1954 production was 674,000 tons, against estimated requirements of one million tons. The P.I.D.C. is setting up two factories in West Pakistan and one in East Pakistan, with a combined capacity of 400,000 tons.


In 1948 sugar production in Pakistan was only 7,400 tons. The estimated requirements of the country are 265,000 tons per annum. By 1954 the installed capacity of the industry had risen to 95,000 tons. The sugar industry is one of those which the P.I.D.C. has taken up for development. In 1955 four new factories with a combined capacity of 68,000 tons were to go into production and the P.I.D.C. planned to build ten additional mills. In recent years almost the whole of the sugar manufacturing machinery has been imported from the U.K.

Cigarettes and Matches

Cigarette production, started after partition, now reaches over 4,000 million a year. Additional factories are expected to bring production up to 10,000 million a year in two years time. With the development of the industry imports of cigarettes have been very limited. Until 1952-53, however, large quantities of "bidis" (tobacco wrapped in leaf instead of paper) and bidi tobacco were imported from India. In 1953-54 these were reduced to nominal quantities. No accurate statistics of bidi production and consumption exist, but they have been estimated at 11,000 million and 35,000 million a year. Manufacture is a cottage industry. The indigenous bidi industry has been given protection from imports from India and as a result of the restricted imports, some of the demand has been transferred to cigarettes.

Fourteen match factories are producing annually more than 4.5 million gross boxes. Demand is estimated to be in the region of 7 million gross boxes (50 sticks each) per annum. Development plans in hand should bring production up to 8 million gross boxes.

Tanning and Footwear

The organized tanning industry at the time of partition was small, consisting of only four mechanized tanneries, and a certain amount of tanning by indigenous methods. Now there are some 46 tanneries, most of which are mechanized and employ up-to-date scientific methods. Annual output capacity is now 17 million lb. of sole leathers and 17 million sq. ft. of upper leathers. Footwear production is claimed to have reached 21 million pairs annually, and the country is now self-sufficient in this respect.

Heavy Engineering

In 1953 the P.I.D.C. signed an agreement with Krupps to make a detailed survey of exploitable iron ore; an earlier survey having reported some 10 million tons in the Kalabagh area of the Punjab. The P.I.D.C. in association with Krupps is setting up plant, which in the first phase will be capable of producing 50,000 tons of iron ingots a year. The second phase aims at an annual production of 300,000 tons of steel ingots and 50,000 tons of pig-iron. At present Pakistanis requirements of iron and steel, including tin plate, are estimated to be 350,000 tons. These are expected, however, to rise to 600,000 tons. At present the output of the iron and steel industry, which depends on imported and local scrap, is 10,000 tons of steel ingots and about 25,000 tons in re-rolling.

The first phase of the P.I.D.C. shipbuilding scheme is due for completion by the end of 1955. This envisages construction and repair of small vessels up to 2,500 deadweight tons, principally launches, tugs, barges, etc., required by the East Pakistan Railway and the Pakistan Navy. It includes also the construction of a commercial dry dock, sufficient to take all vessels normally touching Karachi.

A small machine-tools industry, producing lathes, band saws and drills, is progressing slowly. There are also factories producing centrifugal pumps, horizontal slow-speed diesel engines, sewing machines, hurricane lanterns, razor blades and surgical instruments.

Heavy Chemicals

Two small factories produced about 330 tons per annum of sulphuric acid at the time of partition. With the addition of a modern plant, with a capacity of 10 tons per day, production has been raised to 3,000 tons per annum, which is more than Pakistan's present requirements. For that reason a sulphuric acid plant being put up by the P.I.D.C. in partnership with private capital was converted to a superphosphate-cum-sulphuric-acid plant. About half of its sulphuric acid production from its capacity of 20 tons a day will be utilized to produce 6,000 tons of superphosphates per annum. A 10 ton per day capacity sulphuric plant has also been set up in East Pakistan in conjunction with the Karnaphuli paper mills.

The present demand for caustic soda in Pakistan is estimated at 7,000 tons per annum. Two plants of 10 tons per day capacity, one in East Pakistan and one in West, have made the country self-sufficient in this chemical. The chlorine from the West Pakistan plant is utilized to manufacture 700 tons of 100 per cent DDT each year. The East Pakistan plant has been installed as a part of the paper mill.

The only soda-ash factory in Pakistan produces 25,000 tons per annum and is operated by a subsidiary of the Imperial Chemical Industries. There are 16 factories producing sodium silicate with an installed capacity of 52,000 tons per annum, but producing only 14,000 tons per annum. The local demand is about 16,700 per annum. In 1953 protective duties were levied against imports.

In order to increase the supply of fertilizer in the country the P.I.D.C. is setting up an ammonium sulphate plant having a capacity of 50,000 tons per annum, with provision to double this capacity. In addition to fertilizer the plant will provide ammonia and other by-products and it is planned to make it the nucleus of a heavy chemical industry in Pakistan.
Power. Lack of cheap sources of power is the main obstacle in the way of Pakistan's development plans. Coal mined in the country is inferior in quality and has a high sulphur and ash content. Methods of mining are primitive and very few mines are mechanized. As a result of reorganization of the industry, following recommendations by a U.K. firm of consultants, production has increased from 332,000 tons in 1949 to nearly 600,000 tons, but Pakistan still needs to import substantial quantities of coal.

Production of electricity in 1947 was meager. There was only one hydel station producing about 9,500 kW. and the installed capacity of thermal power in the large towns was about 60,000 kW. The capacity of thermal stations now stands at 197,000 kW. Hydel schemes completed so far have increased output to 62,000 kW and the completion of all the schemes in hand will increase power output by 718,000 kW. In order to speed up development the government proposes to set up an Electricity Commission, which is to be the precursor of a Power Development Corporation.

Production of crude oil in Pakistan has increased fivefold since partition to 1,700,000 barrels. Vigorous efforts have been made to find more oil in the country, but the results have so far not been as spectacular as the hopes. The only refiner has a capacity of 4,500 barrels per day.
Perhaps the most outstanding discovery for Pakistan in recent years has been that of natural gas, a large quantity of which was discovered in the course of oil prospecting. Reserves of natural gas at Sui in Baluchistan are estimated to exceed 2,250,000 million cubic feet, a reservoir sufficient to supply 100 million cubic feet per day for more than 60 years, a quantity equivalent in heating value to about 1,600,000 tons of imported coal a year. The work of laying the pipeline to Karachi has been completed and .gas made available there. Lines are being laid to industrial centers in the Punjab. It has also been announced recently that natural gas has been discovered at Haripur in East Pakistan.

Finance and Foreign Exchange


The Pakistan Government has succeeded in producing a series of surplus budgets through periods of strain as well as of unexpected prosperity. A simple device is adopted of dividing the budget into a "revenue" and a "capital" account; expenditure on revenue account is kept within the bounds of revenue receipts and other expenditure is charged to the capital account. Thus the capital account includes expenditure not only on revenue-yielding development projects but also on defense and other items which would ordinarily be -a charge on current revenues. Published statistics of receipts and expenditure on revenue account do not, therefore, accurately reflect the deficit, which is the sum of net borrowing by the government and the decrease in its cash holdings. The statistics on page 546 which have been compiled by the U.N. Economic Commission for Asia and the Far East, include in "expenditure" current capital outlays (excluding from the latter debt redemption and certain monetary operations), and reflect more accurately the governments financial position.

On the expenditure side, defense is a significant item and accounted for 60 per cent of the total in 1950-51. Absolute defense expenditure continued to rise, although its share of the total fell to 52 per cent in 1951-52 and 1952-53 and to 38 per cent in 1953-54 and 1954-55, when there was also a fall in the absolute amount. The two other major items are "Investments", which comprise expenditure on development, and "contributions to provincial governments" which are also mainly used for development projects. The low level of expenditure on economic and social services is another marked feature of the budget.

Immediately after partition, Pakistan was completely dependent on foreign trade and customs revenue is a main item of revenue. In 1950-51 it provided as much as 71 per cent of the total tax revenue. It then fell progressively to 38 per cent in 1953-54, and rose again in 1954-55 to 46 per cent, due to fluctuations in the volume of trade and in prices; this rise is possibly also a reflection of the growth of industry and the decline in the importance of foreign trade. Income tax revenue has been fairly steady and accounted for 19 per cent of the total in 1954-55. Taxes on transactions and consumption rose .both absolutely and relatively (from 15 per cent of the total in 1950-51 to 33 per cent in 1954-55).

Foreign Exchange

In the early years an illusion of the strength of Pakistan's foreign exchange position was supported by the publicity given to statistics of the balance of trade on private account, which was in Pakistan's favor, but which omitted foreign exchange expenditure on government account (between 25 and 30 per cent of total payments) and other payments (including those on shipping, insurance and banking services which amounted to about 15 per cent of the total). This incorrect appraisal of Pakistan's real position, as well as reasons of prestige, may have influenced her decision in September 1949 not to follow suit with other countries in the Sterling Area in devaluing her currency. It was said in support of the decision that the nature of her export trade was such that she could not have hoped to expand it by devaluation and would lose by lower prices in non-devalued markets; while non-devaluation, by cheapening her imports (of capital goods), would help her industrialization program. As it turned out, India decided not to accept the new exchange parity of the Pakistan rupee and trade between the two countries came to a standstill. It was then widely expected that Pakistan could not hold out on the non-devaluation decision, and this in turn led to a complete stoppage of foreign buying and speculative orders for imports in anticipation of a devaluation of the rupee. Pakistan then entered a period of acute foreign exchange difficulties but the situation changed completely after 1950 when the effects of the Korean boom were felt and in 1951 Pakistan earned a substantial surplus on its foreign exchange account. Thereafter, the balance of payments was again reversed and the situation was kept in hand only by foreign aid and severe curtailment of imports. Although export earnings have fallen from the Korean boom peak levels they are higher than in 1948 and 1949. Pakistan's problem has rather been that of maintaining a minimum level of imports of consumer goods in the face of the heavy demands made on the foreign exchange budget by the Government, for defense and development, and the growth of industrial investment.

On July 31st, 1955, Pakistan devalued the rupee, returning to the original parity with sterling before the devaluation of the £ in September 1949. The decision was not taken under financial pressure. The 1954-55 jute and cotton crops (the two main exports) had been sold and there was no "carry over". In announcing the decision it was however stated that the country had reached a stage when it could look to exports of manufactured jute and cotton goods to augment its foreign exchange earnings. It was also hoped that devaluation would improve the lot of the agriculturist through higher prices; and it was maintained that Pakistan had reached a level of production when it was safe to alter the exchange-rate without fear of serious inflation. The immediate reaction was, nevertheless, a substantial rise in prices.

H.A. Alavi, former Secretary, State Bank of Pakistan

Source: The British Commonwealth 1956
With a Foreword by the Earl of Swinton P.C., G.B.E., C.H., M.C. Europa Publications Limited, London (1956)

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