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.
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
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
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
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
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.
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
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.
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
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.
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.
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
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.
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.
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
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).
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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