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B-com part 1 Pakistan Studies Notes part 1 Pakistan Studies Notes

Chapter 6 - Economics of Pakistan

B-com part 1 Pakistan Studies Notes

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Old 03-24-2010, 08:22 AM   #1 (permalink)
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Default Chapter 6 - Economics of Pakistan

Chapter 6 - Economics of Pakistan

* Characteristics of the Economy of Pakistan

* Natural Resources of Pakistan

* Importance of Agriculture

* Major Industries of Pakistan


Q.1. Discuss the main characteristics of the Economy of Pakistan?

Islamic Republic of Pakistan is an under developed country. The characteristics of the economy of Pakistan are almost the same of the economy of any under developed country. The main characteristics of the economy of Pakistan are as follows.

1. Burder of International Debt

Most of the developing countries are depending on foreign economic assistance to meet the short fall in domestic savings and for quickening the pace of economic developement. As the year pass, the amount of foreign loans is increasing. The liability of debt servicing has increased manifold. In Pakistan, debt service payments amount to 2309 million dollars in 1996-97 which is a heavy burden.

2. Low per Capital Income

Majority of the people living in developing countries are poverty ridden. Poverty is reflected in low per capital income. People live in unsanitary conditions. Service like health, education expand very slowly. In short, mostly the people in LDCs (less developed countries) are ill-fed, ill-clothed, ill-housed and ill-educated. People here are involved in misery-go-round. In Pakistan the per capital income at current market prices is Rs. 18,320 in 1996-97 (470 dollars).

3. Agriculture, the Main Occupation

In developing countries two third or even more of the people live in rural areas. Their main occupation is agriculture which is in a backward stage. The average land holding and the yield per acre is low. The peasants mostly live at a subsistence level. As far as Pakistan is concerned agriculture contributes 25% of GDP.

4. Dualistic Economy

The economies of developing countries are characterized by dualism. Dualism refers to economic and social division in the economy. For instance, in the developing countries one is the market economy and the other is the subsistence economy. Both the economies exist side by side. In and around the city, there is a market economy which is well developed. Ultra modern facilities of life are available here. But in rural areas the economy is primitive, backward and agriculture, oriented. Similarly, industrial sector uses capital intensive techniques and produce variety of capital goods. The rural sector produces commodities mainly with traditional techniques. The standard of living of the people living in market economy is high but that of their brothers living in subsistence sector is low. The dualistic nature of the economy is not conductive to healthy economic progress.

5. Under-Utilization of Natural Resources

An important characteristics of the developing countries is that their natural resources either remain un-utilized or under-utilized or mis-utilized. Most of the countries are rich in resources but they remain un-utilized or under-utilized due to lack of capital, primitive techniques of production, limited size of the market and sluggish nature of the people.

6. High Rates of Population Growth

Almost all the developing countries are having a high population growth rate and a declining death rate. The development made with low per capital incomes and low rates of capital formation here is swallowed up by increased population. As a result there is no or very slow improvement in the living standards of the people. In Pakistan the rate of increase in population is estimated about 2.77% per annum. This high growth rate is offsetting all achievements of developments.

7. Unemployment

Another notable feature of developing countries is vast unemployment and disguised unemployment both in the rural and in the urban areas. It is estimated at 31% of the labour force in LDCs. The unemployment is increasing with the spread of education and urbanization.

8. Low Level of Productivity

In developing countries people are economically backward. The main causes of backwardness are low labour efficiency, immobility of labour due to joint family system, cultural and pshychological factors leading to low level of productivity.

9. Deficiency of Capital

Deficiency of capital is another common sign in all the developing countries of the word. The capital deficiency is mainly due to

(1) low per capital income

(2) low rate of saving

(3) low rate of investment

(4) Inequalities of wealth

(5) adoption of consumption pattern of advanced countries

(6) Higher level expenditure on consumption etc.

10. Backward State of Technology

All the developing countries are in the backward state of technology. The technological backwardness is due to

(1) higher cost of production despite low money wages

(2) Deficiency of Capital

(3) Predominance of unskilled and untrained workers

(4) Dualism

(5) Misallocation of resources etc

These are the major hurdles in the spread of techniques in the LDCs.

11. Dependence on Export of Primary Products

The LDCs are still relying on the 19th century pattern of external trade. They are mainly producing and exporting primary commodities to the developed countries and importing finished goods and machinery from them.

12. Influence of Feudal Lords

In Pakistan, like many other developing countries, the poor are under the hard grip of feudal lords and tribal heads. It is in the interest of the feudal lords that the poor should remain poor.

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Q.2. Describe the natural resources of Pakistan?

Resources are defined as a means of meeting a need, particularly an economic or social need, of the people. The term usually refers to natural resources like land, water, air. Natural resources are largely unchanged materials of the land that are valuable to people and used in variety of ways.

Pakistan is rich in natural resources. It has mountains, plains, deserts, fertile soils, rivers and oceans. Natural Resources are very important for the development and prosperity of a country. The important thing is to utilize them for the welfare of the human beings and development of the country economically because the progress of a country totally depends upon the utilization of the available resources. The important natural resources are described as under:

1. Soil

The Soil of Pakistan belongs to dry group having high calcium carbonate and content and deficient in organic matter. These vary in colour from reddish brown in the north to red or gray in the south. These soils are generally fertile due to process of formation. The newly deposited alluvium near the river is called Khaddar and mostly consists of sand. The old alluvium of the bar uplands, called Bangar, consists of finer particles - loams. At the foot of the mountains the soil is sandy and generally becomes finer towards the plains where Khankah, limestone concentration, is occasionally found. The soils of the Thal and the Thar deserts and of Balochistan are wind-blown. In southern Potwar a thin layer of residual soil covering is found.

Soil is defined as that part of the unconsolidated material covering the surface of the earth which supports plant growth. It has three major constituents. (1) Solid Particles (Salts, mineral and organic matter), (2) air and (3) water. The type of soil formed is a function of topography, climate vegetation and the parent rocks from which the soil material is derived. Soil material transported and deposited by running water is known as alluvium which that transported and deposited by winds form aeolian soil. Soils formed in silt are termed residual. Soil forming process is complex and continuous. As a result, soils vary in their chemical composition colour, texture and organic content place to place.

2. Water

Water is basic need of life. Human beings, animals and plants cannot live without water. Water is essential for sustaining quality of life on earth. This finite commodity has a direct bearing on almost all sectors of economy. In Pakistan its importance is more than ordinary due to the agrarian nature of the economy. The share of agricultural sector in the Gross Domestic Product (GDP) of Pakistan is about 25%. Since agriculture is the major user of water, therefore sustainability of agriculture depends on the timely and adequate availability of water. The increasing pressures of population and industrialization have already placed greater demands on water, with an ever increasing number and intensity of local and regional conflicts over its availability and use. Historically, the high aridity index of the country is adding further to the significance of water in development activities in Pakistan.

Though, once a water-surplus country with huge water-resources of the Indus River System, Pakistan is now a water-deficit country. Surface water-resources of Pakistan are mainly based on the flows of the Indus River and its tributaries. The Indus River has a total length of 2900 kilometres (Km) and the drainage-area is about 9,66,000 Five major tributaries joining its eastern side are Jhelum, Chenab, Ravi, Beas and Sutlej; besides, three minor tributaries are the Soan, Harow, and Siran, which drain in mountainous areas. The famous lakes of Pakistan are Haleji Lake, Hana Lake, Keenjhar Lake, Manchhar Lake, Saiful Muluk Lake.

3. Air/Winds

Air is very important for the existence of life because all living beings respire through air. The air is composed of nitrogen, oxygen and carbon dioxide etc. These are the base of existence of ever form of life on earth. The oxygen in the air is essential for our life whereas other gases are necessary for animal and plant life.

4. Forests

Forests are extensive, continuous areas of land dominated by trees. The forests of Pakistan reflect great physiographic, climate and edaphic contrasts in the country. The desired level of forests is 20-30 percent of the total land of a country. In Pakistan only about 4.8 percent of the total area is forested which is very low.

Forests are important in many different ways. From an ecological point of view, they help to maintain a balance in the environment by checking pollution and protecting the soil from erosion by wind or water and intercepting rainfall, particularly on sloping ground. By preventing soil erosion, the trees on the slopes of hills also regulate the supply of water to the reservoirs thereby reducing floods.

Decomposition of leaves helps in humus formation, which maintains the fertility of the soil. This ensures food supply to millions of people.

From a commercial and industrial point of view, forests provide raw materials to various industries e.g. timber, pharmaceutical paper. They also have recreational value, promote tourism and provide employment in the forest department. The are many employment opportunities that depend on the forests.

The type and distribution of forests are closely linked to altitude. In areas above the snow line, there is hardly any vegetation. Alpine forests grow just below the snow line. From 1000 to 4000 meters, coniferous forests are found. Below 1000 meters, only irrigated plantations have good species of wood.

5. Minerals and Power/Energy Resources

Minerals and power resources are the foundation of economic development. They help in giving an initial push to the raising of production in all sectors of the economy. Pakistan has a large variety of minerals some of which have Bubatantial reserves and quite a few are of high quality. Besides rock salt, coal, iron, ore, limestone, chromite, gypsum, marble, copper, magnetite and uranium useful deposits of magnesite, sulphur, barites, china clay, bauxite, antimony ore, bentonite, dolomite, fire clay, fluorite, fuller's earth, phosphate rock, silica sand, soap stone and molybdenum are found in the country development. Semi-autonomous corporations under the Ministry of Petroleum and natural resources have been set up for the purpose. These are the Pakistan Mineral Development Corporation (PMDC), the Resource Development Corporation (RDC) and the Geological Survey of Pakistan (GSP).

Pakistan has extensive energy resources, including fairly sizable natural gas reserves, some proven oil reserves, coal and a large hydropower potential. However, the exploitation of energy resources has been slow due to a shortage of capital and domestic political constraints. Domestic petroleum production totals only about half the country's oil needs, and the need to import oil has contributed to Pakistan's trade deficits and past shortages of foreign exchange. The current government has announced that privatization in the oil and gas sector is a priority, as is the substitution of indigenous gas for imported oil, especially in the production of power. Pakistan is a world leader in the use of Compressed Natural Gas (CNG) for personal automobiles.

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Q.3. Discuss the Importance of Agriculture in Economic Development.

Pakistan is basically a farming community. About 70% of its population is living in rural areas and nearly 50% of them engaged in farming, livestock and agro-based industries. However, Agriculture sector plays a vital role in the economic development of a country. It is confirmed and supported by the following facts.

1. Determination of GDP Growth Rate

The GDP growth rate in Pakistan is mainly dependent upon the growth rate in agriculture sector. For example, the GDP growth rate increased from 4.5% in 1993-94 to 5.2% in 1995-96 mainly due to increase in the production of cotton, rice and wheat in the year 1995-96. It came down to 3.1% in 1996-97 due to fall in the production of cotton, wheat and sugarcane.

2. Agriculture Development Essential to Curtail Inflation

If the rate of growth in agriculture sector is low, it brings shortage of food, vegetable and other essential raw materials in the country. The prices of the essential goods go up. The slow rate or fall in the production of agriculture sector generates inflationary pressure and creates bottlenecks in the economic development of the country.

3. Major Component of GDP

Agriculture sector is the single largest component of GDP in Pakistan. Its contribution is 25% to Pakistan's GDP. The progress of agriculture sector provides a sound base for economic development and is considered one of the preconditions for take off or self sustained growth.

4. Providing Labour Force to Industry

In most of the developing countries (including Pakistan) agriculture is the main source of providing man power for various sectors of economy. In Pakistan, 50% of labour force is employed in agriculture sector. With the improved growth in the agriculture sector due to mechanization, the surplus labour force can be easily absorbed in the small and large scale industries. The provision of new employment both in the agricultural industrial and other sectors can increase the income of the workers and help them to get out of low income equilibrium.

5. Foreign Exchange Earner

The agriculture sector is the main source of foreign exchange earnings in Pakistan. The export of cotton, cotton based products, rice etc fetch about 65% of our total export earnings. This helps in the import of capital machinery, equipment, technical know how etc which are essential inputs for development. The availability for foreign exchange not only helps in the industrialization programme but also improves the balance of payments.

6. Meets food requirements

Pakistan's population is growing at an alarming rate of 2.77% annually. The agriculture sector is successfully meeting the food requirements of over 13 crore persons in Pakistan. Had there been no green revolution in agriculture sector during sixties and seventies, we would have spent the major portion of foreign exchange earned on the food import. The economic development would have also been retarded due to low capital formation.

7. Support to Industries

The improved growth in the agricultural sector provides raw material to manufacturing industries. The production of cotton, jute, sugarcane, fruits etc enable the cotton, jute, sugarcane fruit processing and other agro based industries to get material from within the country and expand production. The industries not only meet the domestic requirements, of cloth, jute bags etc but also earn foreign exchange by exporting them.

8. Expanded Industrial Market

The expanding and progressive sector brings prosperity to the agriculturists. The increase in the income of formers is spent on the purchase of industrial output such as clothes, motorcycles, cars, fans etc. The improvement in the agriculture sector thus provides on outlet for the products of the expanding industries.

9. Marketable Surplus

When the agriculture sector is expanded on scientific lines, it yields handsome marketable surplus. The surplus which may be cotton, jute, wheat, sugar, silk, fish, timber etc. can help to pay the import of industrial raw materials, capital equipments and technology. This helps in bringing about rapid economic development.

10. Pshychological Conditions

The modernization and expansion of agriculture sector brings progressive outlook and new motivations to the persons concerned. The new values are essential for rapid economic development of the country.

Summing up, agriculture sector in Pakistan contributes around 25% to Pakistan's GDP and engages about half of the labour force. It is the largest source of (about 64%) foreign exchange earnings and meets raw material needs of the major industries of the country. It economic development is to be accelerated and stabilized, then the development of agricultural sector is very essential. It must receive top priority in economic planning of the country.

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Q.4. Give a brief account on major industries of Pakistan

A brief introduction about the major/large scale industries of Pakistan is given along the following lines.

1. Textile Industry

The textile industry is the largest industry of Pakistan. At the time of partition, Pakistan received only 17 textile units in its share. The production of textile was very low and a large quantity of textile had to be imported to meet the domestic, requirements. Now, Pakistan is a prominent country for the production of textile. The textile industry accounts for 17.3% of value added, 32.2% of industrial employment and 60% of total exports. There were 354 mills operating in the textile industry in 2001-02. The installed capacity of spindles was 8841 thousand and installed capacity of looms was 10 thousand in the same year. The production of cloth was 558 million square meters by the organized mills sector. Various steps have been taken by the Government for the growth of the textile industry e.g. the provision of incentives, freedom to acquire technical assistance from abroad, directly financing institutions and improvements in management and labour efficiency etc.

2. Vegetable Ghee and Cooking Oil Industry

At the time of independence oil industry was very poor. Now there are 150 vegetable ghee and cooking oil factories in Pakistan. Out of these 26 are in the public sector with an installed capacity of 500 thousand tonnes of ghee and cooking oil. Total production of ghee and cooking oil was 774 thousand tonnes in 2001-02. A large quantity of cooking oil is imported to meet the domestic needs. The decline in the production of vegetable ghee is due to lower scale turnover and operational difficulties & closing down of two units in N.W.F.P.

3. Sugar Industry

In 1947, there were only 2 sugar factories in Pakistan, but at present there are 77 sugar factories in the industry. During the year 2001-02 total production of sugar was 3247 thousand tonnes. Revolutionary steps are required to expand the working capacity of this industry, which must be expanded and facilities should be provided to farmers for the production of better crops.

4. Fertilizer Industry

There are 10 fertilizer units (6 in the public sector and 4 in the private sector) in the country, having an installed capacity of 42,98,000 N. Tonnes (16,74,000 N. Tonnes in the public sector and 26,24,000 N. Tonnes is the private sector). Total production of fertilizers in 2001-02 was 5012 thousand tonnes. The low production was caused, by operational difficulties, decline in working hours and power failure/load shedding. A number of concessions are provided for the growth of this industry.

5. Cement Industry

At present 24 cement factories are operating in the country, out of these 4 factories are in public sector and 20 are in private sector. The installed capacity of cement is 16,300 thousand tonnes out of which 9935 thousand tonnes of cement was produced in 2001-02. This industry has been allowed duty free import of plant and machinery.

6. Chemical Industry

There are 12 chemical factories in the country producing, soda ash, sulphuric acid, caustic soda, chlorine gas and other chemicals. The contribution of the chemical industry towards GNP is only 3%. This industry is not fulfilling domestic requirements, so a large amount of foreign exchange is spent on the import of different chemicals every year.

7. Jute Industry

At the time of independence there was not a single jute factory in Pakistan. By the cooperation of PIDC, 32 factories were setup in East Pakistan and one in West Pakistan by the time of separation of East Pakistan in 1971. At present there are 12 Jute mills in the country. Total production of Jute goods was 81.7 thousand tonnes during 2001-02. Now a large quantity of Raw Jute is imported from China and Bangladesh every year to meet the domestic requirement.

8. Engineering Goods Industry

The engineering goods and capital goods produced domestically are very helpful for economic development of a country. This industry was given importance in the 3rd five year plan. Now we have 4 heavy engineering industries. There are

(1) Heavy Mechanical Complex, Texila

(2) Heavy Foundry Project, Taxila

(3) Pakistan Machine Tools Factory, Landhi

(4) Pakistan Steel Mills, Karachi.

All these are in the public sector. There are also a number of light and medium engineering goods industries producing a lot of items.

9. Ship Building Industry

Ships are constructed at Karachi. A number of small and large ships are made by Karachi yard and Engineering works. This factory was establised by PIDC. Now Pakistan is selling ships and boats abroad. In all the five year plans, this industry is given much importance.

10. Woolen and Worsted Textile Industry

There are 16 woolen mills in Pakistan. These are located at Karachi, Nowshera, Lawrencepur, Quaidabad and Hamai. This industry is not only meeting the worsted and woolen yam requirements of the country, but it is also exporting a large quantity of worsted cloth and carpets to foreign countries.

11. Cigarette Industry

At present 22 factories are producing cigarettes and Biri. Our country is self sufficient in the production of cigarettes. The raw tobacco used in the manufacturing of cigarettes is produced domestically. During the year 2001-02, 55,318 million cigarettes were produced in the country.

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