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The areas which constituted Pakistan were mostly agrarian and backward and were dominated by a few feudal landlords. The few industries it inherited were based on either handicrafts or on processing of agro-products. The country’s industry and trade were again largely under the ownership of Hindus and Sikhs who left the country with their capital immediately after the partition. These communities had managed much of the commercial activity of West Pakistan. Hence their departure caused a vacuum in these critical areas.
Pakistanis initial problems were further aggravated by the influx of a vast number of refugees. It is estimated that nearly 12 million people from India migrated to Pakistan during the first three years of partition. The partition of the sub-continent disrupted the principles of complimentarily that earlier prevailed in the region. For instance, West Pakistan traditionally produced more wheat than it consumed and had supplied the deficit areas in India. Cotton grown in West Pakistan was used in mills in Bombay and other western Indian cities.
Manufactured products such as coal and sugar were in short supply in areas that constituted Pakistan and came from areas today part of India. The division of administrative machinery, the Indian Civil Service and the Indian Police Service, was also problematic. Out of a total of 1 , 1 57 officers, only 1 57 Joined the Civil Service of Pakistan, which became one of the most elite and privileged bureaucracies in the world. The substantial irrigation network inherited from British rule was the only redeeming feature of the new state.
Given the predominantly agrarian nature of the economy at partition, a viable irrigation system was a necessary input for the revival of the agrarian economy, given the inadequacies of other infrastructure such as roads, power, railroads, etc. The Early Years: Quest for Survival In the early years (1947-58), economic policy and planning in Pakistan was dominated by a small group of bureaucrats. Given the profound adverse conditions at the time of partition, the focus of the economic planning was on keeping the economy going.
The Herculean task of building an economic base was left to the state sector as the private sector was too weak and lacked the capital to launch industrial development n the country. An analysis of economic policy from 1947-58 shows a series of ad hoc reactions to crises. The Korean War to 1952, however, proved a blessing tort Pakistan by causing an upsurge in demand for Pakistani exports, mostly raw Jute and raw cotton, and assisting in the creation of a nascent entrepreneurial class. It was this windfall that laid the foundation of industry in Pakistan.
The end of Korean boom led to a re examination of policy that led to the rigid system of import licensing designed to manage Pakistanis adverse balance of payment problem. The cumbersome web of administrative and licensing control that resulted later formed the back bone of Pakistanis import substitution strategy. Thus, the first decade after independence was essentially bureaucratic-led and assisted industrialization. Since much of the bureaucracy was composed of urban migrants from India, it had little knowledge of or interest in agriculture and felt that manufacturing should receive far greater state patronage.
The big landlords and anabas who enjoyed some political clout could not translate it into economic clout. While a small number of industrialists who secured high profits in the early years acquired economic clout, they did not have the political clout; they were dependent on the benevolence of the license raja of the civil servants. With disarray in the ranks of the political groups that existed, the military stepped in to restore law and order and to promote bureaucratic capitalism that had emerged in the asses.
The Baby Decade of Development General Mohammad Baby Khan’s military regime was characterized by controversial and paradoxical combination of the most impressive growth rates in Pakistani history, imbibed with large increases in income inequality, inter-regional disparities and the concentration of economic power. During this decade, the economic indicators were extremely impressive, with GNP growth rate hovering around 6 per cent mark throughout the decade. Agriculture grew at a respectable rate of 4. 1 per cent over the period, while manufacturing growth rate recorded 9. Per cent and trade 7. 3 percent. However, statistics on income distribution, wages and human capital development present a dismal picture. The indices of income inequality worsened and the ranks of the poor increased. Wage increases did not match productivity gains as the living standards of a large majority of the population stagnated. The centerpiece of Bayou’s economic strategy was the commitment to rapid industrialization. Policymaking was tailored to promote industrial investment. This system provided a plan and procedure for investment licensing and credit disposal.
Furthermore, the Pakistan Industrial Development Corporation (PAID) was formed to spearhead the industrialization drive by providing the critically needed cap en w endearing in devour to the private sector, which lacked the skills or he finances to undertake very large projects. As industrial profits were more widespread, an entrepreneurial class emerged. It was this class which provided the dynamism that had been absent during the asses. This class helped accelerate the rate of growth in the large scale manufacturing sector to more than 15 per cent during the decade.
The Baby decade also witnessed a series of reforms aimed at strengthening the agriculture sector. The land reforms of 1959 were designed to make a dent on the stranglehold of the dominating landlord class while at the same time encouraging capitalist agricultural velveteen. This was followed by the Green Revolution in mid-sixties. The Green Revolution was characterized by the introduction of high yielding varieties of rice and wheat and the mechanization and diffusion of technology aimed at boosting Pakistanis agricultural growth.
The expansion of irrigated acreage with the installation of private tube wells, and increased use of chemical fertilizers contributed to agricultural growth. The rapid mechanization of agriculture however led to the displacement of small farmers, thereby aggravating rural inequality. Thus the legacy of the Baby years is mixed. While the consolidation of economic management and the high growth rates were important achievements, the growing income inequality, wage stagnation, the neglect of human capital, and the growing dependence on foreign capital inflows, all pointed to the challenges that future regimes would need to face.
Bathtub’s Experiment with Socialism In 1971 Pakistan lay traumatized by the cessation of East Pakistan and the defeat in the war with India. The end of the war marked the accession of Auxiliary All Bout, then a charismatic elected leader who encouraged a broad restructuring of the entry’s industrial and agricultural sector along socialist lines. It marked the strongest attempts today of the assertion of political authority over the country’s army and bureaucracy. It sought to rectify the social and economic imbalances that characterized the previous decade.
Bout promised a new development strategy that was more equitable than previous policies. One of the key decisions of the Bout administration upon accession to power was the devaluation of the rupee in 1972 by 57 per cent and abolition of the multiple exchange rate system. This led to a phenomenal . Urge in exports as Pakistan found new markets to replace the loss to trade wit I erstwhile eastern wing. The most dramatic decision to the Bout regime was the nationalization of large private manufacturing and financial institutions.
In 1972 all private banks and insurance companies and thirty-two large manufacturing plants in eight major industries were nationalists with the avowed objective of reducing the concentration of wealth and diluting the power of private industrialists. Consequently, the composition of investment changed dramatically from private to public sector. Nevertheless, nearly 80 per cent of the value added in the large scale manufacturing sector, particularly in textile and consumer goods remained in the private sector.
The outcome of nationalization was not favorable as the large scale nationalists sector performed very sluggishly during this period owing to lack of able managers and technicians, many of whom migrated to the Middle East lured by higher salaries. Private capital fled the country or Went into small scale manufacturing or real estate. One positive outcome of this was that the small scale manufacturing sector stirred a growth rate of 10 per cent per annum in this period compared to 4. 2 per cent for the large scale sub-sector.
Another positive feature of industrialization during this period was that for the first time an attempt was made to set up basic industries in steel, fertilizer and chemicals which laid the foundation for future growth that benefited subsequent regimes. Agricultural growth slowed due to a combination of exogenous and policy factors. Firstly, climatic shocks and viral diseases affected the crops, with marked damage to cotton production. Secondly, there was an overall shortage of the critical agriculture inputs such as water and fertilizer that were required to maintain productivity gains of the high yielding varieties.
One unfavorable trend relating to Pakistanis external sector during Bout years was the growing balance of payments difficulties and the consequent increase in the country’s external debt. However, it was during these years that Bathtub’s policy contributed to rapidly increasing remittances that also helped to cushion the country’s external dependence. This is also the period of one of Pakistanis slowest economic growth, unstrained by a series of exogenous shocks, causing significant macro economic instability. Firstly, the cessation of East Pakistan after a brutal civil war led to a break- down in inter-wing trade.
Secondly, the asses marked the beginning of a series of oil shocks induced by the newly formed OPEC cartel. Thirdly, the asses was a period of substantial fluctuation in international prices of Pakistanis commodity exports, making export performance highly uncertain. Finally, a combination of bad weather, flooding and pest attacks adversely affected the production of cotton, weakening the economy. Military rent to Aziza This period coincided with the military rule of General Aziza-LU-Has, – who acceded to power with the goals of restoring political stability, liberation’s of the economy and Isolationism of society.
In explicit contrast to asses, the asses was a period of reversal from public sector-led growth strategy. Disestablishing exogenous shocks were absent in this period. As a result, the growth rate in GNP was over 6 percent. High rates of industrial growth were led by the coming on stream of the earlier investment made in the public sector ender Bout, especially in heavy industries, and also by rapid expansion in domestic demand.
The Russian intervention of Afghanistan in 1979 propelled Pakistan to the forefront of international political attention. Not only did it give political legitimacy to the regime, it also set the way for substantial infusion of foreign aid and war-related assistance that together with generous inflow of remittances provided a safety value for the Pakistani economy. One of the negative effects of the Afghan war was the mushrooming of parallel and illegal economy estimated at about 20-30 per cent of the GAP.