TOWARDS BETTEREMPLOYMENT - GENERATION

MUHAMMAD JAVAID

PLANNING DATA BASEMINISTRY OF PLANNING & DVELOPMENT DIVISION

GOVERNMENT OF PAKISTAN, ISLAMABAD.

TOWARDS BETTER EMPLOYMENT – GENERATION

A CRITICAL ANALYSIS OF PASTDEVELOPMENT & STRATEGY FOR FUTURE

Muhammad Javaid

PLANNING DATA BASEMINISTRY OF PLANNING & DVELOPMENT DIVISIONGOVERNMENT OF PAKISTAN, ISLAMABAD.

PREFACE

Human resources development and utilization is vital to the overall socio-economy of Pakistan. The worsening employment situation in the country demands that the various dimensions of the problem be studied thoroughly by researchers and policy planners. In additional, the causes of unemployment must be examined and past performance of the economy evaluated so that future programmes can be made more effective.

The present research report by Mr. Muhammad Javaid, Chief of the Planning Data Base, is a good attempt to critically evaluate the past development plans of Pakistan, particularly the 7th and 8th Plans, in the context of human resource development and creating employment opportunities in the country. The evaluation of the causes of their failures or successes would be useful for the policy planners in formulating future plans of the country. I hope that that the report will provide new insights to researchers, stimulate interest in this field and further the cause of research and analysis in this critical area of national importance.

Islamabad March, 2004Secretary

Table of Contents

PREFACE i

Table of Contents iii

List of Table vii

CHAPTER 1 1

INTRODUCTION 1

1.1 The Problem 1

1.2 Methodology 2

CHAPTER 2 3

MAGNITUDE OF THE PROBLEM 3

2.1 Population 3

2.2 Labour Force 4

2.3 Employment and Unemployment 4

CHAPTER 3

REVIEW OF PLANNING EXPERIENCE 7

3.1 Employment Generation 8

3.2 Gross Domestic Product 11

3.3 Investment Framework 13

CHAPTER 4 17

DEVELOPMENT STRATEGIES AND EMPLOYMENT PROMOTIO

4.1 Past Strategies 17

4.1.1 Green Revolution 17

4.1.2 Rural Works Programme 19

4.1.3 Industrialization 20

4.2 Seventh Plan Strategies 23

4.2.1 Ten Point Strategy 24

4.2.2 Fiscal Policy 26

4.2.3 Monetary Policy 27

4.3 Eight Plan Strategies 27

4.3.1 Agricultural Policy 28

4.3.2 Industrial Strategy 29

4.3.3 Fiscal And Monetary dimensions 31

4.3.4 Commercial Policy 33

CHAPTER 5 35

LESSONS FROM PAST FAILURES 35

5.1 Basic Economic Environment 35

5.2 Macro-Economic Balance And And Public Resources 37

5.3 Agriculture Sector 38

5.4 Industrial Sector 40

5.5 Trade Policy 42

CHAPTER 6 45

POLICY GUIDELINES FOR EMPLOYMENT GENERATION

6.1 General approach 45

6.2 Taxation 46

6.3 Investment And Capital Intensity 48

6.4 Agricultural Employment 49

6.5 Industrial Employment 51

CHAPTER 7 55

CONCLUSIONS 55

REFERENCES 57

LIST OF TABLE

Table 1: UNEMPLOYMENT RATES BY SEX AND AREA 5

Table 2: PERCENTAGE DISTRIBUTION OF UNEMPLOYED BY SEX, AREA AND LEVEL OF EDUCATION 1993-94 6

Table 3: TARGET AND ACHIEVED GROWTH RATE OF GDP DURING DIFFERENT PLAN PERIODS 12

Table 4: FIXED INVESTMENT UNDER VARIOUS PLANS(AT 1987-88 PRICES) 16

Table 5: GROWTH OF THE MANUFACTURING SECTOR DURING DIFFERENT PERIODS 23

CHAPTER 1

INTRODUCTION

The Problem

Pakistan is categorized among those countries which have the highest rate of population growth (i.e. 2.1 percent per annum with other similar characteristics, e.g. high fertility rate; low per capita income; inadequate capital formation and low rate of savings, etc. All these factors combinedly create a situation of abundance of labour force, which cannot be adequately absorbed by the economy. Under these circumstances, the unemployment problem is becoming a source of rising concern for policy makers and others responsible quarters. The problem affects the economy of the country not only directly but also creates social disturbances in the society. The seriousness of the problem can be visualized from the fact that about one million people are entering into the labour market each year and thus increasing the size of the backlog of unemployment in Pakistan.

Pakistan has already experienced planned economic development extending over a period of four and a half decades, in the past and completed 8 five years development plans. In each plan, targets were fixed to create new job opportunities and to reduce the backlog of the unemployed. However, by the end of each plan the backlog of unemployed had in fact increased rather than declining and has attained critical point recently. This situation demands a through review and analysis of the broad features of the economic development strategies adopted in the context of employment generation so as to identify causes of their failures, and which is the main focus of this study. The structure of the study is as follows:-

The magnitude of problem is discussed in Chapter 2. A review of the planning experience is made in Chapter 3. The implications of development strategies and employment promotion are discussed in Chapter 4. Lessons from past failures are explained in Chapter 5. Policy guidelines for employment generation are discussed in chapter 6. Conclusions are summarized in Chapter 7.

Methodology

The magnitude and complexity of the problem is reviewed by using the concepts and data of Labour force surveys (LFS) conducted by the Federal Bureau of Statistics and the objective realities obtaining in the socio-economic conditions of Pakistan. The development strategies and targets set out in various Five-Year Development Plans have been reviewed and analyzed more particularly the main thrust remained on the 7th and 8th

Development plans.

A critical evaluation of the seventh Five-Year Plan (1988-93) is done in terms of the achievements and causes of failures in achieving these targets. In the light of the outcome, the required investment rates in comparison with domestic savings and productivity are reviewed to suggest policy measures for the achievement of employment targets in future.

The Eight Plan covers the five financial years from 1993-94 to 1997-98. Economic surveys for the years 1993-94, 1994-95 and 1995-96 have been made use of review the performance of three years of the Plan. The review of the first three years of Eight Plan is thus made to identify the gaps and remedial measures to overcome these in achieving the desired results, Basic methodology in arriving at employment creation is based on the employment elasticity. Elasticity factor is worked out on the basis of past GDP growth and estimated employment creation in economy. The assumptions used by the plans have not been changed. The labour force surveys reveal results in percentage terms only while the employment elasticities/GDP results are used in consonance with labour force surveys to arrive at numerical estimates of employment, unemployment, etc.as bifurcated from the population estimates/projections made for various years of the analysis period. The last decennial census in Pakistan was carried out in 1981.

CHAPTER 2

MAGNITUDE OF THE PROBLEM

Population

The population of Pakistan was estimated at 131.635 million as on first January, 1996. Another 1.86 million persons were estimated to have added to the total by June 1996. It is estimated that population in Pakistan has increased some five-fold since its independence in 1947 and may reach 150 million mark by the turn of the current century. The current growth rate of 2.8 per cent is still one of the highest among the most populous countries of the world. Higher growth rate of population has two reasons:- Control of diseases like malaria, cholera, tuberculosis, small pox and improved living conditions have caused a considerable fall in the crude death rate whereas crude birth rate shows only a marginal decline due to ineffectiveness of population welfare program during the last three decades. Since 1989, every government is giving priority to this programme. The impact of this programme seems to have brought down the population growth rate from 3.1 per cent to 2.8 per cent, as is evident from the Pakistan Economic survey, 1995-96 although, in the absence of population census which was due in March 1991, it is not possible to conclude with certainly as to which rate the population is growing.

Pakistan has to reformulate its priorities of development planning on two fronts. First, the whole society must give priorities to bring down the rate of population growth. Second, the country needs to start a perspective plan for human resource development including employment generation programme for the new entrants into labour market and existing backlog of unemployed.

Labour Force

The Labour Force Survey (LFS) annually conducted by the Federal Bureau of Statistics is the main source of information about labour force and its characteristics. An estimate of the current labour force is built from the data of the latest LFS for the year 1993-94. The total labour force estimated on the basis of total population (about 131.63 million) and participation rate about 28 percent comes to 36.70 million as on Ist January 1996. Of this 25.91 million is in rural areas while 10.79 million is in urban areas. The average increase of the labour force is 2.5 per cent during the last few years. Most of the labour force is illiterate with relatively low skills and is self-employed in the informal sectors.

The participation rate was 28.11 percent in 1991-92 but has declined marginally in 1992-39 and remained unchanged during the period 1993-94. The participation rate has been declining marginally since 1978-79 when it reached peak level of 31.02 per cent except in 1991-92 when it indicates slight increase of 0.14 per cent over 1990-91 period.

Employment and Unemployment

Using the latest LFS (1993-94) data, the total number of employed labour force was 34.92 million as on Ist January, 1996 as against 33.96 million in the proceeding year. The total number of employed persons in urban areas is 10.10 million whereas the rural employment was estimated at 24.82 million. The self-employed and unpaid family helpers dominated the employment scene. Wage employment constituted about one third of the total employment and was mainly urban based.

The rate of unemployment has been ranging between 4.74 to 5.85 per cent since the concepts and definitions used in LFS were revised. It was 5.85 percent in 1991-92 as compared to 4.74 per cent in 1992-93 and 4.8 percent in 1993-94. In absolute numbers, about 1.78 million of the labour force was estimated as unemployed as on Ist January, 1996 against 1.73 million in 1995. The unemployment rate was higher in urban areas as compared to

rural areas. It was estimated as 6.51 per cent in urban areas and 4.22 per cent in rural areas. The unemployment rate was relatively higher among the younger age groups.

Comparing the present unemployment with some of the developed countries, it seems to be rather low. Mostly the level of unemployment depended on how the concept was defined. Effective employment is difficult to measure or even to define in a country like Pakistan where less than one-third of the labour force comprises of employees or employers. Thus, the rate unemployment is hardly a relevant concept where self-employed and unpaid family workers account for about 70 per cent of the labour force. In the absence of any sort of unemployment insurance/security, every one included in the labour force has to do some activity for his living. According to LFS definition of employed, such persons will be considered as employed. The new definition of LFS adopted in 1990-91 labour force survey defines a person employed as “who worked at least one hour during the reference week”. This situation gave reason for evolving the concept of underemployment. There is a lot of underemployment in the country. The main reasons for the un/underemployment are attributed to be the decline in the absorptive capacity of agriculture and large scale manufacturing, inflexibility in the rural market and rural to urban migration. Apart from the growing unemployment, other structural problems such as low productivity and poor skills of the labour due to poor education and training, particularly of the youth need to be noted. The educated youth are the main victims of unemployment; because of rural-urban migration due to declining employment opportunities in rural areas, most of the educated unemployed youth are concentrated in urban areas.

The unemployment rate at present is 6.51 per cent. Its distribution by gender and area specific may be seen in Table 1 and Table 2.

Table: UNEMPLOYMENT RATES BY SEX AND AREAArea 1993-94

Both Sexes Male FemalePakistan 4.84 3.89 10.03Rural 4.22 3.30 8.50Urban 6.51 5.34 17.

Source: Labour Force Survey 1993-94.

TARGET AND ACHIEVED GROWTH RATE OF GDP DURING DIFFERENCT PLAN PERIODS

Plan Period Target Fixed in Plan Achieved Growth Rate

1st 1955-60 3.0 2.22rd 1960-653rd 1965-70Non-Plan Period

1970-78

5th

6th

Table 2: PERCENTAGE DISTRIBUTION OF UNEMPLOYED BY SEX, AREA AND LEVEL OF EDUCATION 1993-94

Level of Education Total Rural UrbanMale Female Male Female Male Female

Total 68.08 31.92 41.15 22.67 26.93 09.25Illiterate 27.06 24.15 19.06 19.54 08.00 04.61Literate 41.01 07.78 22.09 03.13 18.93 04.64-No formal Education

00.97 00.63 00.26 00.51 00.70 00.13

-With formal Education Pre-Matric Intermediate Degree Post Graduate

40.0621.3411.5003.4803.0100.73

07.1402.7402.6901.1300.4200.16

21.8211.9106.9001.6901.1500.19

02.6301.0101.1000.4500.60-

18.2309.4404.6001.7901.8500.54

04.5201.7201.5900.6800.3700.16

Source: Labour Force Survey 1993-94, Table 20 (Pages 382-384).

CHAPTER 3

REVIEW OF PLANNING EXPERIENCE

Manpower planning has not received adequate attention in the overall economic planning of Pakistan. A manpower plan for the country cannot be formulated in isolation. It has to be based on the manpower requirements of the development programmes of various sectors of the economy, which should be worked out by planning organizations at various stages of the formulation of the sectoral development programs. These requirements should have a detailed skill break down and should be based on estimates of current availability of manpower of various levels of skills, the current and future output of the existing training institutions, the rate of depletion of the existing manpower stock due to retirement, death and export, and the manpower requirements for the maintenance of the current levels of the sectoral activity, to arrive at estimates of manpower shortages which are likely to emerge.

In actual practice, however, manpower planning in Pakistan has been generally restricted to an estimation of employment of the available labour force and the projection of future employment in the various sectors of the economy, at a highly aggregated level, on the basis of projected sectoral growth rates.

Growth of GDP is the focal point in all the development plans. Hence Pakistan’s development strategy may be called as “growth-oriented”. The growth targets are fixed on the basis of expected investment in the plan period. On the basis of these targets, it is simply estimated how much employment will be generated during the plan period. In fact targets of employment are never fixed keeping in view the desired investment levels. The employment generation program therefore must be given priority in the

economic planning. N this section targets and achievements of employment and factors affecting it in various Development Plans are discussed.

Employment Generation

The experience of employment generation has been a mixed one in various plans. The First Plan (1955-60) did not get enough political support. One of the fundamental objectives of the First Plan was to increase the opportunities for gainful employment in the country. According to the Plan document itself it was not possible to estimate precisely how much employment opportunities would be created by the development programmes. It was very roughly estimated that the total number of employment opportunities created during the plan period would be about as large as the number of extra people seeking work. The plan did not succeed in generating employment to the desired level and unemployment situation thus became worse.

The Second Five Year Plan (1960-65) was an apparent success in terms of the traditional growth rate criterion. An important target of the Second Plan was to generate employment opportunities for the new entrants to the labour force and to reduce the backlog of unemployed. Again, the full effect of development strategies on employment was not possible to be estimated in quantitative terms According to plan document, the largest increase in employment was expected in construction activities. Enhanced job creation was also expected in education, health and other public services. It was however, given in the Third Plan document that about 3.6 million jobs were generated (including East Pakistan) during the Second Plan. The Second Plan also covered, to some extent, the backlog of unemployment which was created during the previous plan period. This achievement was mainly due to rapid growth in agriculture sector and also due to satisfactory growth of industrial sector. The rural works programme also played an important role during this period in providing more employment by creating work opportunities in the rural areas.

The Third Five Year Plan (1965-70) attached a significant place to employment generation as one of its major objective was also to reduce the backlog of unemployment by 17 percent. The plan aimed at creating new job opportunities of about 5.5 million against a project increase of 4.2 million in the labour force during the plan period. It was envisaged by the plan that

nearly one million jobs would be generated in manufacturing sector, 2.5 million jobs the newly irrigated and improved agricultural lands, about 0.4 million through the rural works programme and another 1.6 million in other service and ancillary industries. But in fact during the plan period labour force increased by 5.5 million, so the plan was hardly successful to provide jobs to the increased labour force during the period. The plan was, therefore, not successful in reducing the back-log of unemployment. The Third Plan was affected due to interruption in the flow of aid and the war of 1965.

The Fourth Plan (1970-75) was not implemented due to the separation of East Pakistan (now Bangladesh). The plan was recasted in terms of Annual Development Plans (ADPs) and this process continued till 1978. The Fourth Plan which was abandoned in its original form had a target of employment generation to the extent of 7.5 million jobs against an increase of 6.5 million in the labour force. However, it was witnessed that ADPs for the period 1972-78 could not successfully tackle the problem of un-employment. Despite a large number of migration, mainly to the Middle East countries, the country was still faced with the problem of massive unemployment especially amongst certain groups of people. Although reliable data regarding unemployment was not available for this period but different studies indicate that a further back-log of unemployed was added to the labour force. It is estimated that 4.36 million jobs were created during the period 1970-78.

The Fifth Five Year Plan was launched for the period 1978-83. During the same period, there was a new move of preparing a Manpower Plan, covering the same period as part of the plan which indicated the Government’s priority to the concept of human resource planning and its integration with overall national economic development plan. During the Fifth Plan, manpower situation was ameliorated by a large outflow of workers to the Middle East. From 1978-79 to 1982-83, according to official estimates, about 0.7 million workers found jobs outside Pakistan. This was around 20% of the addition to the labour force in the country during the same period. The Fifth Plan projected an increase of 3.84million in the labour force during the plan period. The plan estimated to provide 3.38 million jobs within the country. It was also estimated that 0.4 million persons would also be able to get employment outside the country. With all these facts in view, it was estimated that the plan would leave a further backlog of 0.06 million people as unemployed during the plan period. It was the first time that First Manpower Plan was formulated. Unfortunately, the

performance of the plan’s policies reflected increase of 2.23 million jobs during the plan period against the target of 3.38 million, thus enhancing the already backlog of the unemployed labour force.

The Sixth Plan (1983-88) had a target of 3.3 million job opportunities by raising the employment levels from 26.5 million in 1983 to 29.8 million in 1988, or at an annual compound rate of 2.4 per cent. The Plan realistically envisaged the prospect of decline in the out migration of the workers. But the tempo of reducing the development expenditure in Middle East economies was more drastic and sudden. That is why Pakistan faced with net reverse migration by the middle of the plan period.

The Sixth Plan witnessed considerable improvement in the demand for labour in the domestic market. The growth rate of gross domestic product of the Sixth Plan was equal to that projected in the plan which was rooted in sustained growth in the agricultural sector. This proved to be a critical factor for the economy to provide employment at a sufficiently high rate to absorb a large part of the addition to the labour force. According to Labour Force survey 1986-87 employment growth proceeded at an annual rate of 2.6 per cent and crossed the plan target. This was, however, offset by a higher increase (3.1 %) in population than plan estimates (2.9 %) and reverse migration. The LFS for 1986-87 indicates that despite these developments open unemployment remained unchanged at around one million in absolute numbers and declined from 3.9 per cent to 3.1 per cent of the labour force. But the main reason for this apparent improvement in the unemployment scene was the decline of the participation rate from 30 per cent in 1983 to 29 per cent in 1987. This implied that an increasing proportion of potential workers were not seeking jobs. During this period reverse migration of nearly 100,000 persons upto June, 1987 also took place whereas the plan had estimated a net out-migration of 0.6 million during the plan period, it could be concluded that unemployment levels increased during the Sixth Plan because of an offset by development on the supply side. During the plan period, it was estimated that 2.59 million jobs were created. Economic surveys released after the plan period indicated that employment level was 26.4 million at the start of plan and 28.99 million at the end of plan.

The Seventh Five Year Plan (1988-93) was prepared within a broad-based socio-economic framework of a fifteen years perspective plan (1988-2003). It was expected to generate 6.1 million jobs during the plan period. In terms of absolute numbers, 0.94 million were unemployed in the beginning

of the seventh plan. It was estimated that with GDP growth rate in the range of 6.5 per cent and employment elasticity in the rang of 0.37 to 0.4, employment would increase at the rate of 2.22 to 2.41 percent. The economy was expected to generate additional employment of 3.26 million jobs in absolute numbers. Employment statistics of the Labour Force survey (LFS) indicate that 2.08 million job opportunities were generated during the plan period against 3.10 million new entrants into the labour force. The target of the plan (6.1 million jobs) could not be achieved and thus left the backlog of 2.00 million unemployed by the end of Seventh Plan.

The Eight Five Year Plan (1993-98) was again prepared within the framework of a fifteen years Perspective Plan. The main objective of the plan was on generating additional employment opportunities by expanding productive avenues through more contribution of the private sectors as well as Government policies and programmes. It was estimated that for attaining full employment there would be a need of about 7.38 million jobs during the plan period. The backlog of unemployment at the beginning of the Eighth Plan was estimated at 1.93 million. In line with growth of population and labour force, it was estimated that labour force would increase by about 5.45 million during the Plan period. The economic growth as planned was likely to generate 5.72 million jobs and .0.5 million was expected from net overseas migration, thus leaving 1.16 million unemployed by the end of Plan.

The Plan envisaged to generate about 1.88 million or 32.9 per cent of the employment opportunities in the agriculture sector. The manufacturing sector was estimated to generate 0.68 million including 0.55 millions in the small scale sector. For construction sector, it was expected to absorb 15.2 per cent (i.e 0.87 million) of Plan target whereas about 0.25 million jobs were planned to be generated in the Transport sector. It was also estimated that one million jobs opportunities would be generated through Social Action Programme (SAP).

The problem of unemployment was planned to be tackled through a high rate of overall economic growth and through encouraging the use of labour intensive production. The GDP growth target fixed for eighth Plan was 7 per cent per annum. The eighth Plan w2as to complete its four years in June, 97. The review of Eight Plan at that stage was possible for only three years. The GDP growth was recorded at 3.8, 4.7 and 6.1 per cent respectively for 1993-94, 1994-95 and 1995-96, which was quite low in

relation to the targets which gave an indication that the targets fixed in the plan were in fact difficult to be achieved.

Gross Domestic Product

Ever since development planning started in Pakistan rapid economic growth is being considered as solution of the emp0loyment problem. Through necessary, it is not a sufficient condition for a solution to the employment problem. In each plan, the growth targets of the Gross Domestic Product (GDP) were fixed to improve the economic condition of the country but growth performance indicated that targets had never been achieved except for Second and Sixth Plan. To achieve the target of growth in GDP, a certain level of investment is required. In the early plans, heavy reliance was placed on private investment is required. In the early plans, heavy reliance was placed on private investment, which received a number of incentives but investment couldn’t reach the required level. Resultantly the low rates of GDP growth as compared to the targets did not permit a significant improvement in the employment situation. The compound growth rate of GDP for the last 14 years (1981/82 – 1994/95) was 5.3 per cent, which indicated that fixing the higher growth rate than was needed much more effort to mobilize the resources and restructure the economy.

The GDP growth during the first three years was shown as 3.8 per cent, 4.7 per cent and 6.1 percent per annum for the years 1993-94, 1994-95 and 1995-96 respectively. As GDP growth rate is below the target fixed for the Plan, therefore, in order to meet the target of employment the GDP should grow at the average rate of about 9 per cent a year during the remaining two years of the Plan, which remained an impossible target.

Investment Framework

Investment plays a key role in the economic growth which ultimately leads to employment generation. The availability of funds for investment depends on many factors like domestic and foreign savings, foreign assistance, bank and non-bank borrowing etc. A number of incentives including tax holidays, tax credits, low interest rate, over valued exchange rates, protection against competing imports and low import duty on capital goods, were offered to encourage the private investors, but there was no substantial increase in the employment level. In fact, the private sector didn’t help to generate jobs as it was expected. The low price of capital encouraged

investors to use the capital intensive technology. The Second Plan statistics indicated a reasonable investment because of a larger inflow of foreign assistance and the increase in domestic savings.

In the third Plan, investment was affected due to the 1965 war with India. The private investors were reluctant to invest and foreign financial institutions imposed certain restrictions on granting the loans.

The Fifth Plan consolidated investment and growth, brought down the rate of inflation, and restored domestic and external financial stability. Although the position of net foreign assets of the banking system in 1981-82 was not satisfactory due to adverse balance of payments. Investment rate was 17.4 per cent of the GDP, while the rise in consumer prices was slowed down to 4.2 per cent. During the Fifth Plan, excessive reliance was made on non-bank domestic borrowings to meet the budget deficit without caring for rapid increase in growth of current expenditure. Non-bank borrowing was targeted at Rs. 19.4 billion, whereas it reached Rs 40 billion.

During the Sixth Plan, a major effort was made to mobilize foreign assistance in the light of Fifth Plan experience. The target of external resources (net) was set at Rs 61.7 billion, but unfortunately it would not be achieved. The external resources (net) contributed Rs 47.3 billion during the plan period. The target of non-bank borrowing crossed the limit fixed in the plan. It was planned to contribute about Rs. 51.4 billion from this source, but non-bank borrowing reached to Rs 127.1 billion by the end of plan. In the beginning of the plan it was assumed that a surplus of Rs 50 billion would emerge by the end of the plan period but a deficit emerged at around Rs 36 billion. Government investments, as a percentage of GDP was 7.2 against the target of 8.3 per cent. However, private investment activities had witnessed a major boom in the plan. The overall investment rate was 15.8 per cent of GNP against the 7 per cent rate of domestic saving and 6 per cent consumer price inflation.

The weakness of the Plan was the absence of any concrete policy for expenditure control or domestic resource mobilization. The Sixth Plan laid the blame for the non-achievement of targets to financial difficulties which emerged over the Fifth Plan period, largely on external pressures due to higher prices of imports and low prices of cotton and rice. The expectation of a substantial strengthening of external finances did not materialize due to substantial shortfall in remittances.

The investment framework of the Seventh Plan was formulated in the light of experience gained in the Sixth Plan. To maintain investment level at 16 per cent of GNP with 7 per cent domestic saving, it was required to mobilize the foreign resources including foreign remittances at about 9 per cent. In fact on the average domestic savings were financing 44 per cent of the total investment and 84 per cent of these saving originated in private sector. The performance of investment side was satisfactory in the private sector and a little bit disappointing in the public sector. The actual fixed investment amounted to Rs. 682 billion against the target of Rs 660.2 billion. The private investment exceeded the target by 19.6 per cent while the public investment was below the target by 9.6 per cent. It was due to a fiscal deficit and to an unsatisfactory performance of external front that the level of fiscal deficit was 7.9 per cent of GDP by the end of plan (1992-93). Thus, a rapid increase of domestic debts from Rs. 290 billion in 1987-88 to Rs 605 billion in 1992-93 indicated that deficit was growing. The 7 th plan allocated Rs 2056 billion for the development programs in the manpower sector, against which Rs 1.074 billion or 41.8 per cent was actually spent.

The size of Eight five Year Plan at 1992-93 indicated that deficit was proposed at Rs 17000.5 billion which implied 48 per cent increase over the outlays of the Seventh Plan. The public sector development outlay was estimated at Rs 749.4 billion, 36.1 per cent higher, while private fixed investment was proposed at Rs 948.4 billion i.e 59.1 per cent higher than the Seventh Plan. Expectations were made that the share of private investment would increase to 55.8 per cent as against 51.9 per cent and 48.3 per cent in the 7th and 6th Plans, respectively.

The performance of the Eight Plan in the first year 1993-94 indicated that total investment outlay was made at Rs. 311.9 billion, 12.3 per cent higher than the previous year. Fixed investment reflected the increase of 11.9 per cent. Although total investment had increased but was still below the average of the five year target i.e Rs 340.1 billion. Accordingly, the possibility of creating 5.72 million jobs over the five years, as envisaged in the plan, seemed rather difficult. Moreover, too much was being expected from the public sector. It seemed that the target in the public sector might not be achieved kin the light of experience of Seventh Plan and due to the success of privatization policy. The compound growth rate of actual fixed investment was 13.68 per cent from 1981/82 to 1994/95, it gave the image

of difference between actual and required investment. A comparative picture of fixed investment under the different plans is given in the Table 4.

CHAPTER 4

DEVELOPMENT STRATEGIES AND EMPLOYMENT PROMOTION

Past Strategies

In the history of economic planning Pakistan’s main emphasis remained on the growth of Gross Domestic Product (GDP). Capital was taken as a sole or major factor of production and hence emphasis was on investment. Human resource development was not recognized as a equal importance with capital investment and it was considered to be of a secondary position in national development planning. This growth oriented strategy did not help much to reduce poverty and in-equality or provide sufficient productive employment.

In this section an attempt has been made to analyze more deeply the past economic strategies toward employment and to identify some major issues and initiatives for employment generation.

Green Revolution

In 1960s the Government for the first time adopted serious measures for the development of agriculture sector popularly known as “Green Revolution” and motivated the farmers to use modern techniques of cultivation. The green Revolution and the development of tubewell irrigation not only resulted in growth in output to keep up with food requirements but the employment situation in the agriculture sector also improved.

The Government also introduced land reforms and land consolidation for the protection of tenant cultivators. The Land Reforms of 1959, 1972, and 1977 were not effective. A total of 10 per cent of the cultivated area was resumed through these reforms. Of this, approximately half was distributed

to tenants, small land owners and landless tenants. The rest was either retained by the government of allocated for other purposes like livestock and diary industry, mostly to original owners.

The growth in agriculture sector was recorded at 3.5 per cent during the Second Plan as compared to 1.3 per cent annual average of the pre 1960 decade. The major factors behind this development were the extension of the cultivated area and an increase in intensity of cultivation. A rapid increase in water supply and consequent extension in cultivated area offered prospects of improved employment. By the end of 1960s, there were indications of considerable increase in labour inputs in agriculture. The successful new technologies including increased irrigation through use of tubewells and low lift pumps, combined with biological chemical inputs and new seed varieties proved rather labour intensive.

In early 1970s, the Green Revolution lost its impetus and irregular rainfall resulted in agricultural stagnation. Slow growth in agricultural production combined with increasing population added to pressure on the land. Rural incomes and employment deteriorated and the Government had to rely on heavy imports of wheat, which affected the balance of payments.

Mechanization of agriculture in the country also affected the employment situation adversely. During this period heavy tractors were imported in the country. This import of tractors also displaced quite a good number of workers in the agricultural field. The small and medium size tractors could have been more suitable for our agriculture sector due to small holdings. Further the use of big tractors in case of our situation did not prove economical, Mechanization was started without proper planning. Small training centers could be established prior to import of tractors and other agricultural machinery, where people could learn about its maintenance.

Development efforts of the government of Pakistan mainly were concentrated for the development of the urban areas and the rural areas were neglected. This resulted in heavy migration from the rural to urban areas and the people who were underemployed in the rural sector became evident in the from of open unemployment in the urban sector of the economy. However, during the Fifth Plan (1978-83) major emphasis was given to the development of the rural areas and this somehow helped in checking this migration and also provided employment opportunities in the rural sector.

The Sixth Plan growth strategy was based on a major breakthrough in agricultural production. The objective of the Plan was to move from self-sufficiency to export. The strategy proposed to achieve this objective of the Plan was to move from self-sufficiency to export. The strategy proposed to achieve this objective was to encourage the modern technology and timely application of balanced inputs besides provision of agricultural credit for the purchase of these inputs besides provision of agricultural credit for the purchase of these inputs. A strategy was adopted to grow minor crops at a faster rate than the major crops. The growth in minor crops was higher than the major crops and there was an impressive improvement in the production of cotton and wheat due to the use of improved inputs and development of appropriate technology including new varieties, but the growth rate of both was less than the target fixed in plan. Consequently instead of 4.9 per cent growth targeted for agriculture, the achievement in the sector was 3.8 per cent. There were impressive increases in poultry and its products and an important development in private sector was packaging and marketing of milk and other dairy products which helped to generate the jobs. Unfortunately the plans documents didn’t provide any information about how much employment will be generated by different components of the agriculture policy due to which evaluation becomes somewhat an hypothetical exercise. The targets of seed distribution, mechanization, tractors and plant protection coverage could also not be achieved; neither were small tractors introduced on the small and medium forms where the preference instead was to hire large size tractors, nor was their suitability established.

Some other policy decisions were taken with far-reaching impact. Wheat and flour were derationed to encourage market forces to determine prices and the support prices were enhanced. It encouraged the farmers to increase the production. At the same time, however, subsidies of fertilizers were also reduced. It increased the cost of cultivation and reduced the margin of profit. Resultantly, these policies had little impact on employment in agriculture sector.

Rural Works Programme

Another strategy known as Rural Works Programme was adopted to generate employment in the rural areas. It was initiated for the first time in the Second Plan in the fiscal year 1961-62. Its allocation was increased from Rs 100million in the 1961-62 to Rs 400 million in 1964-65. It had so grown

in strength and scope in the early plans that it contributed significantly in employment generation. Its actual impact was to provide significant amount of employment to the rural labour force during that part of the year in which no crops are grown. The Rural Works Programme was not merely meant for “make-work” schemes. It was a programme to create rural capital by labour intensive methods. This improved and enlarged stock of capital and provided a basis for permanently increased employment. On the success of this programme during the Second Plan, Third Plan placed great emphasis on its role by increasing its allocation to Rs 2,500 million. This programme is being used as one on of the most effective short medium term policy tool for increasing employment. If is highly labour intensive and thus not only reflects the relative availabilities of capital and labour in the economy but also provides a higher level of employment than similar expenditure on other programmes.

The Rural Development Programme has continued from second Plan until today in one shape or the other, although it has been implemented under various nomenclatures by different Governments. In 1970’s this programme was renamed as People’s Works Programme. During the Sixth Plan, the rural development activities formed one of the components of Prime Minister’s Five-Point programme. However, the major emphasis of this programme was on the economic uplift and development of rural areas and rural communities. With the dissolution of Government in 1988, the projects and programmes under Five Points programme were merged in the Seventh Plan. Presently the social Action Programme (SAP) is being implemented to uplift the primary education, basic health, nutrition and availability of water and sanitation facilities in rural areas. Beside this physical infrastructural facilities are being extended in the rural areas. Empirical data on employment relating to Rural Development Programme are not available so it cannot be evaluated quantitatively. However, the said programme gave additional boost to rural development efforts and had a significant effect on rural infrastructure and rural employment.

Industrialization

Since independence, Pakistan pursued a policy of industrialization which succeeded in the 1950s and 1960d, when the growth rate of production remained well over 10 per cent per annum and much faster for large-scale manufacturing. In its early stages, growth was based essentially on import substitution for consumer goods, a process that was later carried

into intermediate and capital goods. In the late 1960s, expansion of textile and other exports tended to reverse the trend. The progress in that direction was stopped in 1974-75 by international recession.

Industrial Progress, based on heavily encouraged private initiative was rapid but did little directly to solve the employment problem. An important factor contributing to the low absorption was distortions in the relevant factor prices of labour and capital due to the subsidies and protection afforded to this sector. Later on, a number of these distortions were removed through deregulation and opening up the economy through import liberalization etc. the impact of removal and reduction of these distortions on employment was low. New investments continually increased towards capital intensive industries and trend of employment generation was some what stagnant.

Early 1970s experienced a major slow-down and the growth of large-scale industries suffered severe set-backs. Nationalization of a number of firms affected private investment, while public investment was not sufficient to absorb the unemployed labour force alone. The sector suffered from the separation of East Pakistan, then from the international recession, with its attendant deterioration of the terms of trade. Drastic devaluation of rupee raised the price of imported equipment and the inflation abroad increased it further. Then Government’s policies about labour legislation, protecting workers rights and providing effective role to the Trade Unions had contributed to keeping down the level of investment. Nationalization process brought down the momentum of investment in the country due to which effective employment possibilities grew less rapidly than increase in the potential labour force.

Financing of development plans mostly depended on foreign aid and this aid was of tied nature. Under this aid and also under other programmes the plants imported from foreign countries for different development schemes were capital intensive in nature. It was due to the fact that those plants were manufactured according to the requirements of the developed countrie4s. The manpower problem in Pakistan was quite reverse to that and import of capital intensive machinery did not help much in tackling the problem of unemployment faced by the country. Again the choice for the selection of machinery was not with us, and this affected employment adversely. The concept of appropriate technology in the country also did not prove helpful in meeting the problem of unemployment.

The capacity in different plants was not utilized to its full extent by the enterpreneuring class in order to avail the opportunities of tax evasion of the irrational taxation system. In some of the cased where there was shortage of raw materials and other things, under utilization of the capacity may be justified but in most of the cases it was not the case. Consequently enough jobs have not been provided to the people during different plans.

The organized industry didn’t provide any substantial contribution to solving the employment problem in its period of rapid expansion. This was partly the result of promotion policies, indirect effect of which was to favour high capital intensities and partly resulted from its narrow employment basis. In 1971, due to change in policies and slowing down of private investments, growth depended on a higher rate of capacity utilization, productivity increased less and employment had grown more in line with output. The incentives provided by different governments favored mainly the large scale manufacturing sector and ignored the role of small scale in employment generation. Intending small-scale investors could not avail the incentives due to ignorance and complication of loaning system as they were not having the assets required for mortgaging. Small-scale industries and self-employment schemes are highly labour intensive and efficient users of capital. In terms of employment, small scale and cottage industry remains of far greater significance. Higher efficiency is the result of different factors, viz. higher technical/market efficiency because the production processes are highly divisible; avoidance or evasion of regulations the impose higher costs on larger scale units; and people’s willingness to exploit themselves by working long hours in cottage industries and other household activities. The sector had been growing at a respectable rate and provided hugh employment opportunities for the fast growing labour force. Small-scale industry and the development of ancillary services provided the main basis for the growth of urban employment. In non plan period, a number of measures were taken to encourage the small scale manufacturing sector. Since then the growth structure of manufacturing sector changed.

The Table 5 indicates the change in growth structure of small-scale and large-scale manufacturing sector during the different periods.

Table 5:GROWTH OF MANUFACTURING

SECTOR DURING DIFFERENT PERIODS(% per annum)

Period Small ScaleManufacturing Sector

Large Scale Manufacturing Sector

Total Manufacturing Sector

1950-60 2.3 15.4 7.71960-70 2.9 13.3 9.91970-80 7.9 3.9 4.81980-89 8.4 8.3 8.41989-94 8.4 5.3 6.21950-94 5.9 9.2 7.4

Source: Pakistan Economic Surveys.

While concluding, it is made clear that the economic strategies followed during various Plan periods did not help much in generating employment. In most of the plans the targets set for employment were never achieved. All the plans, except the Second Five Year Plan, were not in a position to provide job opportunities even to the labour force that joined into labour market during those specific plan periods. These plans did not at all give relief to the already existing back-log of unemployment but in some cases added to the already existing back-log of unemployment. It was only the second Plan which successfully crossed employment targets due to sufficient growth in agriculture and industries sectors. The rural work program also helped in generating employment during that period.

Seventh Plan Strategies

The Seventh Plan emphasized efficient growth in out put as one of the elements of employment strategy. The GDP growth target was set at 6.5 per

cent, but GDP grew only by 5.0 per cent. The growth of each sector of economy was less than the target fixed in the plan. Many policy reforms were launched during the plan and tried to build a new economic structure based on free enterprise, open market, privatization, deregulation and liberalization. It was estimated that 6.1 million jobs opportunities would be generated during the plan period. Out of which the increase of 4.2 million jobs were associated with 6.5 per cent growth in GDP and rest of 1.9 million increase was estimated through 10-point employment strategy and rehabilitation of return migrants. On the basis of Labour Force Survey, about 3.1 million additional job were generated compared to the planned figure of 6.1 million during the Seventh Plan.

Prior to discussion of the strategies it is necessary to have a look on the basis of the targets fixed in the plan. Employment-output elasticities were used to work out the employment generation during the plan period. With the GDP target of 6.5 per cent and overall employment elasticity of 0.4, it was estimated that employment will generate at 2.6 per cent per annum. The growth performance indicates that GDP grew by 5 per cent and with actual employment elasticity of 0.18, implies employment growth of 0.9 per cent per annum rather than the target of 2.6 per cent. It is evident that either the targets of Seventh Plan were not realistic or the strategies adopted to achieve were not in line. Apart from the investment, other structural problems such as production structure, poor skills of the labour due to sub-standard education and training need to be given due consideration while working out the employment estimates.

In the following paragraphs a critical appraisal of economic policy measures for generating employment during the seventh Plan are discussed in details.

Ten Point Strategy

According to the Seventh Plan a grim picture of employment was presented for the plan period implying substantial increase in unemployment at the end of the plan. In view of low employment elasticity and likelihood of modest GDP growth, the Plan emphasized promotion of relatively more labour intensive sectors to reduce the expected unemployment pressures. The Seventh Plan outlined a ten-point employment strategy which focused on the creation of jobs in the small-scale industries and services sectors; encouraging labour-intensive activities in the agricultural and construction

sectors; providing for greater industrial opportunities; and initiating schemes for the employment of women and youth. It was also planned to provide incentives for generating job opportunities in the industrial and social sectors for the educated unemployed including doctors, engineers and other technicians. The Plan also emphasized on self-employment and skill development by providing credit and other incentives to set up small businesses both in rural and urban areas. The private sector was also invited to expand investment and play its role in generating employment. An industrial policy was also proposed which should aim at removing restrictions on the establishment of industries in and around the cities alongwith directing the financial institutions to finance projects with considerable potential for job creation. The strategy was expected to generate 6.1 million jobs. The policy shift towards employment intensive sectors was to be achieved through emphasis on provision of more infrastructure, financial and training facilities.

The plan document, however, didn’t provide a methodology for working out employment estimates of the components of this strategy. It is therefore not possible to evaluate the impact of the Ten Point Strategy on employment generation in detail and even the Eight Plan document does not contain any information about this.

Most of the provisions of the 10-Point Strategy could not be made effective during the plan. Several factors were responsible for this. First was the usual delay in the preparation of policies and projects. Second, was political instability on account of which two interim and two elected governments took over during the first three years. Third, reduction in the foreign aid prevented the undertaking of new programmes as a result of which the employment situation deteriorated during the first three years.

In November 1990, the Government embarked upon a series of economic and social reforms of decentralization, privatization and deregulation to improve savings and investment environment, efficiency and equity, and to transform the agrarian economy into an industrial open state. These measures were expected to lead to rapid expansion of employment opportunities in the private sector. Besides, some other initiatives were taken to boost up the economic activities presuming that these will adequately generate jobs. These include implementation of NMC’s recommendations, promotion of small scale industry and self-employment schemes by provincial governments and financial institutions. The impact of this strategy

on employment is not possible to evaluate in quantitative terms as the relevant data is not available.

Fiscal Policy

The budget deficit was increasing so rapidly that it forced the governments to borrow not only for financing its development programmes but also for a part of its non development expenditures, thereby increasing its overall debt servicing liability. A reduction in the fiscal deficit allows to pursue the objectives of employment generation and combating inflation. Therefore, efforts were made to restructure the fiscal system at all levels in order to reduce the growing budgetary deficit and consequent dependence on internal and external borrowings.

An important change in the fiscal policy during the Seventh Plan period was to restrict the budgetary allocation of some public organization (Like WADP, OGDC, PTC etc) to finance their development programmes to extent of foreign loans. For the rest, they were asked to finance their programmes through internal resource generation, or by borrowing from the capital markets. This step was expected to assist the Government in reducing its financial liabilities.

Tax exemptions were withdrawn and the number of tax assesses were increased. Besides, a number of steps were taken to improve the tax administration and to simplify the assessment procedure and collection of taxes. Inspite of these measures the proportion of indirect taxes was high a compared to direct taxes. With a structure where 70 per cent of recoded employment consists in informal sector, a high proportion of indirect taxes is not justified. Direct taxes are progressive and more elastic. Therefore, a low proportion of direct taxes in total revenues tends to make the tax structure even more inelastic.

It was also planned to reduce the subsidies and to replace the excise duties by a sales tax except for major commodities. It was expected that with all these measures the overall deficit will reduce from 7.4 per cent of GDP in 1987-88 to less than 4.0 per cent by the terminal year of the Seventh Plan, but the fiscal scenario conceived in the Plan could not materialize. In fact budget deficit increased upto 7.9 per cent of GDP in 1992-93.

The fiscal deficit was financed through internal and external resources. As a consequence of average budget deficit of 7.6 per cent during the plan period, the domestic debt increased from Rs 290 billion in 1987-88 to Rs 605 billion in 1992-93.

The external current account deficit increased from 1.68 billion dollars in 1987-88 to 3.69 billion dollars due to deterioration in invisible trade. The rupee exchanges rate was brought close to market value which resultantly increased service payments. The fall in the remittances was also a reason of increase in external deficit.

The budget deficit was met through internal and external loans. Resultantly, it affected the investment which depended on bank credit which slowed down the process of employment generation in the country.

Monetary Policy

During the Seventh Plan monetary policy aimed at restraining monetary expansion to 12.5 per cent per year in line with projected increased in nominal GNP. The monetary expansion somehow generate employment at the cost of inflation because investment in Pakistan largely depend on the availability of credit. The annual growth in monetary assets at 15.2 per cent was higher than estimate of Rs. 179.9 billion. Government credit expanded to Rs. 190.6 billion against the target of Rs. 64.2 billion due to budgetary support, which reached to Rs 175.6 billion against the target of Rs 175.6 billion against the target of Rs 51.7 billion. The expansion in the monetary assets increased the investment but it could not had a significant impact on employment due to ineffective control on the selection of the production techniques and investment fields.

Eighth Plan Strategies

A Nine Point employment strategy outlined in the Eighth Plan emphasizes on investment and high economic growth, encouragement of labour intensive sectors, social action programme, rural development, provision of credit facilities for self-employment, encouraging manpower export and expansion of technical training facilities. The performance of first two years of the Plan indicates that growth rate of GDP is considerably

slower than target and expansion in employment opportunities is also behind the target.

Major economic policies have a direct or indirect impact on the employment situation such as lowering down the price of capital will encourage the capital incentive technologies instead of labour incentive. These policies include monetary and fiscal policy, industrial policy, agriculture policy, trade policy and structure of public expenditure and review. In the following sections, some policies and examined in terms of generating employment opportunities.

The emphasis of the Eight Plan is on using the agricultural policy as the main instrument of economic growth and employment generation. It is planned to generate 33 percent of the total employment opportunities estimated for the plan period through agricultural sector. The plan envisages growth in agriculture sector at the rate of 4.9 per cent per annum, and it would generate 1.88 million jobs. The growth rate of agriculture sector during the first three years is recorded 2.63, 5.9 and 6.7 per cent for the year 1993-94, 1994-95 and 1995-96respectively, which is below the target. The agriculture sector has to grow at the rate of 6 per cent per year in the remaining two years of the Plan to achieve the growth proposed target. The strategies proposed in the plan to achieve the growth target and to generate the employment in agriculture are as follow:

a) In creasing additional 0.7 million hectares of cropped area.

b) Shifting the cropping pattern in favour high value labour intensive crops.

c) Development the livestock, fisheries and forestry.

d) Developing the rural economic activities through establishing the processing, grading, packing and storing facilities.

There is a little possibility of horizontal expansion in land area due to increase in the use of fertile land for non-agricultural purposes. As the cities and villages are expanding therefore the adjoining fertile lands near the them are being used for housing and setting up industrial units. Nothing is proposed in the Plan to prevent the situation. On the other hand, bringing new area under cultivation is subject to the availability of surface of water

resulting from irrigation projects. The Plan expects that the water availability would increase to 3.3 million acre feet through canal rehabilitation and remodeling, command water management and from small irrigation schemes and small dams. The ground water is estimated to increase by 5.3 million acre feet which will be used mainly for increasing the productivity of existing cropped area. If the area under cultivation is to be increased according to the Plan target then certainly it will have a good impact on employment. The net effect may, however, be less due to shifting of land towards non-agricultural uses.

The strategy to generate employment through shifting the cropping pattern in favor of high value labour intensive crops seems ineffective. There is no significant change cropping pattern in favour of high value labour intensive crops. Vegetables and tobacco are high value labour intensive crops. To what extent the Plan has proposed to shift in the area of these crops, will not have a significant effect on employment. Moreover, the cropping pattern can not be changed keeping in view the labour absorbing factor because it depends on many other factors like profitability etc. On the other hand, mechanization for intensifying production and reducing the time element of pre-harvest and post-harvest farm operation is also being encouraged. During first two years of the Plan, capital intensive technologies such as tractorisation are being employed instead of labour intensive technologies.

The plan has targeted 6.0 per cent annula growth rate of the livestock. If the growth rates during the past few years and of 1993-94 (5.26 %) are any indication, the target of this sub-sector would be accomplished and the target of employment generation is likely to be achieved. The growth rate of fish production is below the annual set target during the first two years of the Plan. It indicates that Plan targets are not likely to be achieved in this area.

Forestry sector indicates wide yearly variations in its growth rates in the past. The same is reflected in the first two year of the plan. According to the statistics maintained by Ministry of Food and Agriculture, the increase in the forestry product was 30.5 per cent in 1993-95, while it was –38.1 per cent (negative) in 1994-95. Under these circumstances it is not possible to predict about the targets fixed for this sector. Forestry sector is labour intensive therefore steps should be taken to promote the forestry, which will not only provide employment opportunity but also meet the deficiency of forests in the country. The Plan has no details about processing, grading,

packing and cold storage facilities. However, these activities are labour absorbing. The expansion of these will generate employment and will also solve the problem of marketing.

Industrial Strategy

The core of industrial policy of the plan is to accelerate the privatization programme and to ensure that the public enterprises which are not privatized are properly managed. Direct foreign investment is also being encouraged to improve technology, marketing and product quality. The policy of public-private ownership is planed to assist investment by small investors and to promote industrialization in backward regions. The steps are being undertaken to ensure mobilization of resources for industrial development.

The policy of shifting from public to private sector leading to the privatization and de-regulation which was started in 1991, will continue as a key component of the economic reforms. The broad objectives of privatization and de-regulation are:

a. To create a liberal economic environment.

b. To remove trade and tariff barriers.

c. To improve national productivity.

d. To achieve rapid industrialization.

e. To facilitate access of private sector to financial resources.

f. To improve efficiency and profitability.

g. To insulate economy from political interference.

h. To Develop a viable capital market.

i. To release resources for social and physical infrastructure.

The privatization policy is successfully being implemented. Many industrial units, two commercial banks and partly the shares of Pakistan Telecommunication corporation (PTC)and Pakistan International airlines

(PIA) have already been disinvested. The privatization programme is continuing with the ultimate aim of disinvesting all such industrial units which are not profitable. It is difficult to evaluate the impact of this policy in relation to its objectives. Its impact on efficiency, output and price levels is possible after sometime. It has, however, apparently serious implications for employment.

It is expected that employment level in such units may decline due to over-employment in such industrial units. Besides, these enterprises will opt for capital-intensive technologies for increasing their productivity, profitability and for competing the world market. Private sector may not be able to generate sufficient employment in a short span of time even if investment rises because it goes for capital intensive methods of production for competitiveness.

The workers of such enterprises were having some reservations about the privatization process. The general view of the workers is that privatization process will increase frustration among the workers and new owners will make retrenchment in the units. Prior to the start of privatization process, government has entered into a deal with the workers of public enterprises which includes job security for one year, golden hand shake which allows the workers four months last drawn basic salary for each year service besides one month’s gratuity for each completed year of service. Government has accepted the liability of golden shake hand either by providing the money by itself or by arranging the payment to the new owners of the establishment. This scheme attracted 55 per cent of the workers. Most of the workers might have opted to start their own business. Ten per cent of the shares are reserved for workers. They are also given preference in the sale of units provided they match the maximum bid. The mode of privatizing and the deal with workers have significant implications for cash flows, employment and productivity, etc.

The strategies proposed in the plan for achieving the targets fixed for industrial sector are contradicted with the strategies proposed for employment generation. It is proposed to achieve higher industrial growth by upgradation of technologies and modernization, which is capital intensive whereas for employment generation it is proposed to encourage the labour intensive techniques. Similarly, expanding the credit facilities at lower mark up implies making the capital cheaper and restricting adoption of labour intensive technology.

Fiscal And Monetary Dimensions

Fiscal policy of Plan aims at using it as an important tool of policy planning. The fiscal indiscipline in the past led to heavy dependence on borrowing, increased debt servicing and substantial monetary expansion. It is proposed to bring down the overall fiscal deficit from 6.8 per cent in 1992-93 to 4.3 per cent of GDP in the terminal year of the Eight Plan. However, the steps taken by the Government could bring it down only to 6.1 and 5.0 per cent of GDP in 1993-94 and 1994-95, respectively. The fiscal deficit can be brought down through mobilization of additional resources, reducing public expenditures and rationalization of the borrowing policies, which have different implications for employment.

While reforming the tax structure, the Plan proposed to reduce tax evasion, enlarge the base of direct taxes, extend the scope of wealth and capital value tax and broaden the base of sale tax. By enlarging the base of direct taxes, the tax structure will be more elastic. The reduction in tax evasion and other fiscal concessions tend to increase the price of capital which may induce investors to consider to adopt labour intensive technology or less capital intensive production techniques.

The plan also proposed to rationalize the custom tariff structure to make it more responsive to the requirements of the emerging economic dispensation. The proposed tariff rationalization may have adverse effect on employment in short run as it will decrease the level of protection for the local industry. The industrial units which cannot survive at lower level of protection due to locational and technical inefficiencies, may have to be liquidation, workers would lose their jobs. However, in the log run, higher productivity would increase employment opportunities.

On the expenditure side, the Eighth Plan strategy is directed towards containment of non-development expenditures by reducing the Government expenditures on general administration, debt servicing and subsidies. There little scope in containing the non-development expenditures as debt servicing contains 47 per cent and defence 34 per cent of the current expenditures. The rest of 19 per cent is being spent on other items. The elimination of subsidies will decrease to some extent the volume of Government expenditures as proposed in the plan.

It is estimated that 28.8 per cent of the Public Sector Development Programme will be financed through bank borrowing. The Bank borrowings are inflationary and can have negative impact on investment and employment. The control of inflation is one of the serious problem in Pakistan’s economy. The inflation rate has increased during the first two years of the Plan. It is recorded at 9.26, 13.7 and 10.5 per cent in 1993-94, 1994-95 and 1995-96 respectively. The fiscal deficit was 5.8 per cent during 1994-95. The reduction in this deficit will lead to higher levels of investment and employment.

The Eight Plan has envisaged adoption of a strategy of containing monetary and credit expansion and making adequate credit available to the economy for productive purposes. To achieve the target of 7 per cent increase in GDP, a monetary growth rate of about 12 per cent is estimated. The expansion of non-bank borrowing and competitive banking system is also recommended. These strategies will have significant implications for the volume and distribution of credit, the interest rate structure, and the borrowing strategy.

One of the main issues in the monetary market is the provision of credit to small producers. The Government is operating various schemes to provide loans at lower rate of interest to small producers. Past experience shows that small scale sector had generated more employment than the large scale sector. In the past, large producers received more loans at concessional rate. Now-a-days Government is encouraging Self Employment Schemes and making credit available to small producers. It will have a positive impact on investment and employment. Another issue is the improvement of the collateral requirements for the small producers. The small producers might be willing to pay market rate of interest rather concessional rate, if they are provided loans against mortgaging raw materials or equipment. This improvement would also make a commercially viable proposition to banks and other financial institutions.

Commercial Policy

Pakistan has pursued a policy of import substitution and tariffs have been rationalized since 1983-84. Resultantly, manufacturing sector witnessed higher growth but had a little impact on direct employment promotion. The reason is that this type of industrialization is generally more

capital intensive. Outward looking industrial policies have a positive effect on employment in the long run.

In the area of trade Eighth Plan strategy is to encourage export-oriented growth and to explore the Eastern European markets for securing a more diversified structure of exports. Exports play a significant role in employment generation. Accelerating the growth of output, by extending the size of market, induces cost competitiveness, improves efficiency, and quality of the products and generates more employment as exports are expected to use abundant factor labour more intensively. Besides, liberalization of imports, pursuing of privatization policy, retaining sustained growth, ensuring full capacity utilization and maintaining a competitive level in cost of production are important objectives of the trade policy of the plan.

Reduction in tariffs and its rationalization is the integral part of the commercial policy, Protecting the domestic industry through tariffs created inefficient industrial structure which is always seeking fiscal and financial support for sustenance. The target fixed in the plan contemplates to bring down the tariff barrier from 91 per cent to 35 per cent. IMF has proposed to bring down the custom duties from 70 per cent to about 50 per cent in the year 1995-96 budget, but Government has brought it down to 65per per cent on the justification the immediate reduction in custom duties will slow down the process of employment generation because of liquidation of inefficient industrial units.

CHAPTER 5

LESSONS FROM PAST FAILURES

All the Plan documents fully recognize the need to make substantial increase in employment opportunities, However, the Plans are not formulated on the basis of specific targets for utilizing available manpower fully. Rather, employment generation was always considered a by-product of GDP growth. It is evident from the analysis in the previous chapters that GDP targets set in the various Plans had never been achieved except for the Second and Sixth Plans. The employment effects were worked out on the basis of GDP growth which did not prove accurate. Given these

circumstances, as rapid and continuous growth of the economy, with specific emphasis on labour intensive projects and sectors, can ameliorate the employment situation.

The economic policies adopted in different Plans had serious implications for employment generation which has been discussed in detail in chapter 4. Pakistan’s economy has undergone major structural changes over the years; composition of output, investment, employment and trade exhibits major changes over time. These structural changes have been observed both across as well as within the sectors. Nevertheless it is observed that the development strategy of Pakistan over the last 40 years has remained somewhat unchanged. Growth, being the focal point in all the plans the development strategy may be labeled as “growth-oriented”. Important lessons gained from past experience in various economic strategies pursued in different sectors are discussed in this section.

Basic Economic Environment

In assessing the successes and failures of planned development, the economic growth has become a regular feature of the economy and high growth has been witnessed with emphasis on agriculture and sound economic management and domestic stability. Since development planning started the average economic growth of Pakistan’s economy has been about 5 per cent. The targets set for growth had never been achieved except on one or two occasions, as discussed in section 2.3 of Chapter 2.

In view of the expected high growth in labour force, the National Manpower commission had suggested a growth rate of 7.5 per cent per annum to avoid increase in unemployment and underemployment. The investment required to achieve this target is 22 to 23 per cent of GDP, which seems difficult keeping in view the past record of GDP growth and present investment environment. The availability of foreign aid from IMF is doubtful as Pakistan is not in a position to accept the conditions imposed by that organization. The country’s stock market is experiencing depressing condition during the last couple of years as a result of political uncertainty and law & order situation in the country. Saving and investment rates are averaging 14.8 per cent and 19.6 per cent of GDP respectively annually during he last five years ended June, 1996. At these low rates of saving and investment, it would not be possible to support future economic growth of 7.5 per cent, which is recommended by the National Manpower Commission

(NMC). Although the GDP target of Eight Plan has been fixed at 7 per cent per annum but keeping above factors in view and low levels of capital inflows this target may not be achieved. An indication to this effect can be seen from the mid-plan review carried out in chapter 4. Slower growth of the economy will thus ultimately raise the unemployed backlog. Efforts to maintain a high rate of growth without mobilizing national savings would result in a rapid accumulation of non-concessional external debit with serious consequences for the balance of payments position of the country.

The Government must improve the external economies for investment and enhance absorption capacity of the system through effective, institutional arrangements. The basic infrastructure services like electricity & gas, transport, communications, civic amenities must be accessible to every investor. The infrastructure facilities are poor in the rural areas for the development of non-farm activities. A comprehensive approach is required to develop infrastructure at rural growth points, including farm to market roads, on top priority basis for the fastest growth of full time non-farm employment. In urban areas, lack of space to establish business, and non availability of other basic facilities are the problems. There is, thus, need for establishment of industrial estates at a fast pace especially in rural areas for which Government should accord priority to improve the infrastructure.

Macro-Economic Balance And Public Resources

The fiscal policy is an important mechanism of policy planning. The fiscal situation has deteriorated on account of slippage in revenues and upward pressure on expenditure. This in turn has led to budget deficit and heavy reliance on borrowing, increased debt servicing and substantial monitory expansion.

It is not unrealistic to assume that private savings would rise and the surplus of private savings over investment can be transferred to the public sector through non inflationary means. The main emphasis must however be on increasing public savings from the Government and public corporations. The deteriorating situation warrants to control rise in Government expenditure, reduce subsidies, increase the capacity for self-financing of public corporations and restructure the taxation systems. In order to achieve self-reliance goals, which are given priority in the Seventh and Eighth Plans, it is essential that the growth of private and public consumption is restrained so that the rate of saving can be increased. Higher volume of savings can be

private and public consumption is restrained so that the rate of saving can be increased. Higher volume of savings may then be channeled into higher revenue through price and tax policies. The most important factors that affected Pakistan’s national saving rate in past were rising inflation, low level of real interest rates, heavy reliance on foreign resource inflows, and a lesser degree of financial intermediation.

Pakistan’s savings and investment levels are low in absolute terms as well as in comparison with the levels attained by other countries. The saving and investment have to increase substantially above the present levels to accelerate the employment opportunities as discussed earlier. The savings problem is particularly acute in the public sector, while it carries the major weight of investment, its internal savings are sometimes low even negative. Domestic saving gap or external deficit and the financing of public investment through non-inflationary means thus appear as the main constraints to achieve the set targets of economic growth.

The financing plan remains dependant on a number of optimistic assumptions outside Government control, relating to the international setting and private sector behavior. Therefore, some contingency planning of additional Government measures would be needed in order to cover less favorable outcomes. The strategies adopted so far indicate that little attention is given to the pricing structure and the impact of taxation on resource allocation and incentives. Tax collections are also very poor and need to be improved substantially. A major effort is required in the field of income taxation, both to obtain additional revenue and reduce inequalities in income distribution and to close major existing loopholes in the system.

Agriculture Sector

Pakistan’s agriculture has undergone transformation over the last four and half decades. It is supported by extensive irrigation system, mechanization and bio-chemical technology. As a result of structural changes in the economy, the share of agriculture in the Gross Domestic Product (GDP) has declined from 53 per cent in 1949-50 to 24 per cent in 1995-96. It accounts for half of the total employed labor force while it serves as the base sector for the country’s major industries like textiles and sugar. The healthy expansion in agriculture will stimulate exports in other sectors both through raising domestic demand for industrial goods and other

services, and by supplying raw-materials to agro-based industries. Ultimately, these activities will generate employment opportunities.

Major components of strategies in this sector were diversification of crops, adoption of improved seeds, fertilizer and better agronomic practices and mechanization, which are still a core of current strategies. The strategies adopted so far in this sector are “production-oriented” and die consideration is not given to the employment which is clear from the compound growth of employment generation in this sector being 1.52 per cent from 1963-64 to 1992-93. The compound growth rate of employment during the fifth and Sixth Plan was 1.86 and 1.70 per cent, respectively. It drastically decreased during the Seventh plan 10 0.22 per cent. Since various agriculture strategies adopted in the Plans didn’t give estimates about the contribution in employment generation, therefore evaluation of each segment of agricultural policy is somehow difficult. However, the overall effect of agricultural policies on employment is quite clear from the compound growth rates during the Plan periods.

From employment point of view, te policy stress should be on the use of labor intensive technologies whereas for increasing productivity and improving quality, mechanization in agriculture sector seems essential. These two policies should therefore be adopted in a manner that these support each other rather than having any contradictions.

In the agriculture sector mechanization is a complex problem and must be considered dynamically in relation to water availability, changing farming patterns, cropping intensities and patterns etc. Certain points emerge clearly:

a) Mechanization carries a definite risk of labour displacement, if carried beyond seeded preparation;

b) It is not sure that mechanization will result in sufficient increases in cropping intensity to prevent labour displacement;

c) It is evident that mechanization is associated with reduced fallow and cultivable waste, permitting though not guaranteeing increases in cropped acreage;

d) There is a need for detailed desegregated analysis of the employment effect of stage-by stage mechanization.

The foregoing discussion leads to the more general recommendation that employment effects be considered specifically in economic planning or policies. So far the emphasis has been almost exclusively on production but can be shifted somewhat now that constraint appears less stringent.

The desirability of mechanization in Pakistan (generally meant tractorisation and tubewells ) from an employment point of view is susceptible to adopt. The employment effect depends on the nature of the farming system, what functions are mechanized and what are the effects of mechanization on other determinants of employment such as cropping patterns and intensities. The use of mechanization may be selective in country like Pakistan. The use of mechanization may be selective in country like Pakistan. The argument is that by removing power constraints at peak periods, cropping intensities will rise more than enough to offset any direct labor displacement. Another related argument as pointed out at “c” above is that mechanization will permit a reduction in current fallow and in cultureable waste, thereby increasing cultivated and cropped area and increasing agricultural employment. If it proceeds beyond the selective stage of easing peak period power constraints, resulting in broad displacement of labor not offset by increased cropping intensity, it will lead to increased farm sizes and widescale displacement of small farmers, particularly tenants.

The FAO has already strongly recommended a programme of selective mechanization arguing that increased cropping intensity will more than compensate for the direct displacement of labor as machines replace bullocks. However, there is no assurance that mechanization will continue to be selective.

Employment generation through increasing cultivation depend on water availability and land reclamation programmes. The water resources may be improved by improving the canal system, controlling the wastage and installing tubewells. The water economy alongwith increasing its supply must have priority of the agriculture policy. Land reclamation through the control of water logging and salinity has not been given due consideration in various Plans ever since it was started. Of course, it is a long term programme and 18 year perspective plan was prepared but it is not being given due importance. The programme, if implemented properly, will not

only be able to generate employment after its completion but will also absorb labor to some extent during its operation.

The prospect of rapid agricultural expansion depends even more on increasing yields than on extension of cultivation. The highly ambitious targets for productivity are linked with the use of fertilizer, high-yielding seeds, and other inputs. All these require money particularly to the small farmers. The credit schemes started in various plans were in the favour of big landlords or owners. The tenants were not in position to avail the credit facilities as they were not able to provide anything for mortgage. The target group of such schemes must be to the real growers.

The allocation of financial resources to the agriculture sector has been on the decline in each successive Plans. In the first Plan, the allocations to agriculture were 9.5 per cent of the total development programme while it came down to 3.5 per cent during the Seventh Plan. It further decreased to 1.56 per cent during the Eight Plan. This situation must improve as agriculture sector is still back-done of the economy.

Industrial Sector

Pakistan has made considerable progress in the industrial sector inspite of inconsistencies in the policies adopted during the various periods. In the 1950’s and 1960’s the industrial sector was encouraged, in 1970’s nationalization policy was adopted and since the mid of 1980’s the policies of privatization, deregulation and market friendly environment have been initiated. The share of manufacturing sector in GDP is increased from 7.8 per cent in 1949-50 to 18.0 per cent in 1995-96. The industrial sector was given various incentives, primarily protection against competing imports etc as discussed in chapter 4. These incentives favoured the large-scale manufacturing and its impact on employment was not impressive. The import substitution strategy and fiscal incentives which cheapened capital and encouraged capital intensive technologies have significantly constrained the growth of employment. The large-scale manufacturing sector accounted for 24 and 21 per cent of total investment in 1960s and 1970s, respectively and absorbed and absorbed only 3 and 2.6 per cent of the increase in the labor force during the respective decades.

The structure of employment in Pakistan has been oriented towards self-employment. Therefore, the importance of small-scale industries and

self-employment schemes is growing. In 1970’s the structure of output and investment started to change in favour of small-scale industries which is labor intensive as discussed in section 4.1.3. The National Manpower Commission Report indicates that large-scale industry was six and a half times more capital intensive than the small-scale in 1969-70 which and increased to over ten times in 1983-84. Capital productivity was also higher for the small-scale sector with lower productivity.

In a country like Pakistan where labour is in abundant, the policy of subsidizing capital does not seems logical. Capital must be provided at existing market rate and its access must be easier to every investor whether small or big. The strategies adopted in other sectors must be consistent to promote rapid industrialization in the country. Import substitution should be pursued in intermediate and capital goods. Moreover industry should become export-oriented for a wider range of consumer goods and equipments. There must be an effort to develop technologies appropriate to Pakistan. Pakistan is not yet at the stage where domestically developed productions techniques will have a substantial impact on the relative uses of labor and capital. This would also require greater efforts in training the labor force, together with more sophisticated management and organizational ability at the plant level.

The privatization policy may reduce the labor absorption for a short while as discussed in chapter 4, but it is expected to generate employment opportunities in long run. However, a research study is required at appropriate level in order to come up with definite conclusions regarding the impact of privatization of employment.

Trade Policy

Upto seventh Plan, Pakistan’s trade policy was based on import substitution. The protection was given to the local industry which could not expand as it was expected. It also made a very little contribution towards employment generation.

Since 1983-84, Pakistan has liberalized its import policy. Resultantly more than 700 products have been removed from the negative list. At present 120 products are on the negative list and 50 products are on the restricted list. The import duty has fallen from 225 per cent in 1983-84 to 70 per cent in 1994-95 and is planned to decrease upto 35 per cent in 1996-97.

In 1995-96 the import duty is fixed at 65 per cent as discussed in section 4.3.4.

The present structure of protection, which is still at a high level was evolved to meet the requirements of early phase of import substitution of consumer goods, needs to be radically restructured to suit the present stage of developing capital and intermediate goods industries. It also seems necessary to evaluate its effects on resource allocation. The tariff structure must be encouraging for exports and domestic capital goods production.

Intensive efforts to improve the export performance of Pakistan’s manufactured products are urgently required to improve the external balance. Quality control and market research are the problem areas that need immediate attention. In the past whenever efforts were initiated to explore the markets for Pakistanis products, the quality problem led down the progress. Most of the times, the concerned authorities initiate action for exploring new foreign markets but it is not followed up properly later on and thus fails to bring any improvement in the foreign trade sector. For instance, after disintegration of Soviet Union, efforts were initiated explore the Central Asian Republic market for increasing exports but these initiatives were not properly pursued afterwards. Consequently these efforts could not make any real headway in the desired direction.

Foreign investment should be invited by providing basic required infrastructure and legal protection. Foreign concerns may be able to provide badly needed export outlets through their distribution networks abroad.

Trade Policy is being designed on yearly basis in Pakistan. Although, some steps taken toward the various sector are given the continuity for a longer period, but most of the changes are announced in the light of than current external balance.

In order to fulfill the requirement of proposed set up for international trade by World Trade Organization (WTO), Pakistan’s trade policy must be a set of principles that encourage the national economy to move away from protectionism and toward a free market economy, grooming Pakistan for today’s free global trading system in which multinational companies and international trade and investment set the norm. Although, Pakistan has liberalized its trade policy, but still required to some more efforts so that the entire framework of business and trade is provided with an auspicious and

fertile atmosphere of flexibility and mobility, a leap forward to the laissez fair economies model. The trade policy must be a balanced, concessions should be granted to import substitution (capital and intermediate goods etc) industries and export-oriented industries.

CHAPTER 6

POLICY GUIDELINES FOR EMPLOYMENT GENERATION

It is evident from the preceding analysis that in Pakistan, there was not well defined employment policy with the specific aim of developing and utilizing the country’s human resources comprehensively and effectively. The main objective of economic policy and employment planning for future in our economy, therefore, should be to increase the real income of the masses consistent with greater employment opportunities. Higher level of employment and productivity being a direct function of economic growth, the problem can be solved by activating each and every factor of expansion kin the economy.

In our system, it is normal practice to adopt an unbalanced growth strategy. The process of economic development can however, become self-sustaining through coordinated and integrated balanced growth in all sectors of the economy. Being an agrarian economy, measures to improve the rural sector would not only make a substantial change in the employment position of its inhabitants but would play an important part in rapid the economic development and employment creation in other sectors.

This chapter is divided into four parts. The first section presents a general approach to manpower planning and the requirements to make if effective and some general recommendations. The rest of the sections review specific recommendations in relation to taxation, investment, agriculture and industry.

General Approach

Pakistan would remain a labour surplus country in the coming years. With rapid economic expansion significant changes are taking place in the structure of employment, in terms of both region and occupation. Manpower

planning should therefore be made an integral part of economic planning to make maximum use of potential human resources. The planning is an exercise of allocating scarce resources between a multiplicity of desirable goals, some of which support each other, but some of which cannot be attained simultaneously in view of global constraints. While employment objective cannot take precedence over others, it should receive due attention, both in the formulation of long term strategy and in the operational decisions which are embodied in development planning. Employment planning is thus not a separate exercise, but should constitute an integral part of the economic planning and decision making process.

It is quite evident from the analysis carried out in the previous chapters that this has not been the case in the past. On the one hand, the economic plans have given priority to production targets, Whereas on the other, the employment implications were worked out after the basic structure of the plans had been decided, which played little role in determining employment priorities. Rapid growth will of course improve the employment and income prospects, but this does not imply that if growth is high enough, the unemployment and underemployment problems will be solved.

Employment planning can have significant impact if its objectives are formulated before decisions are made. All decisions concerning programmes and policies should be considered from employment point of view before they are made. In order to make such a process possible, the targets of employment should be fixed in quantitative terms. Realistic employment targets would of course have to be based on existing and potential labour supply. The first task would thus be to improve the labour market information system.

By raising the output of consumer, intermediate and capital goods from existing resources, the level of investment can be raised and more workers can be supported in productive pursuits. Experiences of some developing countries have, however, shown that strategies can be adopted to raise the productivity and output with little additional capital outlay. A full and effective application of the economical approach to both the traditional and modern sectors could enable to apply a much faster rate of investment expansion and employment creation.

Taxation

In the long run, domestic resources to generate self-supporting growth should improve and efforts should be pursued to reduce the budget deficit as discussed in the earlier chapter. It is recommended that the Government should concentrate on raising additional resources through direct taxation, both personal and corporate. Indirect taxation is subject to a number of constraints relating to its price effects and economic efficiency. The evident conclusion is that the efforts of the Government to raise additional resources through taxation should be oriented in the first place to an improved collection of direct taxes. This conclusion is reinforced by considerations of income distribution. Indirect taxation distribution. Indirect taxation discriminate between essential and luxury goods which need not be regressive. Making more expensive the displaying consumption of the rich does not seem effective. Direct taxation on their incomes will be rather more effective. Direct taxation must be broadly based if it is to be effective in raising a substantial amount of revenue. Experience has already shown, however, that in order to improve tax collection, tax avoidance or evasion on the part of rich must be drastically curtailed.

Effective steps should also be taken to close some of the largest loopholes in the system and have better control over tax evasion. Unless such measure are taken, any increase in tax rates can only aggravate the sense of social injustice by some groups particularly salaried group. Moderate rates and a serious enforcement are far better than higher rates and loose collection. The higher rates of taxation induce tax payers to benefit from such loopholes.

The concessions of dividend and investment allowances must be withdrawn. The maintenance of these allowances has little justification and didn’t create any substantial impact to enhance real investment in the past. Similarly, the exemption of agricultural income has provided a convenient means of tax evasion. Thus, even if it is not intended to impose a substantial tax burden on agriculture, making its income liable to tax appears one of the most effective means of reducing evasion on other forms of income.

It is recommended that income tax system must be revised keeping in view the typical experiences of past. A society where around 65 per cent of employed labour force is engaged in informal sector and most of them are non-tax payers, and effective personal income tax system should be designed. Each employed person whether employer, employee or self

employed must be issued a work permit or work booklet with provision to record income tax paid and his assets, which should be essential to start any economic activity in the country. The personal income and income tax paid must be endorsed on it yearly basis in order to strictly control tax evasion and to keep an eye on his standard of living to be inconsistent with his declared income.

Trade flows and business profits is another an important area of tax evasion. The effective steps should also be taken in this respect. A computer network system may be developed to check transactions of business community with each other, which they supply to tax authority. Such systems have proved highly successful in many developed countries and experiences gained by them in this regard may be benefited from.

Investment And Capital Intensity

Since the country is experiencing a budget deficit, maintaining and further raising the level of investment would require exceptional efforts to increase the volume of savings. The problem is particularly acute in the public sector, where the gap between investment and saving is largely concentrated.

It can be concluded from the analysis in the previous chapters that the present level of investment is inadequate to generate sufficient employment. In the present circumstances, it may be stated that in order to contain increase in the unemployment and under-employment 7 to 8 per cent GDP growth is required, which warrants an investment rate of ranging between 23 to 24 per cent of GDP. Two important decisions have to be taken here, one with regard to the pattern of investment and other with regard to the techniques of production. It is a detailed subject and sufficient literature is already available. Pakistan may learn a lot from the Malaysian experience. The Malaysia is one of the fastest growing industrializing economies in South-East Asia as well as in the larger region of East Asia. Technology development in Malaysia as reflected in the different stages of industrialization, particularly in the manufacturing sector, has been comparatively more successful in building up technical skills to master the operation of sophisticated machinery than in encouraging research and development and innovative activities. It must however be mentioned there that industrial technology development did not gather momentum in Malaysia until the late 1970. The only thing which can be emphasized here

is that labour-intensive techniques should be encouraged. This is partly a matter of research and development, partly a matter of incentives. The capital-intensive techniques will have to be continuously countered, where the Government feels that tax or other concessions must be made, they should be geared to employment creation rather than to investment. However, the steps should also be taken to increase the investment level upto the required level through streamlining the fiscal and monetary system.

Agricultural Employment

Agricultural is the largest sector of the economy of the country accounting for over one-fourth of GDP and employing about half of the labour force. The sector is also generating substantial share in export earnings. As the generation of the employment opportunities are linked with the growth of agriculture, growth in this sector needs to be accelerated through various policy and other action. The following guidelines are recommended to accelerate the growth rate and to improve the employment situation in this sector.

Fertilizer utilization is one big contributory factor in raising productivity of crops. The elimination of subsidy has increased it price effecting its cost of production. The Government have to link the policy of support price must be increased when cost of production is increased due to elimination of any subsidy.

The labour-intensive crops like onions, potatoes and other vegetable must be encouraged as these crops have good market in middle east countries. The steps must be taken to increase the production of these crops and to export surplus output. In past, wheat and oilseeds crops were given the priority to increase the production in order to minimize imports. Hence these crops could not get due attention. If such crops can increase export earning more than import bill of wheat (comparatively less labour absorbing) then there seems no harm to import it. The vegetable crops are of perishable nature and therefore need storage facilities, efficient marketing and transportation systems. The improvements in these facilities would somehow generate employment.

There must be a rational policy of fixing the support prices. It is observed that support price of sugarcane was increased during the last two years whereas the government agency responsible for implementing the support

price of oilseeds has not shown much interest to perform its obligations. Resultantly, the production of sugarcane increased and affected the production of cotton and rice due to crop shifting. No doubt sugar production has increased and Pakistan can compete for exports but the international sugar markets are highly volatile. As such any slide down in sugar prices will badly affect the farmers and labour employed in sugar industry. There must be adequate check on price intervention so that the area under different crops should not increase unduly.

Small-scale and cottage industry based on local agricultural produce should be encouraged in the rural areas. This will increase the labour absorption and household income. It will also reduce the rural-urban migration.

The allocation of financial resources to the agriculture sector must be improved. Infect agriculture sector, being the single major contributor to GDP, is being starved of resources. The decline in its development allocation from 9.5 per cent during Fist Plan to 1.56 per cent in Eight Plan is not justified by any means. The situation must improve to accelerate the growth in agriculture sector as well as for whole economy.

The relatively favourable employment prospect in agriculture sector are also dependent on rapid increase in water availability. Effective steps should be taken to increase water resources through dams. However, the water economy or better irrigation system may improve the situation. Nationalization of canal irrigation system to convert the present ‘supply driven’ system into ‘demand driven’ may be done as a first step.

The increased population pressure on land and the resultant necessity for smaller holding has definite implications for mechanization policy. Efforts should be directed to the types of implements economically justified on family-sized farms while the heavier machinery, which can be operated efficiently on large farms only should be avoided. The heavy equipment needed to create a more rational pattern of irrigation and drainage ditches and to level and grade the land should be centralized in regional agriculture departments.

Industrial Employment

The reform of the incentive and regulatory framework for industrialization and the process of privatization must continue. The incentives for promoting

investment including foreign investment should be enhanced. The thrust of industrial policy set in Eight Plan is on broadening and diversification of industrial base must continue. The following lines of action are proposed for the industrial strategy:

Effective legislation should be made to protect the rights of foreign investors and local industrialists as the nationalization policy adopted in 1970’s shacked the confidence of investors.

Foreign investors must be provided basic infrastructure required for establishing the industrial units in the country. A single-window-package approach would ease the procedures in a significant way.

Multination companies should be given incentives to invest and shift the technologies for utilizing the cheap labour available in the country. The political uncertainties should be removed as soon as possible.

Industry should become export-oriented for a wider range of consumer goods, but also for equipment. The efforts should be made to develop technologies appropriate to Pakistan’s industries. The policy of import substitution should be pursued in intermediate and capital goods. Both the tariff structure and credit policy should be reviewed in the light of these objectives.

The policy of privatization and deregulation must be accelerated. Major instruments of Government intervention such as licensing, exchange control and other regulatory control must be dispensed with. The policy of public enterprises must also be checked to ensure that these must be properly managed and should run in profit.

Tariff and taxation policy should be rationalized to close loopholes in the system and thus a better control over tax evasion. The steps should be taken not to utilize the production below the capacity of all the industrial units to avoid tax evasion.

Small-scale industries and self-employmet schemes should be encouraged through a policy of liberalization of markets by strengthening of the institutional support rather than through direct government assistance and interventions. Mass media should play their due role in creation of awareness abour employment in self-employment schemes and small-scale

and cottage industries and to avail the existing financial and other concessions. The policy of providing loans and other facilities must be reviewed on regular basis.

Small-scale and cottage industries should be provided with modern technology packages and attractive designs for their products suitable for local environments to improve their competitive position.

The credit facilities, which have so far been largely limited to small urban units and industrial estates, should be extended to smaller units and industrial estates, should be extended to smaller units especially in rural and less developed areas. The objective of the national credit policy should be to make credit more accessible by giving concession in term of collateral and formal procedures rather than concessions in the interest rate and repayment terms.

Institutes must be established to impart business training to small entrepreneurs and to develop appropriate technology especially suited for agro-based, agro-allied and small-scale industries.

A labour policy must be formulated and implemented and proper legislation should also be done to satisfy the employers as well as employees. Measures should be taken to change the present structure of Tripartite Labour conference to make it a more effective instrument for improving industrial relations. Industrial relations and wage policies need to be revised. The recent development in Malaysia in this regard is the best example to follow.

Labour-intensive techniques should be encouraged. This is partly a matter of research and development, partly a matter of incentives.

With a view to ensure a steady flow of skilled workers for accelerated growth of industrialization and to reduce un-employment, more emphasis needs to be given to the technical and vocational training in the country.

CHAPTER 7

CONCLUSIONS

Ever since independence, Pakistan remained confronted with the problem of unemployment. Its rapidly growing population has been exerting increasing pressures on limited resources of the country. The situation demanded formulation of effective employment policy for the optimum utilization of available manpower and to achieve and maintain full employment level. Unfortunately, no such policy could be formulated and employment generation was not given due priority. All the development plans were formulated with a view to achieve a set target of economic growth without giving due importance to achieving a target of employment generation. The employment estimates presented in the plan documents were assessed on the basis of GDP targets which were never achieved. The main element of an employment strategy does of course rests in rapid development of the economy. Employment policy should ensure that jobs will increase equivalent to the growth atleast in the male lobour force.

Major reason of failure to achieve the desired employment level tyargets was that the GDP growth targets set in the economic plans could not be achieved except on two occasions. Investment became a focal point in economic planning but domestic resources could not be mobilized for attaining the minimum level. The heavy reliance was thus made on foreign aid which was not available consistently. The availability of foreign aid which was not available consistently. The availability of foreign aid or loans is becoming very difficult day by day. The World Bank (IMF) has some reservation about Pakistan’s economy and is providing loans subject to implementation of certain conditions. Presently, Pakistan’s savings and investment levels are low in absolute terms as well as in comparison with the levels attained by other countries. The level of investment over the last ten years has more or less remained stagnant at about 16 per cent of GNP. The savings performance is also below the desired level. Clearly, savings and investment will have to be increased substantially above the present levels.

In 1970’s, private investment declined due to nationalization policy. The pace of private investment is still slow due to political instability and law and order situation. The steps are necessary to restore the confidence of local and foreign investor. The experience of public investment couldn’t prove successful as most of the public enterprises were running in loss. The public enterprises were over staffed and their productivity was low. The further investment in the public sector was stagnant due to low public savings. An important decision was therefore, taken to increase the role of private sector in development process. The policy of shifting from public to private sector

started with the process may result in decreasing employment in the short run but will be helpful to increase productivity and production in the long run. Resultantly, expansion in economic activities will lead to employment generation.

The economic policies adopted in various development plans were formulated to accelerate the economic growth. To accelerate growth, mechanization was encouraged to increase agricultural production and improve its quality. Major efforts of research, experimentation and diffusion should be made for developing improved tools and techniques with traditional methods and smaller holdings.

The fiscal and monetary incentives were provided to accelerate the pace of investment which encouraged capital intensive technologies in the industrial sector. Such policies may accelerate the pace of economic development but these can’t prove to be helpful in solving the unemployment problem. Even most of the times GDP growth was less than the target set.

The domestic resources to generate self-supporting growth should sufficiently improve and consistent efforts should be made to turn Pakistan into a full-fledged exporter of diversified industrial goods. The problem of employment may nevertheless remain acute. While in the medium term improvements in the social and educational set-up may slow down the growth of population and labour force and the number of women desirous of obtaining employment may increase. Major reorientations of both agricultural and industrial policies have been suggested in relevant sections.

The price distortions is essential to increase the capacity of the economy to absorb labour. Therefore, all subsidies and tax evasion which cheapen the capital must be reviewed and policies or taxes which raise the cost of labour must also be examined. The economic policy of each sector must be consistent with the overall national objectives. The efforts should also be geared towards for controlling population growth through effective programmes.

REFERENCES

Pakistan, Five Year Plans documents, Planning commission, Government of Pakistan, Islamabad.

Pakistan, Economic Surveys 1993-94, 1994-95 and 1995-96, Government of Pakistan, finance division, Islamabad.Pakistan, Labour Force survey, 1993-94, Federal Bureau of Statistics, Islamabad.

Javaid, M. (1982). Strategies and Measures for Employment generation during the Economic Planning of Pakistan, Islamabad, Pakistan.

Kemal, A. R (1990). “Protection, Industrial Development and Employment generation in Pakistan”, International Labour Organization Asian Employment Programme (ARTEP), New Delhi.

Kemal, A.R (1994), Implications of Privatization of employment and Social Protection in Pakistan, PIDE, Pakistan.

Kemal, A. R (1995), Macro Economic Policies In Relation To Employment Promotion, Islamabad, Pakistan.