102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com.

II Economic of Pakistan 103

s
IQRA SERIES
STANDARD NOTES WITH
SOLVED PAPER

ECONOMICS OF
PAKISTAN
(For B.Com & B.A)
(PART 2)

By
ABDUL KARIM
M.A ECO.(Position Holder)
IQRA PUBLISHER
Urdu Bazar Karachi.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

All Rights are reserved under the Copy Right Act. No Part of Chapter: 1
this book may be, reproduced in any form or by any means,
electronic or mechanical, including photocopying, without DEVELOPING ECONOMY AND
permission in writing from publisher. All inquiries should be
addressed to the publisher. ITS CHARACTERISTICS
Q1: According to the above statement what measures should be
Topic ECONOMIC OF PAKISTAN taken for the development of a country? Explain in detail?
Ans: There are a number of measures which have been used
First Edition 2013 & Onwards to estimate the economic development of a country.
These measures, in brief, are:
Title Design Syed Mansoor Jawed i) Increase in real GNP.
ii) Increase in real per capital income.
Computerized by I.R.K ENTERPRISE iii) Rise in overall wellbeing of the people.
0333-3244527, 0312-3244527 iv) Basic needs approach.
IRK. v) Human Development Index.
ENTERPRISE@yahoo.com The above measures of economic development are
discussed now in brief.
Production Editor Syed Mansoor Jawed i) Increase in Real GNP.
Before 1970’s economic development was
Publisher Iqra Publisher regarded as an increase in real national product of a
URDU BAZAR KARACHI country over a long period of time. A long run
CELL:0300-2334055 expansion in production was to be achieved by rapid
021-32633054 industrialization of the country at the expense of
agriculture and rural development. The growth and
development at that time mainly meant the growth of
industrial production.
Rs: 120/= ii) Increase in Real Per Capital Income.
Another traditional measure of economic
development was an increase in real per capital income
of a country. It was considered that if the rate of growth
of income per capital increases over a long period of
time, it would indicate that the country was moving
towards higher standard of living and achieving
economic goals. The increase in real per capital income
can be achieved if the nation has the ability to expend its
output at a rate faster than the changes in price level.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

r y
p where r= real income, y = nominal income and p v) Human Development Index:
= price level. The problems of poverty, unemployment The modern economists are not satisfied with
and mal-distribution of wealth were of secondary GNP, per capital or national income as the principle
importance. measures of economic progress. According to them, the
iii) Rise in Overall Wellbeing of the People. issue is not only how much growth but what kind of
The third traditional measure of economic growth. They formulated Human Development Index
development was an increase in the economic well- (HDI). There were number of measures which were
being of the people. According to this measure, if the included in this index However to keep the HDI simple
citizens of a country are able to get and consume more and manageable, the following main variables were
goods and services than before, people will be included in it (a) Life expectancy was chosen as a
considered better off. The welfare of the people will rise. measure of long life (b) Literacy as an index of
In the words of Okun and Richardson, “Economic knowledge and (c) Real GDP per person.
development is a sustained and secular improvement is vi) Other diverse Indicators:
the material well-being which is reflected in increase in In addition to real GDP per person, the modern
goods and services.” economists measure the level of country’s development
The basic draw backs of these definitions are that if an from the following indicators.
increase in the goods and services produced have been 1) The percentage of income originating form agriculture
created at the expense of too much hard work, or in GDP. The higher the income originating from
unequal distribution of wealth or at the expense of agriculture, the less developed is the economy of a
health, safety and comfort or at the expense of dignity country.
etc. etc. It would be unjustified to link rise in income or 2) Per Capital consumption of energy. The higher the per
material welfare to an increase in economic welfare or capital consumption of energy, the more developed is
economic development of the country. Moreover these the industry and economy of the country.
definitions do not include non-market goods and 3) Percentage of starches in total calories consumed. If
services such as goods produced for self-consumption, there is high percentage of starches consumed in total
women work at home etc. the objective of economic calories consumed by the people, the economy will be
development is a rise in national income by making an considered as underdeveloped.
improvement in the quality of life of the people. The 4) Degree of urbanization, high school enrolment ratio. If
economists, therefore, are in search of other measures the ration of school enrolment, the degree of
which serve as complements, or alternatives to the urbanization and life expectancy is rising in a country,
traditional measures. they are considered as positive indicators of economic
iv) Basic Needs Approach: development.
Basic needs approach also called Physical 5) Infant mortality and density of population. If in a
Quality of life Approach uses only three indicators for country the infant mortality and density of population
measuring economic development in a country. These are high, it is considered to be negatively related to
indicators are (i) Life expectancy and age. (ii) Infant economic development.
mortality and (iii) Literacy. Summing up, “Economic development includes not only
economic growth but also a political , social and cultural
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

changes in society which contributes to better living underdeveloped tertiary sector i.e, transport commerce,
standard. banking and insurance service.
Q2: Discuss the main characteristics of a Developing 4) High Rate of population Growth:
Economy with reference to Pakistan? Almost all the under-developing countries are
Ans: There is a long list of such characteristics which may possessing high population growth rate characterized by
hold responsible for an under-de-eloping state of a high-birth rate and high but declining death rate.
country. Some, most important of them, are of the Subsequently, due to high birth-rate a large proportion
following nature. of the total population is in younger age groups. The
1) Generally Poverty-Stridden: percentage of population under 15 year of age is about
An under developing country is generally 40% in under-developing countries compared with only
poverty stridden Poverty is reflected in its low standard 20 to 25% in developing countries. 90% of the
living of the majority of its people. People are forced to dependent are chidden in under-developing countries
live in insanity conditions. Majority of the people are whereas, in developed countries, their percentage comes
suffering form ill-fed, ill-sheltered, ill-educated and ill- to 65% only.
clothed on account of very low per capital income. 5) Lack of Enterprise and Initiative:
2) Under-utilisation of Natural Resources: Lack of dynamic entrepreneurial ability is
An other striking feature of under-developing another marked feature of an under developing country.
countries is that their natural resources either remain A number of factors like small size of the market lack of
non-utilised or not-utilised to their full capacity or capital absence of appropriate private property.
criminally miss-utilised. Most of the underdeveloped Deteriorated law and order situation and lack of required
countries are rich in natural resources but they remain freedom come in the way of enterprise and initiative.
miss-utilised or under-utilised due to lack of capital, 6) Deficient Capital Equipment:
obsolete techniques of production, limited size of the Deficiency of capital equipment is another
market and passive role of the population. general characteristic of under-developing counters.
3) Agriculture, the Main Occupation: Such countries are characterized as capital poor, or low
In under-developing countries nearly two-third saving and low investing counters. Due to very low per
to the people live in rural areas having agriculture as capital income, people cannot save much there by
their main occupation. The agriculture itself is not leaving very little for further investment. Besides, there
developed. The average land holding is inadequate and are extreme inequalities in the distribution of income in
the yield per hectare is low. The peasants continue to such countries. They very rich class; comprising of
live at a bare subsistent level. traders and landlord group, have a tendency to spend
Such countries have to rely upon specialization lavishly on purchasing of gold, jeweler, precious stones,
in the production of raw material and foodstuffs, yet idle inventories, luxurious real estates etc. the rise in
some also specialize in non-agricultural primary incomes of middle class people is mostly spent on
production. Besides the primary sector, there exists also conspicuous consumption just imitating the rich class.
undeveloped secondary sector with a few simple, light Thus under developing countries suffer from capital
and small consumer goods industries and an equally deficiency due to economic as well as socio-political
factors.
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7) Technological Backwardness: 10) Burden of External Debt:

Under-developing countries are also found in the Most of the under-developing counters have to
grip of backward state of technology. Their such state of rely upon foreign aid and loans to meet the deficiency of
technology is reflected from high average cost of their low domestic savings and attaining quick pace of
production despite low money wages, low productivity economic development. Over the years, the amount of
of labour and capital, predominance of unskilled and foreign loans accumulate to a heavy burden of external
untrained workers, dualism and miss-allocation of debt to that much extent that even the payment of
resource. servicing be comes a problem.
8) Foreign Trade-Orientation: Q3: What is the difference between Economic
Under-developing countries are too much Development and Economic Growth?
dependent on exporting primary products and importing Economic Development Vs. Economic Growth:
finished goods and machinery. Too much dependence Ans: The terms economic development and economic growth
on a few export goods has made these countries highly are though complementary to each other. Yet are not
dependent on imports. synonymous. They have two different aspects of the
The foreign trade-orientation is also reflected changes that take place in an economy. Kindle Berger
through the flow of foreign capital to under-developing differentiates these terms in the following words.
countries. It is performing a vital role in developing and “Economic growth means more output. While
expanding export sector besides controlling and economic development implies both more output and
managing required services to it. In this way foreign changes in the technical and instauration arrangements
capital has acquired a monopolized position in certain by which it is produced and distribute. Growth may well
selected fields. Such a strong hold of foreign capital is involve not only more output derived from greater
causing to drain out their resources. amounts of inputs but also greater efficiency, i.e., an
9) Existence of Open-unemployment and Disguised- increase in output per unit of input. Development goes
unemployment: beyond this to compel with changes in the composition
Another notable feature of under developing of output and in the allocation of inputs by sectors.”
countries is the existence of open and disguised Friedman defines growth as
unemployment. Such unemployment is involuntary. An expansion of the system in one or more
People are ready to work but they are unable to find dimensions without a change in its structure, and
continuous work due to the lack of complementary development as
factors. Disguised unemployment is found among rural “an innovative process leading to the structural
landless and small farmers due to seasonal nature of transformation of social system”
farming operations. Thus, we may conclude that economic growth
There are also other type of unemployed persons relates to a quantitative sustained increase in a country’s
in under-developing countries. A large number of per capital output or income accompanied by expansion
persons are forced to take such jobs which they think are in its labour force, consumption, capital and volume of
not according to their education or training or not giving trade. The term of economic development is a
them the actual money reward they deserve. comprehensive in its scope. It relates to qualitative
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

changes in economic wants, goods, incentives and 2) Consumption of World’s Output:

institutions. The developed nations account for about one
Q4: What are main characteristics of developed versus quarter of the world population but they are estimated to
developing countries? consumer about three quarters of the world’s output. The
Ans: The total population of the world in 2010 has reached developing countries with three fourths of population
6.692 billion people. Over three fourths of the world’s thus consume one fourth of world income. The result is
population in living in developing countries and the that people living in developing countries have limited
remaining one fourth in the developed world. There is a income. Their per capital income is near to the
marked difference in the standard of living of the people subsistence level.
living in advanced industrial countries and those living 3) Unutilized and underutilized resources:
in developing countries. The main indicators which In developing countries most of the resources of
differentiate the developed counters form the developing the country remain unutilized or underutilize due to
countries are in brief as under. limited savings, unproductive uses of funds,
1) GNP per Capita: inappropriate investment decisions, shortage of skilled
One of the crude index of measuring the level of workers, availability of low development technology
national well being of the people across the world is etc. etc. where are the advanced nations make full use of
GNP per capita. In the advanced countries of the world, the resources available to them. The advanced countries
the GNP per capita far exceeds that of low and middle have substantial resources, efficient and productive
income economies. The income inequalities between the technology to make the best use of resources for
developed and under developed countries are not only production.
large but the gap between them is increasing as the years 4) Vicious Circle of Poverty:
pass. According to the World Development Report The developing countries are finding difficult to
2010, the GNP per capital of USA is as high as $47580, come out the vicious circle of poverty due to limited
Germany $42440, France $42250 whereas it is around savings and the low level of investment. The advanced
$510 of low income countries. GNP per capital of countries of the world are making full use of human and
selected developed and underdeveloped countries is physical capital for the development and progress of
given below: their countries.
GNP per Capital in USA dollars 5) Population:
Developed GDP per Low and GDP per Birth rates and death rates are strikingly different
Countries capital middle capital between developing countries and advanced industrial
2008 Income In 2008 countries. Birth rates in LDC’s are generally at very
countries high level of the order of 30 to 40 per thousand; whereas
USA 47,580, Bangladesh 520 in developed countries it ranges from 6 to 12 per
Germany 42,440 Pakistan 980 thousand. The crude death rate in developing countries
France 42,250 India 1070 is estimated to 10 to 20 per thousand; whereas in
Canada 41,730 China 2940 developed nations it ranges from 4 to 8 per thousand.
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6) Life expectancy: the same meaning in 1960’s and 1970’s. However, the
The life expectancy in low income countries is terms economic growth’ and economic development
about 60 years (Pakistan 67.2 years 2010). In industrial have different meanings and importance in economic
advanced countries, the life expectancy is around 77 li8terature.
thousand. Meaning of Economic Growth:
7) Secondary school enrollment: The meaning and importance of economic
The secondary school enrollment in developing growth is a vital issue in economics. Economic growth
countries is about 40% of the population. In developed is often defined as a continuous increase in the real
countries it is about 95% of the population (Pakistan value of the production of goods and services.
49%). According to Kuznets, economic growth may be defined
8) Percentage of Population in Urban Areas: as a long term process wherein the substantial and
The percentage of population in urban areas in sustained rise in real national income, total population
LDC’s is about 27% whereas in advanced countries it is and real per capital income takes place. In the words of
about 80% (Pakistan 37%) Micheal Todaro, growth is a steady process by which
9) Population Below the Poverty Line: the productive capacity of the economy is increased
The population below the poverty line varies overtime to bring about rising levels of national output
form country to country. In Pakistan, 22.3% of the and income.
people live below the poverty line. In India 28.6% of the Elements of Economic Growth:
people fall below the poverty line. In USA., U.K., Spain, The definitions of economic growth clearly bring
South Africa, Saudi Arabia, italy, Ireland, France, out the following elements of economic growth.
Austria, the persons falling below the poverty line are 1) Long term Process:
Nil. Economic growth is a long run process involving
10) Voicelessnes and powerlessness of the people: a period of decades. A short term increase in national
In developing countries, there is lack of voice, income for a few years is not considered an economic
power and independence of the people. Their growth.
voicelessness subject themselves to rudeness, in human 2) Rise in real per capital income:
treatment and and exploitation at the hands of the Economic grow this accompanied by substantial
institutions of the state and society. In advanced rise in real per capital income. This scan be possible
countries of the world, people are not maltreated at the only if the real growth in income is higher than the rate
hands of institutions. They have full liberty to raise their of growth of population over a long period of time.
voice against any injustice. The people, therefore, work 3) Rise in productivity:
with peace and security and engage themselves Economic growth is always accociated with
wholeheartedly in raising their living standards and substantial rise in productive capacity of the economy.
reaching new heights. The rise in real output can be achieved by proper
Q5: What is a Economic Growth? utilization of natural and human resources and better
Ans: Economic Growth: techniques of production in all sectors of the economy.
Economic growth, economic welfare, total
welfare and economic development ware used to convey
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4) Greater equality: What has been happening to inequality? If all these three
There should be greater equality in the have declined form high levels, then beyond doubt, there
distribution of income and reduction of unemployment has been a period of development for the country
in the country. concerned. If one, two or all three have been growing
Benefits of Economic Growth: worse, it would be stranger to call the result
The main benefits of economic growth are: development even if per capital income doubled.
i) It helps in raising the material standard of living of the In 1990’s, there was again a change in the
people. meaning given to the term development. The modern
ii) It allows the economy to have more consumer and economists are of the view that eocno9mic development
capital goods. is the development of people rather than the
iii) It increases employment opportunities. development of things. The challenge of development is
iv) It reduces government cost associated with to improve the quality of life. The quality of life
unemployment benefits, medical aid etc. generally calls for higher incomes and also involves
Q6: What is Economic Development? better education, higher standards of health, less
Ans: It is not easy to give any precise and clear definition of poverty, a clean environment, more equality of
economic development. The term development means opportunity, greater individual freedom and a richer
different things to different people. Before 1970’s, the cultural life.
traditional measure of economic development was the Micheal todaro had defined development in the
rise in the real national income and per capital income of following words, development must be conceived of as a
a country. The rise in real national income must occure multi dimensional process involving major changes in
over a long period of time. In the words of mair and social structures, popular attitudes and national
Baldwin, “Economic Development is the process institutions as well as the acceleration of economic
whereby an economy’s real national income increases growth, the reduction of inequality and the eradication
over a long period of time and if the rate of development of poverty. In brief, economic development means
is greater than the rate of growth of population, then per economic growth coupled with this structural changes in
capital real income will increase. the economy for obtaining a better life.
In 1980’s, the real national income or real per Q7: What are the objectives of economic development?
capital income as a measure of development was Ans: According to Michael Todaro, there are three main
discarded. The problems of wide spread poverty, objectives of the process of economic development.
unemployment and unequal distribution of income came They are being briefed as under:
to the forefront. The term economic development was i) Attaining of Basic Human Needs:
redefined in terms of the reduction of poverty (2) The primary objective of the economic
inequality in income and (3) unemployment. The development is the attaining of basic human needs like
common slogan of economic development was food, clothing, shelter and protection.
“Redistribution of Income form Growth”. In the words ii) Raising the level of living:
of Deadly Sears. “The questions to ask about a country’s Another main objective relating to economic
development are therefore; what has been happening to development is to raise the level of living of the people
poverty? What has been happening to unemployment? by providing them higher incomes, more jobs, better
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

education and greater attention to cultural and the one hand and of unexploited natural resources on the
humanistic values. other.
iii) Expanding the range of economic and social choices: At present 173 member countries of the United
Besides the two mentioned-above objectives, Nations constitute the third world. While almost all are
economic development must also include the increase in poor in money terms but there are variations in their
economic and social choices. People should have culture, social political and economic conditions.
opportunity to enjoy the blessing of personal security, Despite these variations, the developing countries share
the rule of law, freedom of expression, political a set of common features both domestic and
participation and equality of opportunity. international. These common characteristics are as
Q8: What are the Common Characteristics of Developing under.
countries? Common Characteristics:
Ans: There are nearly 6.692 billion people living in the world, 1) Burden of International Debt:
out of these about 84% of the people live in poor or Most of the developing countries are depending
underdeveloped countries having a per capital income of on foreign economic loans to meet the short fall in
around $2,789 a year. Whereas in developed countries, domestic savings and for quickening the pace of
the per capital income is very high ($39345 / Year). The economic development. As the years pass, the amount of
poor countries with low per capital income are foreign loans is increasing in Pakistan. The liability of
commonly called less developed countries, under external debt and of debt servicing has increased
developed countries, third world countries developing manifold. In Pakistan the outstanding external debt was
countries. $4,818 billion in 2012 (end March).
Meaning of under development: 2) Low Per Capital Income:
There is no precise definition of an under Majority of the people living in
development economy. According to Prof. R. Nurkse, developing countries are poverty ridden. Poverty is
“Under developed countries are those which compared reflected in low per capital income. People live in
with the advanced countries are under equipped with insanitary conditions. Services like health, education
capital in relation to their population and natural expend very slowly. In sort, mostly the people in LDCs
resources”. The under developed country, according to (less developed countries) are ill-fed ill-clothed, ill-
Michal Todaro, is that which has low levels of living. housed and ill-educated. People her are involved in
(Absolute poverty, poor health, poor education and other misery-go-round. In Pakistan the per capital income is
social services), Low self esteem (Low respect, honor, $1042 in 2008 and $990 in 2008-09, $1068 in 2009-10,
dignity) and Limited Freedom (freedom for external $1,258 in 2010-11 and $1,372 in 2011-12.
influence and dominance, freedom of choice etc). all 3) Unproductive Uses of Founds:
these three factors work as a cumulative cause and affect The limited savings that exist in LDC’s is mostly
the process and increase under development. In the word used for unproductive purposes or for excessive military
of Stanley “a country is said to be under developed expenditures. These expenditures provide few economic
which is characterized by the co-existence in greater or development benefits.
less degree, of unutilized or under utilized manpower on
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4) Inappropriate investment Decisions: unemployment is decreasing with the spread of

It has also been observed that the funds available education and urbanization.
are usually invested in the purchase of those capital 9) Low Level of Productivity:
goods that are unsuited to LDC’s. for example, the In developing countries people are economically
amount spent on solar energy may prove less valuable backward. The main causes of backwardness are low
than on hydel projects labour deficiency, immobility of labour due to joint
5) Agriculture, The Main Occupation: family system, cultural and psychological factors lading
In developing countries two third or even more to low level of productivity.
of the people live in rural areas’. Their main occupation 10) Lack of Enterprise and Initiative:
is agriculture which is in a developing stage. The The less developed countries (LDCs) lack dynamic
average land holding and the yield per acre is low. The leadership. The enterprise and initiative of entrepreneurs
peasants mostly live at a subsistence level. As far as is hampered due to multiple factors such as small size of
Pakistan is concerned agriculture contributes 21% of the market, lack of capital, lack of infrastructural
GDP, provides employment to about 45% of the labour facilities, technological backwardness etc. etc.
force and contributes 70% of the export earnings. 11) Deficiency of Capital:
6) Under-utilization of Natural Resources: Deficiency of capital is another common sign in
An important characteristic of the developing all the developing countries of the world. The capital
countries is that their natural resources either remain un- deficiency is mainly due to (1) low per capital income
utilized or under-utilized or mis-utilized. Most of the (2) low rate of saving (3) low rate of investment (4)
countries are rich in resources but they remain inequalities of wealth (5) adoption of consumption
u/nutilized or under utilized due to lack of capital, pattern of advanced countries (6) higher level
primitive techniques of production, limited size of the expenditure on consumption etc.
market and sluggish nature of the people. 12) Backward State of Technology:
7) High rates of Population Growth: All the developing countries are in the backward
Almost all the developing counties are having a state of technology. The technological backwardness is
high population growth rate and a declining death rate. due to (1) higher cost of production despite low money
The development made with low per capital incomes wages. (2) deficiency of capital (3) predominance of
and low rates of capital formation here is swallowed up unskilled and untrained workers (4) dualism (5)
by increased population. As a result there is no or very misallocation of resources etc. these are the major
slow improvement in the living standards of the people. hurdles in the spread of techniques in the LDC’s.
In Pakistan the rate of increase in population is
estimated about 2.03% per annum in 2009-10. This
growth rate is offsetting achievements of developments.
8) Unemployment and disguised unemployment:
Another notable feature of developing countries
is vast unemployment and disguised unemployment both
in the rural and in the urban areas’. The unemployment
rate is estimated at 6% in Pakistan in 2009-10. The
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Chapter: 2 resources, yet they have made rapid progress in growth

by superior technology, new researches and higher
FACTORS OR REQUISITES OF knowledge. Japan, Switzerland, South Korea are
resource poor countries, yet they have made rapid
ECONOMIC DEVELOPMENT progress in economic growth through advanced
technology and new discoveries.
Q1: Describe the Factors responsible for the Economic 2) Capital Formation:
development in Pakistan? Capital accumulation or capital formation is an
Ans: Economic development is a complex process. It is important factor in the economic growth of a country.
influenced by a number of factors such as natural Capital formation refers to the process of adding to the
resources, capital, human resources, technology, social stock of capital over time. The stock of capital can be
attitude of the people, political condition in the country, built up and increased through three different resources
all the factors having strong bearing on economic which are as under.
growth are divided into two categories, economic and Sources of Capital Formation:
non-economic. We discuss these determinants or factors a) An act of saving.
of economic development under separate heads now. b) Capital Market.
Economic Factors: c) An act of Investment.
Economic factors play a very important role in a) An act of Saving:
the development of a country. The aggregate output rises An act of saving involves the postponing of
or falls mainly due in changes to them. The main consumption whether voluntarily or involuntarily so that
economic determinants are (1) natural Resources (2) the funds thus made available be used for investment. In
Capital (3) Labour (4) Power (5) Transport and developing countries the saving potential is low. A large
Communication (6) Human Capital. These economic majority of the people hardly keep their body and soul
factors are discussed in brief. together with the merge income at their disposal. Saving
1) Natural Resources: is a luxury and far beyond their reach. The middle
The natural resources is the principle factor income group attracted by the superior levels of
which affects the development of an economy. If a consumption of the developed world (demonstration
country is rich in natural resources, it is then able to effect), spends the resources on consumption items like
make rapid progress in growth. In case a country is fridges, VCR, color television etc and so less saving is
deficient in forest wealth, mineral resources, water coming form them. The rich section of the society
supply, fertility of land etc., it is then normally not in a spends money mostly on luxury goods, foreign travels,
position to develop rapidly. real estates etc and therefore little saving is available for
The pity with the most of LDC’s is that their natural investment. The saving potential of under developed
resources are under-utilized, unutilized or misutilized. countries, therefore, normally does no exceed 10% to
This is one of the reasons for their backwardness. It may 13% of the national income which keeps their stock of
here be noted that presence of rich resources is not a capital low.
precondition for economic development. There are
countries in the world which do not have abundant
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b) Capital Market: indicates that most of the poor are circling around the
The capital market consists of financial poverty line.
institutions, like development banks, stock exchanges iii) Severity of Poverty:
and investment banks. In low income countries, the It also shows the remoteness or distance of the
capital market is less developed. As such it is not able to poor individuals from the poverty line. According to this
mobilize savings to the desired extent. measure, the lower value indicates that majority of the
c) An Act of Investment: poor persons are hovering around the poverty line.
In less developed countries, whatever meager Trend in Poverty Indicators:
savings are available with households and with the The Poverty head count updated by Planning Commission
businessmen, is not all channelized for investment in for the year 2005-06 indicate the following trend:
capital goods, the businessmen usually hesitate to invest Head count
their resources due to political and social instability in Year Urban Rural Pakistan
the country, fear of nationalization of industries, limited 1998-99 20.9 34.7 30.6
domestic market, poor roads, etc. 20000-01 22.7 39.3 34.5
Q2: What is meant by Poverty? Suggest measures to 2004-05 14.9 28.1 23.9
eliminate Poverty in Pakistan? 2005-06 13.1 27.0 22.3
Ans: Poverty is a peculiar problem with which various Source:
countries of the world (particularly Third World) are Planning Commission.
suffering. There is no common definition of poverty The estimates of poverty given above are
which is generally accepted. Generally the income outdated. Due to complexity of the phenomena of
poverty method is used to measure poverty. In Pakistan, poverty, authorities concerned seem to hesitate to give
the following methods are used to measure poverty. the latest specific quantitative estimates.
Method of Measuring Poverty: It will be seen from the above table that poverty
There are three methods which are applied for headcount decreased from 34.5%, in 2000-01 to 22.3%
measuring poverty. (i) Head Count Ratio (ii) Poverty in 2005-06. This reduction was caused by substantial
Gap and (iii) Severity of Poverty. These three indicators growth in per capital incomes. However, several
of measuring poverty are now discussed in brief. unfavorable developments in the subsequent period in
i) Head Count Ratio: the form of earthquake of 2005, war on terror since
In Pakistan the persons who earn an income 2007, floods of 2010 and rise in food prices in recent
which cannot meet the daily intake of 2350 calories are years and slower rate of economic growth have
considered to fall below the poverty line. According to adversely affected the state of poverty.
this estimate, a person who earns less than Rs.948.47 per Characteristics of Poverty:
adult equivalent per month in 2005-06 is considered to The main features and characteristics giving rise
have fallen below the poverty line. to poverty are as under.
ii) Poverty Gap: i) The incidence of poverty increases with the size of the
It is an aggregate measure of the spread of the family. Large households are more likely to be poor in
poor below the poverty line. It indicates the distance of both the urban and rural areas.
all poor individuals from the poverty line. A lower value
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ii) Households with high dependency ration are more likely i) Sectoral Structure of National Output Undergoes a
to be poor in both the urban and rural areas. Change:
iii) Households headed by female who does not receive In the process of economic development sectoral
transfer income is more likely to be poor . structure of national output undergoes a change. The
iv) The incidence of poverty is higher in households with percentage share of primary sector in the national output
single earner in the urban area. declines and the share of secondary and tertiary
v) The households whose heads are illiterate are more (services and commerce) sectors gradually rise.
likely to be poor in both urban and rural areas. ii) Occupational Structure Undergoes a Change:
vi) The households whose heads are unemployed are As a country advance economically, its
underemployed are most likely to be poor in urban occupational structure undergoes a change. As the level
areas. of economic development goes up, the percentage share
Poverty Reduction Strategy: of working population engaged in primary professions
Poverty has many dimensions in Pakistan. The like farming, fishing, mining and food-stuffs etc. begins
poor in Pakistan have not only low income but they also to decline; while the percentage share of secondary
lack access to basic needs such as education, health, professions like manufacturing etc. rises.
clean drinking water and proper sanitation. The iii) Structure of Industrial production Undergoes a
Government of Pakistan fully recognizes that sustained Change:
growth is critical for reducing poverty in the country but In the process of economic development a
focus on growth alone is not enough. The poverty change in structure of industrial production takes place
reduction stagey of the govt., focuses on five areas in the country. The preoperational share of capital goods
which include. in the total industrial output increase and that of
i) Accelerating economic growth and maintaining Macro- consumer goods decrease.
economic stability. iv) Structure of Foreign Trade Undergoes a Change:
ii) Human capital development. As a result of economic development, the
iii) Targeted interventions. percentage share of primary goods in the total export
iv) Expending social safety nets and become lesser and that manufactured goods become
v) Improving governance. greater. Similarly, the percentage share of consumer
The key factors which play an important role in reducing goods in total imports falls and that of capital goods and
poverty and achieving higher economic growth have raw-material goes up.
been identified as under. v) Technical Breakthrough Takes Place:
Q3: Mention Factors or Indicator to Economic In the process of economic development,. A
Development? technical breakthrough in the main sectors of the
Ans: Factors or Indicators of Economic Development: economy like agriculture, industries, transport and
As a result of economic development following communication takes place. As a result of that,
kinds of structural changes take plance in an economy. traditional techniques of production are gradually
replaced by new scientific and automatic techniques.
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vi) Social and Institutional Changes Take Place: traditional areas of production are becoming obsolete. It
As the tempo of economic development gets is putting also out of work the old skills, training,
start, the rate of urbanization tendency becomes high education of the people and contributing to so called
and the modern ways of producing and consuming structural unemployment.
began to popularise. The change in behavior of Adoption of Technology:
institutional and organizational factors began to take At present there is a huge gap between the
place frequently. The tendencies of taking risk, technologies of developed and underdeveloped
innovations and investment become common among the countries. The developing countries cannot adopt the
entrepreneurs. sophisticated techniques of production of the developed
Q4: Discuss Role of Technology in Economic countries because the technology used by the advanced
Development? countries is very costly.
Ans: Definition of Technology: Role of Technology:
Technology means the body of knowledge and The impact of technology on economic
techniques which can be used to combine economic development of a country is discussed briefly as under:
resources for the production of goods and services. 1) Increased Output:
Technology nowadays is considered a very important Technological change helps in getting more
factor of economic development. It is considered a output form the same resources or the same output form
powerful mean of wresting power from the Nature in all less resources.
possible ways. 2) New Ways and New Products:
Technological Progress: The use of improved technology results in
Technological progress is the increased finding new ways of making things and development of
application of new scientific knowledge for the new products.
development of new products and finding new ways of 3) Increase in real income:
producing things. Technological progress is considered With the technological change, there has taken
now a prime mover of economic development. Capital place much increase in productivity in all sectors of the
alone cannot bring development. It is the technical economy which has taken place much increase in
progress or increased application of new scientific productivity in all sectors of the economy which has led
knowledge along with capital which has brought rapid to the increases in income of the developing as well as
economic development in all sectors of an economy. developed countries of the world.
Existing Technology in underdeveloped Countries: 4) Breaking the Difference Between Industries:
In less developed countries including Pakistan, The introduction of new techniques of
the techniques of production are mostly backward and production and management is breaking down the
labour intensive in various sectors of the economy. A difference between small and large productive units. The
beginning has been made in most of the developing small scale units of production are finding difficulty to
countires (including Pakistan) to introduce new compete with big industrial units. They are also adopting
intermediate technology in the sectors of agriculture, the new ways of production for their stay in the market.
industry, transport, telecommunication, banking etc.
With the gradual adoption of new technology, the 5) Standardization of Goods:
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With the technological change, the goods are transmitting share prices and information immediately
mostly produced on large scale and these have also been around the world. The low cost of technology,
standardized under different labels. international communications is making it earsier to
6) Increase in Household Productivity: invest abroad. It is the driving force behind
Technological innovations have increased the globalization.
production of household appliances like fridge, Q5: Suggest Poverty Reduction Strategy of Government?
dishwashers, grinders etc. the use of these household Ans: Poverty Reduction Strategy:
appliances reduce the time in preparing things for daily Poverty has many dimensions in Pakistan. The
use. poor in Pakistan have not only low income but they also
7) Increase in Urbanization and Standard of Living: lack access to basic needs such as education, health,
The introduction of new technology has given clean drinking water and proper sanitation. The
rise to the factory system in cities. As a result Government of Pakistan fully recognizes that sustained
urbanization has increased. The migration of workers growth is critical for reducing poverty in the country but
from rural areas to urban areas has increased multiple focus on growth alone is not enough. The poverty
problems of education health, housing etc., but overall it reduction stagey of the govt., focuses on five areas
has helped in increasing the standard of living of the which include.
people. i) Accelerating economic growth and maintaining Macro-
8) Increase in the Marginal Efficiency of Capital: economic stability.
According to J.M. Keynes, the technological ii) Human capital development.
change has increased the marginal efficiency of capital. iii) Targeted interventions.
It has reduced the production of period of production of iv) Expending social safety nets and
goods. The supply of goods can now be increased in v) Improving governance.
short period of time top meet the rise in demand. The key factors which play an important role in reducing
9) Increase in Division of Labour and Specialization: poverty and achieving higher economic growth have
Prof. Galbarith is of the view that technological been identified as under.
progress has brought increasing division of labour and Q6: Describe in brief the non-eco factors of eco dev?
specialization in all sectors of the economy. In addition Ans: Non Economic Factors:
to this it has brought technolocratic managerial Non-economic factors are as much important as
revaluating in the society. economic factors in economic development. It is rightly
10) Huge Investment in Research: pointed out by Nurkse. “Economic development has
Technology, as determinant of growth, has led to much to do with human endowments, social attitudes,
countries are now attaining high degree of technical political conditions and historical accidents.” We,
capabilities. therefore, study the non-economic factors in brief.
11) Revolution in Financial System: 1) Social Factors:
Improvements in technology have brought Social attitudes, values and institutions strongly
revolution in the financial system. Computers and influence economic development of a country. In less
advanced telecommunication have led to the developed countries there are social attitudes, values and
internationalization of financial markets. Technology is institutions which are deterrent to economic progress.
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Religion for instance, emphasis more on purification of Political factor is an important variable in the
human character people are less prone to hard work. economic development of a country. If the government
People in LDC’s are mostly conservative in their of a country is stable, it can play an important role in
habits. They feel pride in their native culture and are encouraging economic activity. The state, for instance,
generally not receptive to new methods of production. can bring changes in the socio cultural attitudes of the
The joint family system, though on the decline, people for economic uplift of the masses. It can
has also killed the sense of initiative and the incentive to introduce reforms in the system of land use and in the
work. The Caste System functioning mostly in terms of field of education. It can also initiate economic growth
occupation, (tailors, carpenters, gold smiths etc) is by maintaining peace in the country by providing public
restricting the occupational and geographical mobility. utility services and by fostering new industries,
The occupational classification which is mostly village development of agriculture, banking institutions.
centered is also hampering the economic progress. A stable government can develop means of
The people in LDC’s are mostly influenced by communication and transport for the expansion of the
traditional customs. They place high value on leisure size of market in a planned manner. It can also adopt
and participation in festivals and ceremonies. The approved monetary and fiscal policies for accelerating
unnecessary expenditure on marriages, deaths, birth, economic development.
litigations, class pride etc. has reduced domestic savings The LDC’s have mostly been under the colonial
and has adversely affected economic progress. rule. Their independence have not yet led to national
About half of the population comprises women consolidation. The political instability in these countries
folk. The social taboos and customs prevent them form is not promoting capital formation to the desired extent.
working with men and so improving their standard of The overnight change of governments, the imposition of
living. martial laws etc are big hurdles in the economic progress
For rasing the standard of living of the masses, it of the LDC’s.
is necessary that the social attitudes, values and In Pakistan, for instance, there have been rapid
institutions should be changed or modified. The change changes of government since Partition. Each
should be introduced by stages. It should be government which came in power condemned the
evolutionary and not revolutionary. Myrdal in his book planning work done by the previous governments. It
Asian Drama has advocated the adoption of formulated its own plans, chalked out its own strategies
modernization of values of modernization ideals’ for the of development and mostly left the chain without
rapid economic progress of the LDC’s. the UN report on achieving the targets of the plans. The slow development
Economic Development of underdeveloped countries in Pakistan is mainly due to political instability.
has also laid emphasis on changes in social attitudes, 3) Administrative Factor:
values, and institutions for economic development. The administrative factor has an important
We do agree that the socio cultural factors have bearing on the economic progress of a country. If the
impeded economic in LDC’s but we should not forget administration of a country is efficient, honest and
here also that the adoption of socio cultural attitudes of strong, it can give a big push to the economic
the West have brought down the quality of life as well. development.
2) Political Factor:
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In less developed countries (LDC’s) the economic and social choices. People should have
administration is generally weak, inefficient and corrupt. opportunity to enjoy the blessings of personal security,
The weak administration has failed to perfom its duties the rule of law, freedom of expression, political
and thus has conspired to retard the economic growth. participation and equality of opportunity.
After partition, in Pakistan, the newly selected Q8: Issue of Under-Development?
government servants were assigned responsible duties. Ans: The term underdevelopment, so far, has been used in a
They, due to lack of organizational skill, could not number of ways. But none of them can be said ‘a perfect
properly handle the onerous work of administration. one’ because it is quite difficult to give a precise
Most of the officers who had no technical training are criterion of under-development concept.
assigned and given the departments for which they are Professor Nurkse defines underdeveloped
not professionally qualified. The departmental efficiency countries, as “those which compared with the advanced
of such department is therefore adversely affected. countries are under equipped with capital in relation to
Further, there is centralization of power at the highest their population and natural resources.
administrative level. It cause dealy and red-tapsim in the According to this definition, those countries can
planning and execution of work. Corruption, lethargic be considered underdeveloped which are facing the
attitude towards work is on the increase. The honest problem of low ration of capital to per head of
administrators are not being valued. The government population. Since in this definition deficiency of capital
servants have become tools in the hands of politicians. has been taken as the sole indicator and neglected all the
All these factors combining together have adversely other socio-economic factors, therefore it cannot be said
affected the economic progress of the country. a perfect definition.
Q7: Objectives of Economic Development? E. Stanley, the author of “The Future of
Ans: According to Micheal Todaro, there main objectives of Underdeveloped Countries” defines and under-
the process of economic development. They are being developed country as that one which is “characterized
briefed as under: by mass poverty which is chronic and not the result of
i) Attaining of Basic Human Needs: some temporary misfortune and by absolute method of
The primary objective of the economic production and social organization, which means that
development is the attaining of basic human needs like the poverty is not entirely due to poor natural resources
food, clothing, shelter and protection. and hence could presumably be lessened by methods
ii) Raising the Level of Living: already proved in other countries.
Another main objective relating to economic This definition points to some of the important
development is to raise the level of living of the people characteristics of underdeveloped countries. According
by providing them higher incomes, more jobs, better to it, underdeveloped countries are those ones which
education and greater attention to cultural and have
humanistic values. i) Unexploited natural resources,
iii) Expanding the Range of Economic and Social ii) Scarcity of capital and equipment,
Choices: iii) Obsolete techniques of Production.
Besides the two mentioned above objectives, iv) Defects in socio-economic organization.
economic development must also include the increase in
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Goblet and some other writers of the present time are of Chapter: 3
the opinion that if a country lacks in sustenance (the ability
to meet basic needs like food, shelter, health and OBSTACLES TO ECONOMIC
protection), self-esteem (a sense of identity, dignity, respect DEVELOPMENT IN
and honour0 and does not enjoy human freedom (personal
security, the rule of law, freedom of expression, political DEVELOPING CANTRIES
participation and equality of opportunity) is said to be an
underdeveloped country. Q1: Development is a multidimensional process involving
changes in structures, institutions and attitudes as well
as the acceleration of economic growth, reduction of
inequality and the creadition of absolute poverty.
Ans: Pakistan inherited an extermely narrow economic base at
the time of independence in 1947. Since then, the
Government of Pakistan has been making rigorous efforts
to build up infrastructre and productive potential of the
economy through the process of development planning.
The main obstacles which have affected the rate of growth
in Pakistan are grouped under following heads.
1) Economic Obstacles
2) Social and cultural obstacles
3) Administrative obstacles. These obstacles are now
discussed in brief.
1)Economic Obstacles:
External debt:
There was a rising trend in external debt which
posed a serious threat to the economic future of the
country. During the last few years, serious efforts have
been made to reduce the external liabilities as far as
possible. The external debt even now stands at Rs.4818
billion in 2012 (End March).
2)Fiscal Deficit:
Another serious constraint on economic
development is the higher levels of budget deficits.
3)Banking and Financial Sector in Crisis:
The second major economic impediment to
economic development was that the public sector banks
and development financial institutions (DFI’s) were
mainly in crises. Excessive banks credits, large scale
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defaults in payment of loans were great fault lines of the country. If there is a change in the government set up due
economy. to elections, or of diotatorship, the planning job done by
4)Persistent deficit in balance of payments: the previous governments should not be altered altogether.
Another important obstacle to economic Q2: Market Importections and price distortions are. The
development is the persistent deficit in the balance of main obstacles to econ deve of country commont?
payments over the years. Ans: Most of the developing countries are facing a few general
5)Financing the budgetary gap: obstacles lto economic development. These include
One of the serious factor distorting the fiscal political instability, corruption, excessive foreign debt,
system and obviously economic growth is the huge and their repayments, inappropriate education,
amount of borrowing to finance the budgetary gap. unemployment inflation and particularly lack of
6)Deficiency of Capital: investment etc. market imperfections are the failures or
Deficiency of capital is an important obstacle in defects which interrupt the smooth working of price
the way of economic development. mechanism in promoting the efficient use of resource of
7)Scarcity of Foreign Exchange: the country.
Pakistan, like other developing countries, is Market imperfections and price distortions as
foreign trade oriented. It is concentrating mainly on the obstacles to economic development:
export of cotton, carpets and manual labour leather, rice, 1) Lack of full information about market:
sports goods. One of the serious drawback of imperfect
8)Rapidly Growing Population: conditions prevailing in the market is that the producers
The population is growing at the rate of about – due to lack of information do not have full knowledge
2.03% annually in Pakistan. about the size of a market for its product, the availability
9)Low Level of Technology: of inputs etc.
One of the obstacles to economic development in 2) Lack of effective Competition:
Pakistan is the use of low level of technology in various Lack of effective competition in the
sectors of the economy. manufacturing sector is another important imperfection of
10) Dualistic Economy: the market in less developed countries (including
Dualism is an another important obstacle to Pakistan).
economic development in Pakistan. There is a vast 3) Unequal Distribution of Wealth:
regional disparity in income. The prevalence of imperfect market in Pakistan
2)Social and Cultural Obstacles: has led to concentration of wealth in about 3000 families.
The socio-cultural attitudes of the people also 4) Slow Investment:
stand in the way of economic development of our country. Anotehr obstacle of market imperfection is the
In Pakistan, more than 50% of the people are illiterate. lack of investment. Private. Savings is very low in less
They are ignorant of the development taking place in their developed countires. The business and industrialist class
own country as well as in the world. quite content with their income make very little
3)Political and Adminsitrative Obstacles: investment in modernizing the manufacturing sector.
For accelerating the rate of economic
development, there should be political stability in the 5) Prices of goods fail to change:
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When there is imperfections in market, the prices 3) Human Resources:

of goods and services do not move in line with costs. Human resources of a country is an important
6) Growing Dissatisfaction: factor in economic development. If the population of a
The widespread imperfections in markets of country is educated, efficient, patriot, skilled, healthy, it
LDC’s have caused dissatisfaction among the people. The makes significant contribution to economic development.
poor investment decisions, delay in construction of 4) Power:
projects, low capacity utilization, inefficient maintenance Power resources are the foundation of economic
of public projects, massive inflaltion, high bad debt, development. They are derived mainly from two types of
deficits in balance of payments, rising public spending sources (1) Commercial and (2) Non-commercial
etc. etc have mainly resulted due to government Commercial resources of power are (a) oil, gas, coal,
intervention in the operation of private markets. hydel, thermal electricity and nuclear. Non-commercial
7) Less product innovation: sources include animal power, fuel, wood, cowdung.
In the absence of competition, incentives to 5) The Means of Transport and Communication:
innovate new processes or new products remain weak. The means of transport and communication have
8) Price Distortions: an important bearing on the economic growth of a
As regards price distortions, these too have country. If a country is well connected with rail road, sea
played their role in inefficient allocation of resources. ports and has a developed means of communication
Q3: Name some constrains which you think are the most invluding information technology. It thenf helps in
important to eco development? imporving the productive capacity of the various sectors
Ans: Factors in Economic Development: of the economy.
Economic development is a complex process. It 6) Education and Training:
is influenced by a number of factors such as natural Human Capital Formation: Education and training is
resources, capital, human resources, technology, social a factor of considerable importance to economic growth.
attitude of the people, political condition in the country. According to Schultz, there are five methods of
A) Economic Factors: developing human resources (1) increasing expenditure on
The main economic determinats are (1) Natural health facilities (2) providing on the job trainings (3)
Resources (2) Capital (3) Labour (4) Power (5) Transport organizing education at the primary and secondry levels
and Communication (6) Human Capital. (4) arranging education programme for adults (5)
1) Natural Resources: Providing opportunities to individuals and families to
The natural resources in the principle factor adjust to changing job opportunities.
which affects the development of an economy. If a B) Non Economic Factors:
country is rich in natural resources, it is then able to make 1) Social Factors:
rapid progress in growth. Social attitudes, values and institutions strongly
2) Capital Formation: influence economic development of a country. In less
Capital accumulation or capital formation is an developed countries there are social attitudes, values and
important factor in the economic growth of a country. institutions which are deterrent to economic progress.
Capital formation refers to the process of adding to the Religion for instance, emphasis more on purification of
stock of capital over time. human character people are less prone to hard work.
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Q4: Suggest measures to remove these obstacles? Efficient communication facilities increase
Ans: Following are the economic and non-economic measures production capacity of the economy. It reduces cost of
for the economic development. production, increases mobility of goods within and outside
1) Technology: of the country.
Inventions and innovations reduce Non-Economic Factors Needed for Economic
manufacturing and distribution costs. Technological Development:
progress serves to change cost conditions in the long run, 1) Economic Freedom:
thus technological changes play and important role in Private ownership of resources and mazimum
economic development. freedom to deploy these resources in line with profit
2) Natural Resources: signials create strong incentives to work hard. If every
Natural resources are one of the three main body is allowed to participate in economic activity, then
factors of production; the other two are labor and capital. due to competition rate of economic development will
Natural resources include land, forests, rivers, climate and increase.
mines. If a country is rich in better quality of natural 2) Social Values & Attitudes:
resources, it would quickly develop economically. It includes culture, religion, and life style of a
3) Specialization: society. Some societies are orthodox and do not like
Output is greater as a result of specialization. materials approach of life. Religion does not allow them to
Specialization enables an economy to use its scarec keep themselves busy day in and day out for materials
resources more efficiently, there by producing larger prosperity. Most societies believe in festivals and different
volume of goods and services. It increase the rate of cultural ceremonies. They do not prefer to save money;
economic development of a country. hence savings rate reduces too much. In such societies
4) Captial Formation: material gains are not appreciated. Prof. Myrdal in his
It is the process of adding net physical capital book, “Asian Draram” said that Asian countries should
stock of an economy. Capital formation creates productive modernize their values for rapid economic development
potential for future production. Captial formation has there and progress in their countries.
stages i.e. (1) savings (2) financial institutions and capital 3) Right of Private Property:
market for mobilization of savings and finally (3) act of Private ownership of the means of production
investment in machinery and buildings. results in the increase in supply of goods and services. In
5) Enterperneuship: order to own and accumulate profit and property, people
If entrepreneurs are capable, skillful and trained work hard, thus trade and business activity flourishes.
then out put of their organizations will be greater. 4) Adminstrative Efficiency:
Entrepreneurship results in the introduction of new types Educated, trained, skillful and hardworking
of output, new techniques and new sources of supply of Govt. officers can push development of a country at a very
inputs for business and industry. fast speed, whereas untrained administration of a country
retards the economic development.

6) Transport & Communications:

5) Political Stability:
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Strong and stable Government can prepare five-

year development plan; they can enforce monetary and
fiscal p-olicies and change social attitudes and institutions,
which may be progressive ones. The frequent changes in
Govt. setup results in the lack of concreate economic Chapter: 4
policy decisions.
CAPITAL FORMATION & ECO
DEVELOPMENT
Q1: What are the main sources of Capital Formation in
Pakistan?
Ans:1) Voluntary Savings:
There are two main sources of voluntary savings
(1) household (2) business sector. As regards the volume
of personal savings of the household, it depends upon
various factors such as the income per capita, distribution
of wealth, availability of banking facilities, value system
of the society etc. etc. in the under-developed countries,
the saving potential of the people is low as a greater
number of them suffer from absolute poverty. So far as
the rich sections of the society is concerned, they mostly
spend their wealth on the purchase of real estates, luxury
goods, or take is abroad for safe keeping. There is,
therefore, very little saving forth-coming form the high
income group.
The business sector is an important source of voluntary
saving in the less developed countries.
2) Involuntary Savings:
In the developing countires, the income per
capital of the people is low. Their propensity to consume,
mainly due to demonstration effect’ is very high. As the
flow of savings is inadequate to meet the capital needs of
the country, the governments, therefore, adopt certain
measures which restrict consumption and increase the
volume of savings. The traditional methods, used for
increasing the volume of savings are (1) taxation (2)
compulsory schemes for lending to the government.
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3) Government Borrowing:
The volume of domestic savings can also be
increased through government borrowing. The
government issues long and short term bonds of various
denominations and mobilizes savings from the general Q2: Suggest measures to promote Capital Formation?
public as well as form the financial institutins. In the Ans: Measures to Increase Capital Formation:
developing countries, there are many obstacles which 1) Saving Drives:
stand in the way of government borrowing. Saving drices like prize bond schemes, saving
4) Use of Idle Resources: certificate carrying higher rates of profits, tax exemptions
In the developing countries of the world, there on saving schemes, creating awareness of the importance
are many resources which remain unutilized and of savings etc. can greatly help in mobilizing savings.
underutilized. If they are properly tapped and diverted to 2) Setting up Financial institutions:
productive purposes, the rate of capital formation can The setting up of financial institutions in rural
increase rapidly. and urban areas can gratly help the people to deposit their
5) Deficit Financing: savings in financial institutions rater than keeping these in
Deficit financing is regarded an important source homes. The small and larger amounts of savings so
of capital formation. In the developed countries this collected helps in raising funds for development. In
method is used for increasing effective demand and Pakistan the Directorate of National Savings is engaged in
ensuring continued high levels of economic activity. In the mobilization of savings at the grass root level.
the less developed countries, it is used for generating 3) Fiscal Measures:
savings by activiating unemployed or underemployed In low income countries, the voluntary savings
resources. are not sufficient for productive investment. The
2)External Resources: government, therefore, realizeds funds through fiscal and
Foreign aid. The developing countries also monetary measures. The main measures usually adopted
finaince domestic capital formation with the help of are, reducing budgetary deicit through increase in
foreign capita. Foreign capital can be obtained form a taxation, reducing government expenditure on
number of sources such as government to government aid establishment, bank borrowing.
programmes, export credit agencies, international 4) Public Borrowings:
financial institutins including the, World Bank Group and In low income countires, the voluntary savings
Regional Development Banks, the IMF, the UN agencies, are not sufficient for productive investment. The
private investment by multinational corporations and government, therefore, realize funds through fiscal and
commercial bnaks. monetary measures. The main measures usually adopted
3)Restiction of Imports: are, reducing budgetary deficit through increase in
Another external source of financing economic taxation, reducing government expenditure on
development is the restriction of luxury consumption establishment, bank borrowing.
imports. The foreign exchange thus saved should be 5) Development of Capital Market:
utilized in importing capital goods for rapid economic Government can also divert resources form
development of the country. unproductive to productive channels by strengthening the
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

capital market in the country. The establishment of which can effectively be removed through capital
brokerage houses, venture capital companies, stock formation by increasing the supply of machines,
exchanges, investment advisory companies etc. can go a equipment and tools.
long way in capital formation. 2)Helpful to Boost Productivity of all the sectors of the
6) Privatization of Financial Institutions: economy:
The privatization of financial institutions can Capital perfomrs the main function of economic
also attract savings both at the grass and higher level by development; that is to build captial equipment on a
providing full range of banking services to the customers. sufficient scale and thus helps to boost productivity of
The impressive performance of the financial institutions all the sectors of the economy.
can help in mobilizing resources for development. 3)Leads to Technical Progress:
7) Development of Secondary Financial Market: Captial formation also leads to technical progress
The main purpose of the development of which, in turn, helps in realising the economies of large
secondary market is to provide liquidity to the holders of scale production & increases specilaization. It benefits
securities. It also provides a pool of investors to whom, the labour by providing machines, tools and equipment
securities / debt may be resold. The development of for the growing labour-force.
secondary market helps the investors in the purchase and 4)Leads to the Expansion of Market:
sale of securities, thus an encouragement for capital Capital formatin helps in removing market
formation. imperfections by creating econmic and social overhead-
8) Utilization of Disguised Unemployed Workers: capital and thus supports in breaking the vicious circles of
Nurkse is of the view that if disguised poverty form the demand as well the supply side.
unemployed workers, are employed on various capital 5)Helpful in Solving Overpopulation Problem:
projects like irrigation, roads, etc. they can be a fruitful In an overpopulated under-developing country,
source of capital formation. like Pakistan, when population increases rapidly, it
9) Checking Demonstration Effect: becomes difficult to have sufficient savings for the
The Government and the Ulamas can help in required quantity of investment’; for a low per capital
persuading the people to resist the evils of consumerism income keeps the propensity to save at a low level.
and growing propensity to consume. The amount thus 6)Helpful in solving adverse balance of payments
saved can be made available for capital formation. problem:
10) Frationalization of Tax Structure: A developing country has to face with the
The rationalization of tax structure can help the problem of adverse balance of payments because it mostly
capacity to save of the people. exports primary goods like raw-materials and
Q3: Write the importance of Capital formation? agriculatural products, and imports almost all types of
Ans:1 Helpful in breaking Vicous circles of poverty: manufactures, semi-manufactured and captial goods.
According to Nurkse, the vicious circles of 7)Helpful in Attaining self-sufficiency and reducing the
poverty in under-developed countries can be broken burden of foreign debt:
through capital formation. In these countries, due to low Borowings form foreign countries for long
level of income the demand, production and investment period cause a heavy burden on the future generation. At
are deficient. This deficienty also affect the capital goods present, Pakistan is facing with the same displease
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

situation. With every loan the debt charges accumulate,

which can be repaid only by levying more and higher
taxes.
Chapter: 5
8)Helps in Removing the Strains of Inflationary
Pressure:
A steady rise in the rate of capital formation in CAPITAL ACCUMULATION
the long-run augments the supply of goods, controals
inflation and bring stability in the economy.
Q1: Discuss the measures taken by the Government to
9)Leads to Economic Welfare of the country:
enhance the Foreign Investment in Pakistan?
A steady rise in the capital formation leads to
Ans: Suggestions to Improve the Foreign Investment
and adequate exploiation of natural resources and the
Climate in Pakistan:
establishment of different types of industires.
1) Establishment of a Strong Physical infrastucture:
10) Helpful in Raising the level of National income:
Pakistan, according to International Standard,
The process of capital formation leads to raise
has w weak infrasturcture with poor perfomrance. A
the national output which, in turn, raises the rate and level
strong physical infrastructure is more preferred rather than
of national income.
financial incentives like tax-holidays etc. offered to
investors. Due efforts should be enforeced to establish a
strong infrastructure fully equipped with all the
requirements sought and demanded by foreign investors.
2) Improvement of Law and Order Situation:
It is a fact that the foreign capital is always vdery
shy to uncertain law-and-order situation. The moment it
smells the odour of uncertainty of law-and –order, it gets
ready to flee away. In a country where kidnapping for
ransom, broad day-light robberies, kidnapping and cold-
blooded murders have become the order fo the day, to
attract the foreign investment is certainly an uphill task.
3) Harmony Among Fiscal Policies and Industrial
Policies:
To attract foreign investment in Pakistan fiscal
policies are also needed to be harmonized with the
industrail policies. A con-troversial point can damage all
that is earned through the efforts of propagation for
attracting the foreign investors.
4) Effective and Rational Resource Moblization Efforts:
So far. resource mobilization efforts have been
deficient. Every year, while presenting annual budget,
through new measures gen-erating new resources is
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

hoped, but the tax-base remains almost the same. That is services at economical prices, had it been utilized in an
happening due to ineffective and irrational approach. environment free form confusion, un-certainty and
5) Drastic Reduction in Public Debt: inconsistency.
A drastic reduction in public debt is also an The cumulative foreign investment in Pakistan
obvious measure. This could be done by generating large stood at $ 3 billion during the early seventies. It,
revenue on one hand and curtailing public non- howerver, increased to $ 8 billion in 1980s. at the end of
development expenditure on the other. Both actions eighties it rose to $ 55 billion. During 1994-95, it stood at
should be taken simultaneously with convectional $ 1532.3 million, but after that peak point, it began to
commitment. decline. It was estimated at $ 949.4 million during 2003-
6) Revision of Present Labour Laws: 04. During 2004-05, it was estimated to go up to $ 1027
Presently, though 54 labour laws are included in million. Almost 44% of the investment was owned by
the statute books, yet neither labour nor industrialists are firms or compaines registered or incorporated outside
satisfied with them. So far, a number of labour-policies Pakistan, while 56% by joint stock companies
have been formed since over the last two decades. incorporated in Pakistan having foreign participants.
7) Restoration of Confidence of the Investors: 2007-08 proved to be a different year for Pakistan.
Serious efforts should be made to restore the Pakistan could attract $ 3.6 billion against $ 8.4 billion in
confidence of the investors. For this purpose, following 2006-07. Years 2007-08 -2008-09 and 2009-10 proved to
stepts are needed to be implemented. be very discourgious because a very small investment was
i) An institutional arrangement for foreign investment made by foreign investors on account of odd
promotion should be made according to international circumstances.
standard. The major share of the cumulative foregin
ii) Full attention should be given to upgrading the investment comes form USA, followed by UK,
infrastructure to be fully helpful in attaining the bases International Financial Institutions, Germany, France,
for viable investment. South Arabia, Hong Kong, UAE, Japan, Netherlands,
8) Drastic Improvement in Human infrastructure: Korea, Morway, Switzerland and other.
The current level of human infrastructure of Q3: Define the Saving Investment?
Paksitan is the worst according to any standard. In a Ans: The rate of capital fomation in pakistan is very low. In
United Nations Development Pro-gramme Report it has this regard, it ranks almost at the bottom even among
been cited to be at a medievel level. most of the under developing rathher low developed
Q2: Foreign investment plays a vital role in the Economic countires of the world. The main cause is that is lacs in
Development of Pakistan Argue? those very factors which determine capital formation. In
Ans: Role of Foreign Investment in Economic Development fact, capital formation depends upon savings, efficiencery
of Pakistan: of the institutions mobilising these savings and the
Foreign investment is playing a significant role patterns of investment of these savings. The rate of capital
in industrial development and the growth of the eocnomy fomration in Pakistan is nearly 5% to 7%, wherease in
of Pakistan. It would have a significant impact on creation Amercia it is 15% and in Germany and Australia about
of employment opportunities, stimulation of local 25%. The main cause of low rate of capital formation in
enterprise and increased availability of quality goods, and Pakistan are as under.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

1) Low Income But Very High Propensity To Consume: small size of market, deficiency of capital, retarded
Large savings are essential for a high rate of enterprise and reluctant initiatives, the rate of capital
capital fomatio, wherease savings largely depend upon the formation re-mains low.
size of income of the people. Since agriculture, industry, 5) Inadequate Economic Overheads:
trade and other sectors of the economy of Pakistan are not The existence of adequate economic overheads
fully developed, the national output is low and so is the like power, transport, communication and weater etc. is
national income, there of perl capital income of the essential to induce investment and encoun-age enterprises,
majority of the people is also low. It was estimated at because capital fomration depends on them to a large
1050 dollars in 2010. Contrarily, the propensity to extent. As these economic overheads are inadequate in
consume is very high, almost near unity. As a result, Pakistan, therefore rate of capital formation remains low.
almost the entire income is spent on consumption. Rich 6) Inadequate Capital Equipment:
class of the society perfers to spend on luxurious imported In Pakistan, the rate of capital formation also
items instead of saving. Therefore saving rate in very low remains low due to inadequate capital equipment. Here
there by the rate of capital formation also remains low. not only the capital stock is inadequate but also capital is
2) Low Productivity: deficient. The total capital investments take place is 7% in
Since the rate of productivity of all the sectors of Pakista. Such a low participation rate of capital formation
the economy is low so the rate of growth of national does not help in replacing the existing capital equipment;
income, saving and capital also remains low. National re- even not covers its depreciation.
sources are either underutilised or miss-utilised on 7) Exterme Inequality in Income Distribution:
account of deficient labour and techonological Exterme inequality in income distribution is
knowledge, and non-availiability of required capital. anotehr decisive factor responsible to keep the ratte of
These factors adversely affect the saving and capital capital formation low in Pakistan. According to economic
fomration rate. point of view, Pakistani society is divided in two extreme
3) Deficient Demographic Feature: classes the very rich class hardly consists of 4 to 5% of
Demographic featuers of Paksitan are also the total population, and the very poor class, absolute
responsible to keep the rate of capital fomration at a low majority belongs of this class. The very rich class prefers
level. The net growth rate of population is the highest in to invest her incomes in unproductive channels like gold,
the world; a large percentage of childern in the total ornaments, real estates, foreign currency and precious
population imposes a heavy burden on the parents in stonces etc. At the other hand, the highly poor class, due
bringing them up; lowest literacy rate and only one thired to very low income, is not capable to save.
of the totral population being functional in economic 8) Esisting of Small Home Market:
activities etc. like demographic features inhibiting the rate The existing of small home market is another
of capital formation. factor responsible to low contribution the rate of capitla
4) Lack of Enterpreneurial Ability: formation. Majority of the people is poor. Their demand
Lack of enterpreneurial ability is anotehr factor for goods is limited due to their low level of income.
causing to low rate of capital formation in Pakistan. In Hence, a small size of the home market keeps the rate of
fact, enterpreneurship is regarded as the pivot in the capital formation at a low level.
process of economic development. But in Pakistan, due to
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6) The concept of Interdependence of Various Parts of a

Chapter: 6 Culture Must be Identified:
This very fact must be borne in mind while
inducing any technological innovation that no induced
NATURAL RESOURCES change can occur in isolation; for the vaious parts of a
culture are interdependent. Change introduced in any one
Q1: How technology can littly be defused? aspect of life would produce secondary and territory
Ans: The coveted objective of the technology diffusion can be change else-where.
achieved through following policy measures, suggested Q2: Discuss Important of Forest Resourcess?
by a renowned scholar Professor Gold Smith. Ans: Forests play a very important role in the economy of a
1) Introduction of innovative technology must be made: country by rendering various valuable service of
The intorduction of technological innovation economic, social and political nature.
must be in line with the needs of such people who do feel Economic Importance:
its necessity. Forest render a large number of economics
2) New Techniques Must be Suited to a Traditional services. Economic services refer to those ones which
Society: help in the development of the economic potentialities of
New techniques should be suited, as far as a country. The economic services may be of the following
possible, to the organizational principles of a traditional types.
society. New methods of production must be of a i) Forests make the climate more equitable. They increase
supportive nature to families. the participation of moisture and prevent evaporation.
3) Optimum Use Should be Made of Traditional Values: ii) They protect the soil from erosion and check the floods.
Traditional values support innovations, therefore, iii)They are the source of supplying raw-materials to
they should be given due importance while implementing different kinds of industries such as paper, hardboard,
new technological projects. furniture, sport goods, pencil and match-boxes etc.
4) Cooperation of Villages’ Leaders Should be Sought: iv)They produce timber and fulfil the home requirement as
The aceptance of innovation by the people well as the foreign demand.
particularly of the villages requires the cooperation of v) Their products have exportable value and as such, can be
their leaders. Such prestigious persons should not be used as exporting goods.
ignored because their likeness and dis-likeness has great vi)They also produce tanning materials, oils, turpentine, lac,
weightage in villages. hney, wax and varieties of medicinal herbs etc. and thus
5) Prevention of Harmful Effects Must be Made in Good keep in running a number of business enterprises.
Time: vii) Thy offer employment opportunities.
An intensive eye must be kept on conseque3nces viii) They serve as health resorts in the capacity of
likely to follow from the introduction of technological sanatorium.
advancement so that possible harmful effects may be ix)They attract tourists form abroad and help in earning
checked out in good time. foreign exchange.
x) They serve as a natural breeding entres for birds and
beasts of commerical value.
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xi)They also serve as pastures and thus help in breeding irrigation facilities to agriculatural sector. Furthermore,
animals resources. farm-mechanisation is gradually increasing, therefore the
Social Importance: use of oil and diesel etc. has also increased, wherease
i) Forests have a social value as lthey serve as an effective ever-increasing supply is not matching with demand.
check to floods, which sometime play havoc on the iv) Expansions of Transport Sector:
life and property of the people. Since the last decade, number of different kinds
ii) They provide recreation facility to the people in the shape of vehicles has been on increase.
of hunting and sight-seeing. v)Alternative Have not Been sought out Seriously:
iii)They provide employment to the people. So far, no serious attempt has been made to sarch
Poltitical Importance: the alternatives of energy resources. Thar coalfields
i) Poltical importance of the forests lies in the fact that they discovered ten years ago in Sindh Province having over
serve as barrir against foreign aggression. Further, 175 billion tonnes of coal, so far could not be used for
they constitute the natural defence line of a country. generating electricity due to lack of required technology
Q3: Describe the resons of power shortages in Pakistan. and expertise.
What steps the Government of Pakistan has taken to Q4: Power Resource of Pakistan?
develop these resources? Elaborate. Ans: Presently, Pakistan ranks among the low consumer of
Ans: Reason of Present Energy Crises: energy countires. Per capital energy consumption comes
Following are the main resons of present energy crises. to 180 kg. coal equivalent, which is 11 times less than the
i) Big Gap Between Demand and Supply of Energy world’s average consumption. Pakistan consumes two
Resources: times less energy than Egypt, 3.5 times less than UK and
Supply of energy resources is almost constant 79 times less than that as consumed by USA. Despite of
since the last two decades wherease the demand has such low consumption Pakistan is not self sufficient in
increased may fold during this period. Production of gas energy resources.
and petroleum did not show any notable increases. The main energy resources of Paksitan are:
Reservoirs of gas are continuously depleting by sharply (i) Oil. (ii) Natural gas
increasing in its use. Use of gas in transporty sector is (iii) Hydel and Thermal power and (iv) Coal.
gradualy increasing. Now the shortage of gas has forced 1) COAL:
the government to purchase gas form iran and Tagikstan. The coal being produced in old fields is of low
ii) Increased Urbaisation Traend: quality, ligite to sub-bituminous and occurs in the lower
According to a report. Urban population has teriary sequence. It has low carbon content and high ash,
been increassing at rate of 3% per annum during the last sulphur and volatile matter and possesses low heat value.
decade. The urbanisation trend has also increases the use The sames of coal varies in thickness – form a few inches
of gas and electricity to a reasonable extent by the use of to few feet.
modern appliances. The important old coal fields of Paksitan are:
iii) Villages Electrification Policy: (i)Makarwal (ii)Salt Range (iii) Sor Range-Degari
By the end of March 2010, 147,038 villages have (iv)Khost-Sharing (v)Mach
been electrified. Besidese, upto March 2010, 921, 229 (vi) Dukki-Chamlang (vii) Pir Ismail-Ziarat
tube-wells have been installed in rural areasto provide (viii) Lakhar (ix) Jhampir-Meting
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(x) Sonda-Thatta and (xii) Badin. A country with large deposits of minerals provides a
2)CRDUE OIL: sound base for the development of a large number of
At the beginning of 2010, oil was contributing industries viz., iron, steel, petro chemicals, cement,
nearly 29% to the total energy supply. More than 12 oil pottery etc. the discovery of varied mineral deposits
companies were engaged in oil exploiation and production provides employment oto a large number of persons
activities over an area of about 30,000 sq. km. living in that area. Their economic condition improves.
Disscoveries of the new oil fields have raised the local The availability of mineral resources in the country
production to 58,000 barrels per day. The country has reduces the import bill of many items like oil. Ohemicals,
become capable to meet almost 23% of its total machinery etc. the mining sector thus makes a significant
requirements of about 250,000 barels per day. contribution to GDP.
3)NATURAL GAS: MINERAL DEPOSITS:
Natural gas is the second most important source Natueral Gas. The importance of natureal gas in
of energy, meeting over 43% of the total commercial Pakistan has been increasing rapidly. It is used in industry
energy needs of the country. to produce consumer goods, to produce cement and to
The importance of natural gas to the country has been generate electricity, to manufacture fertilizer and in the
increasing rapidly. As on January 1st, 2010, the balance transport sector in its compressed form (CNG). To meet
recoverable natural gas reserves have been estimated at the incressing demand govt. is making efforts to increase
28.33 billion cubic feet. The average production of natural its production. Different policies has been designed not
gas during 2009-10 was 4,048.76 million cubic feet epr only for exploration of new local gas reserves but also for
day. import of gas like liqufied Naural Gas.
Natural gas is used in general industry to prepare LPG: Liquefied Pertoleum Gas:
consumer items, to produce cement and to generate At persent LPG contributes only a smell
electricity. In the form of CNG, it is used in transport percentage (0.5%) to the total primary energy supply, but
secotr and most importantly to manufacture fertilizer to around 87% of its demand is met through local production
boost agricultural sector. and the rest is imported. The lower share of LPG is
4)ELECTRICITY: mainly due to its higher price compared competing fuels
The WAPDA, KESE, Karachi Nuclear Power such as fuel word, dung etc.
Plant (KANUPP) and Chasma Nuclear Power Plant are CNG: Compressed Natural Gas:
the 4 main public sector organizations involved in power To reduce expensive imported fuel and to
generation, transmission and distribution of electricity in improve environment, the govt. , has been ecnouraging
the country. Besides, several Independent Power Project the use of CNG in Vehicle. As a result Pakistan has been
(IPPs), in the private sector, are also involved in power reported by PES as the largest CNG using country. This
generation. exclusive use of gas for a relatively low priority vehicular
Q5: Mineral Resources? use led to shortages for the high priority industrial uses.
Ans: The minerals, are the precious wealth of a country. These As a result the either policy has been reversed.
are extracted from earth. Some minerals like coal, iron, Crude Oil:
copper etc. are found in soild forms and some like gas, Oil is called the liquid gold. It is an important
petor, oil etc., are discovered in liquid shape. source of energy. During 2011-12 (July-March)
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13,879.000 tons petroleum were uses compared with Chapter: 7

13,879.000 tons in the same period last year.
Coal:
Paksitan has a large resource base of coal of
HUMAN RESOURCES
about 185 billion tones including during the year 2011-12
(July-March) the 2.350 tones of coal was consumed Q1: Discuss the Salient Features of population in Pakistan?
against 5,8500 thousand metric tons last year. Ans: Characteristics of Population of Pakistan:
The characteristics of salient features of pakistan’s
population may be studied under the two main heads.
i) Quantitative and
ii) Qualtiative aspects.
Quantitative Characteristics:
The population of pakistan have the following
quantitative characteristics.
i) Total population of Pakistan was estimated at 173.51
million in 2010. It is about 2.3% of world population.
ii) The curde birth rate per annum was estimated at 28.0 per
thousand in 2010.
iii)The crude4 death rate per annum was estimated at 7.4 per
thousand in 2010.
iv)Total fertility rate at birth per woman was estimated at 3.6
in 2010.
v) Average annual population growth rate had been recorded
during 1960 to 1990 to 2.6% and during 1990-2010 to
2.5%
vi)Out of total population 6305% million was living in urban
areas and 110.05 million in rural areas during 2009-10
vii) The density rate was estimated at 212 persons per square
kilometer in 2010, as against 208 person in 208, 183
person in 1998 and 144 persons in 1981.
viii) The male/females ration was estimated at 109 males per
100 females in 2010, as against 110 in 1981 and 114 in
1972
ix)Infant mortality rate was estimated at 76.7 per thousand in
2010.
x) Under-five mortality rate was estimated at 110 per
thousand in 2010.
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xi)Life expectancy rate at birth was estimated at 64.5 in ii) Establishment of Small-Scale and Cottage Industries
2010. Should be encouraged:
Qualitative Characteristics: Establishment of small-scale and cottage
Population of Pakistan may be attributed to the industries, particularly in backward areas of the country,
following qualitative characteristics. should be encouraged by way of extending tax holidays,
i) The adult literacy rate was estimated at 57% in 2010, that subsidy on industrial inputs and providing necessary
is why healthy political atmoshere could not preavail in infrasturctrual facilities. Besides, liberal credit facilities
the country so far. should be made available to these industries. This step
ii) Pakistani society is sharply divided in two classes; the will definitely increase employment potential.
rich and the poor. Hence, there is a severe hatred and iii)Induscation of Self-Employment Schemes be Made:
conflict between the two. Inducation of self-employment schemes like
iii)A big part of the total population is fatalist instead of Youth Investment Promotion can help to some reasonable
believing in working hard. extent in reducing the number of unemployed education
iv)Like other developing countries, poverty, hunger, poor persons.
diet and intensity of various diseases are active with their iv)Vocational, Professional and training Facilities Should
negative effects. be Promoted to Their Maximum:
v) A very small almount is allocated in annual budgets for The number of vocational, perfessional and
education sector. It comes to 2.4% of GNP. That is why training instiutions should be increased and their standard
with all the government efforts the literacy percentage is of education and training be promoted to their maximum.
not more than 57%, which is less than many African Skilled labour will definitely help in reducing rate of
developing countirs. unemployement to grate extent.
vi)The efficiency of labour force is poor comparative to v) Construction Industry Should be Encouraged:
other developed countires. The construction of houses and roads should be
vii) Majority of the population has a narrow vision about encouraged in private sector. This objective can be
latest advanced technologies taking place in almost every achieved through threating construction activities as an
field of modern world. industry. This step will help in creating mopre job
Q2: Suggest measures to tackle Unemployment? opportunities.
Ans: To overcome the problem of unemployment is an uphill vi)A rational Labour Policy Must be Implemented:
task. It can be tackled provided a number of measures are The implementation of a rational labor policy
taken simultaneously. Some, most important, of them are can also help in solving unemployment problem to some
of the following nature. reasonable extent. This policy will help in maintaining
i) Growth Rate of the Population must be Minimized: industrial peace and as a result of that adequate
Government should make serious efforts to employment opportunities will take place.
reduce the rapidly rising population growth rate which, at vii) Approprate Monetary and Fiscal Policies Must be
the moment, is the highest one in the world. This measure Followed:
will greatly help in lessening the pressure form the supply Implementation of appropriate monetary and
side on the labour market. fiscal policies can also help in mobilizing productive
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resources and thereby creating sufficient employment 1) All the four provinces of Pakistan are not equally
opportunities. developed. There is a dire need to asses the demand for
viii) Quality of Labour Should be Upgraded: and supply of manpower in each sector of the country.
The severity of unemployment problem can also This can only be done through proper manpower
be lessened through upgrading the quality of labour. This planning.
can be done mainly by way of development of human 2) After manpower planning, the Government can take steps
resources. The objecgtive of human resources to provide technical and vocational training schemes to
development can be achieved by providing adequate improve education and skill of the workers. This will
medical, educational and vocational facilities. increase the marketability as labour force both in side
Q3: Discuss Role of education in Eco development? and outside the country.
Ans: Role of Education in Economic Development: 3) Manpowers planning helps in devising the educational
The development economists uptil 1960’s system which should meet the shortage of highly skilled
attached great importance to material capital such as professional manpower in the country such as scientist,
machines, new factories, new buildings etc. in the doctors, engineers etc.
development process of the country. The manpower was 4) It is through manpower planning that government can take
not regarded an important variable for increasing measures to reduce the inflow of rural unemployed and
productivity and income. Since 60’s the emphasis is under employed persons to big cities. The government
gradually shifiting to manpower as an important factor of can set up industries, provides electricity, roads, hospitals
development. etc in the rural areas to provide employment at home or
Education is considered as the cornerstone of near their homes.
broad based economic growth and the poverty reduction. 5) It is the manpower planning which throws light on the
Education is a key to change and progress. The consensus actual number of women working for wages in the
is that Pakistan economic growth can be achieved with country. The Government can then launch effective
higher emphasis on the quality of its manpower. programme to boost employment opportunities.
Q4: Describe need & Role of Manpower Planning? Manpower Planning in Pakistan:
Ans: Manpower Planning: 1) Pace of economic development:
Many developing countries including Pakistan The pace of economic growth is being
are facing wide spread and growing problem of accelerated by mobilizing domestic resources through
unemployment and under employment. It is being appropriate fiscal and monetary policies, following
increasingly realized that policies should be formulated to policies of liberalization and privatization, providing
create employment opportunities in the country both in liberal investment opportunities to foreign investors.
the rural and urban areas. These measures are expected to created new job
In the words of P. Todaro, Manpower planning is opportunities on a growing scale.
the long range planning of skilled and unskilled 2) Reducing Population Growth:
manpower requirements and the attempt to gear The population welfare programme is being
educational priorities and investment in accordance with followed by opening family welfare centres in the rural
these future human resource needs’’ and urban areas.
Need of manpower planning in Pakistan: 3) Technical and Vocational Training Schemes:
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The Government has implemented various iii)Due to increasing trend of mechanization of agriculture
training programmes to increase the literacy rate as well the employemtn opportunities are declining gradually.
as skills of the labour. iv)Due to installation of new automatic machinery in large-
Q5: Rural urban distribution ? scale industries employment opportunities are decreasing.
Ans: Rural urban distribution:- v) The increasing number of industrial sick units is also
According to an administrative definition used in increasing unemployment.
1981 Census, those areas are considered urban which are Q7: Literacy & Education Attainement?
under Corporations, Municipal Committees, Town Ans: It is an undeniable fact that higher the literacy among a
Commitees and Cantonment Boards. On this basis , nation highly it will be prosperous. Literate and educated
according to 1998 Census, the overall urban population people comparatively have more adaptability to the
increased from 28.3% in 1981 to 32.5% in 1998 and changes brought about by the scientific inventions,
further to 36% in 2010, which shows that in 2010 every modern thoughts and approaches to the latest discoveries.
third person was living in a city or town. Amongest the Low potential adaptabilitiy of illiterate people comes in
provinces, sindh is the most urbanized province where the way of economic development and as such economic
nearly 50% population is living in urban areas. The progress and prosperity of the country is badly affected.
second most urbanized province is the Punjab where 33% Technical know-how; one of the basic factors of
population is living in cities and towns. Baluchistan ranks economic growth, cannot be acquired unless the people
third as its 24% population is living in urban areas. The are fully literate.
least urbanized province is NWFP where only 17% The literacy percentage, together with education standard,
population resides in cities and towns. determines the efficiency of the people and finally
The urban – rural distribtion trend shows that the exhibits the productive potential of the nation.
migration from rural to urban areas is on rise. The urban The literacy rate of Pakistan is the lowest one (55 in 2010)
population at the time Pakistan came into being (1947) in the world. In literate persons also include even those
was 5 million or 15.4% which increased to 23.84 million who can merely read and write simple words. According
or 28% in 1981 and further to 63.5 million or 36.5% in to the World Development Report 2010, Pakistan
2010. During 1981 to 1998, the total population increased regarding to literacy rate, ranks almost at the bottom even
by 55% whereas the urban and rural population increased among the many underdeveloping countries of te world.
by 60% and 40%, respectively. According to Pakistan social and living measurement
Q6: Unemployment Situation Prevailing in Pakistan? survey 2008,-09,b the overall literacy rate (age 10 years
Ans: In Pakistan, unemployment rate is very high. Out of total and above is 55 (67 fior male and 42 for female) in 2007-
labour force, nearly 6% was estimated unemployed in 09. Literacy is higher in urban areas (72) than is rural
2007-08. In unemployed are include skilled, semi-skilled, areas (45) and more in men (61) compared to women
unskilled and educated persons. The main cause of such a (42). On provincial level, Punjab stands at 58, followed
high rate of unemployment are as under. by sindh (55), NWFP (41) and Balochistan at (42).
i) Hig rate of population growth which is nearly 2.% per
annum.
ii) Low rate of saving and investment is not conducive to
create more opportunities for employment.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q8: What is meant by Human Development in an 1. Health and Nutrition:

economy? Examine the main components and A healthy manpower is a great source for a
strategy of Human Development with reference to developing economy like Pakistan, as it leads to greater
Pakistan. output per man. The bad health and under nourishmen
Ans: Human Development: adversely affect the quality of manpower. In all under
According to prof. Mier, Human Development or developed countries including Pakistan people are
Human Capital Formation is the process of acquiring under-fed and under-nourished which results in poor
and increasing number of persons who have skills, quality of manpower. There is also deficiency f proteins
education and experience which are critical for and vitamins in the diet of the people and due to lack of
economic and political development of a country. medical facilities diseases are very common in the
According to Prof. Shultz following are the ways of people. The best way to improve the quality of
Human Development. manpower in Pakistan is to provide adequate food and
1. Health facilities and services which include all the better nourishment, better sanitary facilities and the
expenditures that affect the life expectancy, strength and extension of medical facilities which in turn will raise
stamina and the vigor and vitality of people. efficiency and producitive of the Pakistan people.
2. On-the job training, including olf type apprenticeships 2. Education and Training:
organized by the firms. The investment made in education accelerate
3. Formally organized education at the elementary, economic growth and productivity of work force.
secondary and higher levels. Greater progress will occur in those countries wher
4. Study programs for adults tha are not organized by education is wide spread and where it encourages
firms, including extension programs notably in experimental outlook. It has been observed tha Pakistan
agriculture. imports physical capital for its development but due to
5. Migration of individuals and families to adjust to the lack of critical skills they fail to utilize it properly.
changing job opportunities. Higher education is important for Pakistani people
It is the lack of investment in human development shich because it results in creating highly trained and technical
is responsible for slow growth in under developed manpower, scientists and research oriented persons. It
countries. Under developed countries are generally faced will accelerate the process of economic development of
with two problems. Thy lack the critical skills needed Pakistan.
for industrial sector and have a surplus labor force. 3. Housing Deelopment:
Existence of surplus labor is due to shortage of critical The last component of human investment in
skills. Thus human development aims at solving hese Pakistan is the development of housing facilities for the
problems by creating necessary skills in man as a people, as husing development is an important
productive resource and providing him gainful determinant of human resource development as the
employment. Under developed countries are not only comfortable living makes a man beter agent of
economically backward but qualityof people as production. In Pakistan it must be given priority that
productive agents is low. workers are given healthy living conditions. Special
incentive for private house contruction must be
provided.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Chapter: 8 employment, directly or indirectly, to almost 70% of

the total population and accommodates nearly 47% of
employed labour-force.
AGRICULTURE ii) At the beginning of 2011, it is contributing almost
DEVELOPMENT 21.0% to the GDP per annum, and assuch a set-back to
agriculature productivity can affect the performance of
Q1: Agriculture is the back bone of Pakistan’s Economy the economy to a great extent.
Discuss. Q2: Explain the main factors responsible for agricultural
Ans: ROLE AND IMPORTANCE OF AGRICULTURE backwardness in Pakistan.
SECTOR TO THE ECONOMIC DEVELOPMENT Ans:a) General Factors:
OF PAKISTAN: 1) Over crowding in agriculture:
Agriculture sector is the largest sector of the The agriculture sector, in Pakistan, is over
economy and thus plays a significant role in its crowded. About 63% of the population is depending
development. Despite its share in GDP has substantially upon agriculture for their livelihood. Due to over
decreased from 53% in 1949-50 to 21.0% in 2009-10, crowdedness, the area of cultivated land per cultivator
still it is the largest contributor. It does not only feed the has declined.
entire population of the country but also provides 2) Socio-economic factors:
employment to almost 70% of total population in direct The farmers conservative outlook, illiteracy,
or indirect way. Iot is also meeting the growing demand superstitions etc., also stand in the way of adoption of
of expanding industrial, commercial and trade sectors. modern technology improving the conditions of
Besides. Foreign trade for its performance also largely agriculture in the country.
depends upon this sector. 3) Natural Factors:
The role and importance of agriculture sector can really Natural factors play an important role in the
be evaluated through the following facts. growth of agriculture. If the rain is timely, evenly
1. Base for Economic Development: distributed, and there is no hail storm and attack of pests,
Pakistan is a developing country. Her economic the production is plentiful. Agriculture, in short, is the
development needs expansion of industrial, commercial gamble of rain.
and trade sectors so that the element of uncertainty from 4) Lack of Adequate Finance:
her agrarian economy could be eliminated and The Zarai Taraqati Bank Limited, formerly
accommodation of her growing population be known as Agricultural Development Bank of Pakistan,
maintained. commercial banks, cooperative banks are the main
2. Back – Bone of the Economy: supplier of finance to the farmers in Pakistan.
The agriculture secotr, being the most important b) Institutional Factors:
segment of the economy of pakista, can be considered as 1) Small size of Holding:
the back-bone of it. This fact can be fairly established in Due to the application of law of in heritance, the
the light of following facts. size of holding is fast decreasing with the passage of time.
i) Agriculture sector is not only the biggest sector but it is The holding of two or less than two acres does not allow
also the mainstay of the econoy. It provides the use of mechanized method of cultivation.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

c) Technological Factors: 8) Problem of Land Reform:

1) High ratio of labour to land: Land reform whether it involves changes in land
In Pakistan, nearly 60% of the population is ownership or tenancy have been introduced and
directly or indirectly dependent upon agriculature. The implemented half heartedly. There is an urgent need to
excessive pressure of population on land is resulting in condurt a proper land reform for improving agricultural
small uneconomic and fragmented holdings. The surplus growth, proper income distribution and for political and
labour, uneconomic holdings, low income and high ratio economic stability in the country.
of labour to land adversely affect etc. agricultureal Q3: Discuss the role of Mechanization in the agricultural
productivity. development of Pakistan:
2)Under Utilization of Cultivable land: Ans: Fram mechanization is condidered as the most important
The total area of Pakistan is 80 million hectares. package among other related packeges of Green
Out of which, 27.8% is of cultivated land. Revolution technology. The term ‘’farm mechanization’’
3)Lack of Mechanization: implies the use of a set of three type of technology in the
Though mechanization of agriculture is on the varied farming operations by replacing human and animal
increase in Pakistan, yet in most of the arease, the old labour.
implements are still being used for agricultural i) Chemical Technology:
production. It relates to plant protection measures with the help of
4) Inadequate Supply of Inputs: appropriate chemicals.
The supply of modern inputs like improved ii) Hydrotogical Technology:
seeds, chemical fertilizer, pesticides, mechanized It relates to distribution and circulation of water supply
machinery etc are not only costly but also inadequate through tube wells etc.
and irregular. iii) Mechanical Technology:
5) Inadequate Agriculaural Research: It relates to use of agricultural machinery and tools like
Due to inadequate amount allocated for research, tractors, thrashers, bulldozes and sprayers etc.
the development of new varieties of crops, farm The Farm – Mechanization Debate:
machinery animal health etc remains slow. The average Should farm – mechanization be adopted in Pakistan or
crop yield, in Pakistan, is therefore, low. not? The issue has been under debate since the beginning of
6) Poor extension Service Programmes: sixties when the induction of farm mechanization started. It
In order to raise farm productivity, the extention is still on going. The main debatable points are:
service programme needs to be extended in the rural i) Should Pakistan adopt the same mechanical technology
areas. The education of farmers for the adoption of being practiced in advanced countries?
agriculture technology is a massive work and has to bel ii) Should Pakistan adopt farm mechanization on large-scale
carried out systematically and efficiently. or prefer to small- scale?
7) Lack of infrastructure Facilities: iii) Should Pakistan altogether do away with mechanized
There is lack of infrastructure facilities like farm farming?
to markets roads, storage, transport, electricity etc in the Arguments in Favour of Farm-Mechanization:
rural areas. The unsatisfactory provision of these Critics, who believe that farm mechanization is must for
facilities stand in the way of agricultural growth. boosting the agriculture sector, argue as under.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

i) The aim of multiple cropping can be achieved: Chapter: 9

Farm mechanization can help in achieving the aim of
multiple cropping through intensive methodology. This will
help in solving the food problem for ever-growing
AGRICULTURE
population, which seems impossible under traditional CREDIT
farming.
ii) To bring greater area under Cultivation will Q1: The imposition of Tax on agricultural income will
become possible: boost up the economic development of Pakistan.
So far, out of total 79.6 million hectares area, nearly 24.50 Comment.?
million hectares area is available for cropping. By use of Ans: Case for Agricultural Income Tax:
heavy agricultural machinery like bulldozer and levelers etc. 1) The share of agriculature section in GDP in 21. The
greater area can bring under cultivation. The merits of contribution of agriculture to total tax collection is
extensive methodology can also be gained. around 1.2. whereas the share of manufacturing in GDP
iii) Efficiency of the farmers will increase: is 17.0 only but the share in taxes is 62. Therefore,
Farm mechanization will help in increasing the efficiency increased taxation of agriculture sector is advocated.
of farmers which eventually will do a lot to increase the 2) There are about 1.4 million potential tax-payers in
productivity of agriculture sector. agriculture sector. The agricultural profession with them
iv) Dependency upon animal Power will be Reduced: is a business and not a way of life. There is, therefore, no
Farm mechanization will help in reducing dependency justification to exempt it from tax.
upon animal power, which is not only costly but its 3) The government is spending huge amounts of money
efficiency is also quite low. every year on physical infrastructure-construction of
v)Cost of production will be reduced: roads, provision of electricity, hospitals, schools, etc. the
Farm mechanization will help in efficient use of available price of their land has considereably increased. The
resources which, in turn, will decrease the cost of agriculturists must pay the ahsre of the enhanced value of
production. their land to the Government.
vi) Land occupied for growing fodde can be spared 4) The industrialists, traders, drug dealers, etc. have turned
for food and cash crops: agriculturists and vice versa. They are indulging in tax
Farm mechanization lwill help in diverting the land being evasion, so why not tax potential agriculturists.
used for growing fodder for animals. The same land can be 5) The4 voluntary savings of lthe agricultural sector
used for cropping other food and cah-crops. compared to its contribution to the GDP is very low.
vii) Timely water supply can be maintyained: Most of the earnings of the farmers are frittered away on
Timely water supply; a dire need of cropping sector, can litigations. The farmers should pay their due share to the
also be maintained from tube wells. State.
6) The farmers receive subsidies on water, electricity, credit
from Government. The burden of taxes asl compared to
concessions is very small. So a justification for tax on
agriculture.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

7) It is unfair to make distinction between agricultural and i) Construction and repairs of wells and works of storage,
non-agricultural incomes for the purpose of taxation. Just supply or distirubiton of water.
as income below a certain level is exempted from tax, the ii) Preparation of land for irrigation.
same principele should be applied to agricultural income iii)Drainage, reclamation from the rivers and other waters
also. and protection from floods, erostion etc.
8) Agricultural income tax is more income elastic than land iv)Reclamation, clearance, enclosure, etc. of land for
revenue. With a greater yield per acre due to the use of agricultural purposes.
package of inputs, the revenue of the state will be higher. 2. Commercial Banks:
Q2: Highlight the main sources os Agricultural Credit in Commercial Banks were inducted into lthe field of
Pakistan? agricultural credit under the Banking Reforms Act of
Ans: Sources of Agricultural Credit in Pakistan: 1972. Before 1972, commercial banks did not take any
The following are the sources of financie available to the active part in financing the agricultural sector.
farmers in Pakistan. Commercial banks provide production loans to farmers
i) Individual or non-institutional sources for meeting their short term and medium term
ii) Institutional sources requirements which include purchase of input, cattle,
Individual or Non-Institutioal Sources: tractors, and other implements as well as for dairy
The agricultural credit provided by individual farming, fruit gardening and installation of tube-wells.
sources is available only for short period and is paid back 3. The Zari Traqiati Bank Limited ZTB:
immediately after the harvest. It is raised from the The Zarai Taraqiati Bank Ltd., formerly the
professional money lenders, friends and relatives of the Agriculture Development Bank of Pakistan, was
farmers and the gain-merchants. The money-lenders established in 1961 through the merger of Agriculture
charge a very high rate of interest. Once the loan is taken Finance Corporation (established in 1952) and the
by a farmer, it is hardly paid back. It continues from Agriculture Development Bank (established in 1957).
father to sons and multiplies at a compound rate of They mostly benefited the landlords or those who owned
interest. However, the professional and organised money- large areas of land. The small farmers did not get proper
lenders have disappeared after the establishment of accommodation from them.
Pakistan and now credit from this source is available on a Function:
very limited scale. The friends and relatives of farmers The bank functions as a scheduled bank and as
provide the major portion of the credit but it is hardly such, is being controlled and advised in the matter of
sufficient to meet their requirements. loans policy by the State Bank of Pakistan. It performs
Institutional sources: the following functions.
The institutional sources of agricultural credit in 1. It accepts deposits.
Pakistan may be classified as under. 2. It may borrow money to raise its working capital.
1. The government – Taccavi Loans: 3. It issues and sell bonds and debentures to collect funds to
The provincial governments give credit to farmers meet its requirements for giving loans and advances.
according to the Pakistan Agriculturists’ Loan Act 1958. 4. It buys stock and supplies credit for seeds, agricultural
According to this act loans are granted for the following machinery, implements and equipments, fertilizer and
purposes. other materials used in agriculture.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

5. It also finances as a corporate body engaged in the 4. It buys stock and supplies credit for seeds, agricultural
advancement and development of agriculture, allied machinery, implements and equipments, fertilizer and
activities to agriculture and the cottage industries in rural other materials used in agriculture.
areas. 5. It also finances as a corporate body engaged in the
6. It may also act as an executor or trustee for the proper advancement and development of agriculture, allied
administration of estates. activities to agriculture and the cottage industries in rural
7. In order to secure its loans it accepts pledges, mortgage, areas.
hypothetical or assignment of any kind of movable and 6. It may also act as an executor or trustee for the proper
immovable property or unconditional bank guarantee of a administration of estates.
scheduled bank. 7. In order to secure its loans it accepts pledges, mortgage,
4. Cooperative Finance: hypothetical or assignment of any kind of movable and
Cooperative finance is extended by cooperative immovable property or unconditional bank guarantee of a
institutions like cooperative bank for credit in Pakistan. scheduled bank.
Cooperatives have a significant place in the rural Cooperative Finance:
economy of Pakistan. Cooperatives for credit have been Cooperative finance is extended by cooperative
existing in this country since 1904. The cooperative institutions like cooperative bank for credit in Pakistan.
movement has badly been the victim of continuing Cooperatives have a significant place in the rural
mismanagement. economy of Pakistan. Cooperatives for credit have been
Q3: What Role does Zarai Taraqiati Banks is playing ? existing in this country since 1904. The cooperative
The Zari Traqiati Bank Limited ZTB: movement has badly been the victim of continuing
The Zarai Taraqiati Bank Ltd., formerly the mismanagement.
Agriculture Development Bank of Pakistan, was Q4: Suggest measures that must taken govt to improve
established in 1961 through the merger of Agriculture Agriculture credit?
Finance Corporation (established in 1952) and the Ans: Measures Taken by the Government to solve
Agriculture Development Bank (established in 1957). Agricultural Credit Problems:
They mostly benefited the landlords or those who owned i) Establishment of Zarai Taraqiati Bank Ltd (ZTBL):
large areas of land. The small farmers did not get proper The ZTBL provides agricultural credit to the
accommodation from them. farmers through 49 regional offices, 343 branches and
Function: 1459 Credit Mobile of fices (MCOs). Each MCO, under
The bank functions as a scheduled bank and as the Supervised Credit Scheme of the Bank is incharge of
such, is being controlled and advised in the matter of 10 to 15 villages. The bank advances loan on the basis of
loans policy by the State Bank of Pakistan. It performs land mortage or on personal security of the farmers. So
the following functions. far, the operation of the bank has extended up to 90 of the
1. It accepts deposits. total villages of the country.
2. It may borrow money to raise its working capital. ii) Inductment of Comercial Banks:
3. It issues and sell bonds and debentures to collect funds to Commercial banks were inducted in the
meet its requirements for giving loans and advances. operational field of agricultural credit uner the Banking
Reforms Act of 1972. Commercial banks are providing
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

loans to the farmers for meeting their short-term and very helpful to increase productivity of the land as well as
medium-term needs. These needs include purchase of of the agricultural labour.
inputs and cattle, sinking of tubewells, run the agro iii)Purchase of modern implements:
business of horticulture, poultry farming, dairy farming Farmers also need agricultural credit for
and fruits and flowering gardening. purchasing modern agricultural implements like tractors,
iii) Arrangement of Tacavi Loans: harvesters, threshers and levelers etc. The use of modern
Up to 1992-93, Provincial Revenue agricultural machinery in land will certainly increase
Developments has been arranging Taccavi loans. Such production by more than one crop on the same area of
loans are provided to the farmers at the time of calamity land in the same time-period. Hence agricultural credit
such as floods, destruction of crops due to scnity rains etc. will indirectly help in improving shortage of lfood
iv) Contribution of Cooperative Banks and Societies: situation.
The Provincial Cooperative Banks and iv)Risks of uncertainties can be minimized:
Cooperative Societies are also providing loans to the Agricultual credit can help the farmers to mange
small farmers. These loans are provided at low mark-up. the risks of uncertainties of price and weather etc. they
v)Provision of Cost Free Production Loans: can get credit during bad days to get rid of bad affects and
Commerial banks are also providing cost-free pay back the borrowed money during goods days of
production loans to small farmers. These loans are usually crops.
given for sees, fertilizers, pesticides and some special kind v) Better Maketing of Products can be Made:
of agricultural machinery. Weak financial position of the farmers forces
Q5: What are the main Agricultrual Credit Problem? them to sell their production as soon as they reap their
Ans: Credit is needed in each and every sort of business harvest because they cannot wait for a better price. At the
including agriculture. The need for agricultural credit time of harvest, price remains low in the market. Credit
becomes more important when it is required for can enable the farmers to withhold their production for a
modernizing the formal agriculture. The agricultural batter price.
sector of Pakistan is currently hosting a number of crucial Q6: What are the case for Agricultural Taxation ?
problems. Of them, dire need of agricultural credit is one Ans: Case for Agricultural Income Tax:
of them. 1) The share of agriculture section in GDP in 21 the
i) Permanent improvement in land: contribution of agriculture to total tax collection is
Credit can hel[p a lot the farmers to induct around 1.2 wherease the share of manufacturing in GDP
required improvement in land like reclamation of affected is 17.0 only but the share in taxes is 62. Therefore,
and by water logging and salinity, sinking tube wells for increased taxation of agriculture sector is advocated.
impoving irrigation facilities and intiating horticultural 2) There are about 1.4 million potential tax-payers in
business etc. agriculture sector. The agricultural profession with them
ii) Purchase of modern inputs: is a business and not a way of life. There istherefore, no
Pakistani farmers need agricultural credit for the justification to exempt it from tax.
purchasing modern agricultrural implement like tractors, 3) The Government is spending huge amounts of money
harvesters, theresher and levelers etc. modern inputs are every year on physical infresturcture construction of
roads, provision of electricity, hospitals, schools etc. the
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

price of their land has considerably increased. The Chapter: 10

agriculturists must pay the share of the enhanced value of
their land to the Government.
4) The industrialists, traders, drug dealers, etc. have turned
AGRICULTURE
agriculturists and vice versa. They are indulging in tax MARKETING
evasion. So why not tax potential agriculturists.
5) The voluntary savings of the agricultural sector compared Q1: Defective Agricultural Marketing is an important
to its contribution to the GDP is very low. Most of the reasons of low productivity in Agriculture Sector.
earnings of the farmers are frittered away on litigations. Suggest remedial measures?
The farmers should pay their due share to the State. Ans: Measures Taken by The Governmetn for The
6) The farmers receive subsidies on water, electricity, credit Improvement of Agriculture Marketing:
from Government. The burden of taxes as compared to Government, so far, has taken numbers of
concessions is very small. So a justification for tax on measures for the impovement of agricultural marketing.
agriculture. They are briefly summarized as follow.
7) It is unfair to make distinction between agricultural and i) Construction of Farms to Market Roads:
non-agricultural incomes for the purpose of taxation. Just The govermment is spending huge funds every
as income below a certain level is exempted from tax, the year for the construction of farms to market roads. A
same principle should be applied to agricultural income Huge sum is allocated in annual budgets.
also. ii) Establishment of Regularizing Markets:
8) Agricultural income tax is more income elastic than land Currently, there are 316 regularized markets
revenue. With a greater yield per acre due to the use of operating throught the country. Government is also
package of inputs, the revenue of the state will be higher. encouraging setting up of regularized markets in rural
areas through the cooperation of local bodies.
iii) Establishment of PASSCO:
Govermment established paksitan agriculatural
stores and supply corporation in 1973. The corporation
purchases agriculatral commodities at the procurement
prices from farmers and provides to the customers at the
price fixed by the government.
iv) Setting up AMSL:
Agricultural marketing and storage limited was
set up in 1981. It was assigned the job to cater the
problems of perishable agricultural commodities like
fruits and vegetables.
v) Setting up Market Organizations:
Several organization have been set up at Federal
and provincial level which are entrusted with the garading
of agriculatural products, market research and survey etc.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Federal Agricultrual Marketing Development and efficiently done and to stabilize the marketing of
marketing intelligence, the agricultural price commission agricultural production. The co-operative marketing is an
are worthmentioning. alternative to private dealers with the main objective of
vi) Construction of Warehouses: securing a large share of profits for the producer. A co-
So far, the government has constructed a number operative markeging is thus to store, transport, process the
of wafrehouses to storae agricultural produce with the farm goods in the form, at the time and at the place that
help of passco. The warehouses are mostly rural based. consumers desire.
vii) Promulgation of Rules and Regulations Regarding
Weights and Measures.
The government has promulgated rules and
regulations regarding weights and measures. Marketing
organization have been deputed to check their proper
implementation.
viii) Maintaining Standard and Gardes:
The Government through different media and
market organizations is striving for maintain recognized
standard and gardes of agricultural produce.
ix) Provisiosn of Information:
The Govermment has also made different
arrangements to provide necessary information to farmers
about current market price of different agricultural goods.
Q2: Discuss Role of Cooperative mercueeting in
Agricultural Produce?
Ans: Cooperative sale societies are formed on a cooperative
basis. These societies arrange to sell the produce of the
member farmers and charge only a normal commission.
Cooperative sale societies or cooperative marketing thus is
a voluntary association of farm producers for the joint sale
of their surplus products. It is the system by which a group
of farmers voluntarily pool their resources and join
together to carry on some or all of the processes in
marketing of the agricultural produce.
Objectives of Co-Operative Marketing:
The main objective of establishing a co-operaive
marketing is to encourage the intelligent and orderly
marketing of agricultural produce, to eliminate speculation
and waste, to make districution of agricultural products
between producer and consumer as direct as can be
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Chapter: 11 Fiscal burden and anomalies are also among the

outstanding problems. Fiscal anomalies are present in
the tax structure. The manufacturing sector has not only
INDUSTRIAL to pay excise duty and sales tax, to which it is directly
DEVELOPMENT subject, but also custom duty for the machinery, spare
parts and certain other items which are imported.
Q1: Is the industrial sector in Pakistan backward? Give 6: Inadequate Transport Facilities:
arguments. The transport system of Pakistan is still underdeveloped.
Ans: 1:Capacity under-utilization: Railway being a state owned enterprise is not fully
Industrial sector of Pakistan, as a whole, is estimated to developed. Its services are available only in urban and
have been operated uneconomically at as low a rate as its adjacent rural areas. Its resources are limited. They
40 to 60 percent of its installed capacity. Some studies do not cope with the industrial and commercial
have been made in this regard which have shown that requirements.
excess capacity exists in industries, which is not utilized 7: Limited Supply and high cost of power:
due to many causes. Sources of power are electricity, (hydel and thermal),
2: power shortage: coal, gas and oil. These resources of the country have
Power breakdown continues to be a major constraint. not been fully tapped as yet. They still remain to be
The frequent resorting to load-shedding causes adverse exploited. Whatever power capacity is available, it is not
effects. According to a USAID report on Pakistan’s sufficient to cover the need of the growing industrial
Economy, Pakistan is losing about $ 500 million sector. The industrial units, due to scarcity of power,
annually of value-added in manufacturing due to load have to operate below their capacity,
shedding. The figure of $ 500 million does not include 8: High administrative cost:
the production losses caused by abrupt power Generally, the administrative wings of the industrial
breakdowns: units are poorly manned in the sense that the executives
3: Shortage of Skilled Labour: in most case, lack experience, leadership, initiative and
Another notable problem is the shortage of skilled derive. Their quality of work and disposal of problems is
labour fully skilled and semi skilled workers in search of poor. Waste of time and resources is very common. This
better job opportunities have gone to the middle east situation increases the production cost.
countries. The has created shortage of skilled labour at 9: Lack of planning and co-ordination:
home. The industrial units in their plants layour suffer a lack in
4: Non-availability of indust5rial finance at ease: proper planning. There exists no co-ordination between
Industrial financing itself is not a problem for the the different wings of the constituent units. This causes
industrial sector, industrial units are continuing to waste of time and materials and increases the production
receive adequate credit facilities both from the costs.
commercial banks for their working requirements and 10: Absence of subsidiary industries:
from the development banks for their long terms needs. A very peculiar feature of industries in Pakistan is that
5: Fiscal Burden and Anomalies: the entire process of production is done by a single unit.
Hence, the benefit of specialization is not available.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

11: Absence of by-products industries: Over the span of twenty five years, the number of sick
By-products industries are generally organized on small- industries is on increase. At the end of 2008, there were
scale or cottage industry basis. They consist of those 4000 industrial units which were either totally closed
industrial units which use the wastage of other industries down or providing far less production than their
as their raw-material. Such by-products industries installed capacity.
reduce the production cost of the main industry and Q2: What steps would you suggest to improve the
produce the cheaper goods. performance of industrial sector in Pakistan?
12: Lack of repair workshop: Ans: The government of Pakistan, so far, taken various
Capital goods industries in Pakistan are still to be measures for the promotion of industries. Of them, the
developed. The country and they too are poorly- most important ones, are the following.
equipped. The result is that, there does not exist any 1) Reforms inducted in the textile sector:
proper repairing facility for machines.
13: Lack of technical know-how: Pakistan ranks fourth among the largest producers of
There is a great need of technical personnel in the cotton. Textile sector is contributing more than 60% of
country. The requirement is met by hiring the foreign total export. This sector is accounting 46% of the total
technicians, who are paid heavily and are allowed manufacturing. Due to its utmost importance to the
remittance to their own country, this involves foreign economy of Pakistan and its crucial role the Ministry of
exchanges problem and falls heavily upon the Textile of Pakistan is doing her best to enable it to show
production cost of the industrial units. her best performance. Minister in this regard is taking
14: Lack of industrial research: following measures.
Lack of industrial research is also a problem, which is i) To ensure availability of high quality cotton within
responsible for high production cost. Industrial research as well as outside the country.
is a must because it discovers new techniques of ii) To expanding the sector to that extent it can produce
production, which introduce new varieties of product. value-added garments and new products.
15: Small Home Market:
iii) To develop the entire textile value chain at par with
The problem of small home-market also comes in the
way of expansion and growth of out industrial sector. international market.
The purchasing power of the common man in the iv) To import new textile machinery. The industry, in
country is very low because of low wages and this regard, had made an investment of $6 billion on
unemployment and as such demand for industrial goods new textile machinery form 1999 to 2006.
in the country is not conducive to the industrial growth. v) The Government is setting up three garment cities at
16: Cheap imports are contributing to de Karachi, Lahor and Fisalabad for providing credit
industrialization:
facilities and necessary infrastructures.
Liberal imports are also discouraging local
manufacturing goods. From an ordinary one to an
expensive electoral equipment is freely available at local
market.
17: Large number of sick industries:
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2) Step inducted to develop Engineering sector: unemployment in the sense that it remains idle for five
to six month in a year.
The Government for the purpose of strengthening the ii) Source of employment opportunities:
sector set up Engineering Development Board in 2007.
The Board will help in the export promotion of Industries not only create employment opportunities but
engineering goods and services. also absorb the idle man-power. Through industrial
3) Encouraging to Cement Industry: expansion and development, Pakistan can solve the
unemployment problem effectively.
At the end of 2010. 27 big factories were producing iii) Helpful in expanding scale of production:
cement in the country. The government is inducing
investment in this industry. The industry is producing Industries may be helpful in expanding scale of
sufficient surplus production of cement. production and thus, in an indirect way, they can boost
4) Inducing to Chemical fertilizer: the economy..
iv) Helpful in accelerating the rate of economic
At the end of 2010, there were 6 urea manufacturing development:
units functioning in the country. Government is
encouraging the promotion of this industry by providing Despite almost 50 year’s constant efforts, the
an indirect subsidy to fertilizer manufactures. economy could not attain the desired pace of
5) Encouragement of Small and Medium Enterprise economic development. It is mainly due to heavy
(SMEs). dependency on agricultural sector which itself could
not attain a developed status so far. Through
Government has set up the small and Medium Enterprise expending industries not only the productive
Development Authority (SMEDA). Small and medium efficiency of agriculture sector can be increased by
enterprises are playing a very important role in way of mechanization but the rate of growth and
promoting economic growth in the country. development may also be enhanced.
Q3: Define Budge. How the Budget deficit can be v) Helpful in attaining full employment level:
removed?
Ans: Industries occupy paramount importance in the economy Expansion and development of industries may be
of Pakistan. Their real importance can be fairly judged helpful in attaining full employment level in the
from the following facts. economy and as such the can make the maximum
i) Helpful in new economic set up: exploitation and utilization of rare economic
resources of the country.
Pakistan’s existing economic set up is not satisfactory at Q4: Explain the importance of industries in Pakistan?
all in the sense that all the sectors and sub-sectors of the Ans: 1:Increase in national Income:
economy are under-developed. Economy, by its very Industrialization makes possible the optimum utilization
nature, is agricultural and nearly 21 percent of its Gross of the scarce resource of the country. It helps in
National Product is still being contributed by its increasing the quantity and quality of various kinds of
agricultural sector. Almost 70 percent of its labour-force
is engaged in agriculture and suffers from disguised
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manufactured goods and thereby make a large Q5: What downsizing? And downsizing reasons ?
contribution to gross national product. (GNP). Ans: What is mean by downsizing:
2: Higher Standard of living: In the area of business activity, the word downsizing is
Industrialization helps in increasing the value of output now quite familiar. By downsizing is meant decreasing
per worker. The income of the labour, due to higher the number of existing employees or reducing the size of
productivity, increases. staff employed in an organization and still maintain and
3: Economic Stability: promoting the efficiency of the enterprise.
Industrialization is the best way of providing economic Reasons for downsizing:
stability to the country. A nation which depends upon The main reasons for reducing the strength of employees
the production and export of raw material alone cannot in an organization are generally grouped as under.
achieve a rapid rate economic growth.
1) Downturn in Business:
4: Improvement in Balance of Payments:
Industrialization brings structural changes in the pattern There is a slackness or downturn in business activity
of foreign trade of the country. It helps in increasing the which may be actual or it may be anticipated.
export of manufactured goods and thus earns foreign 2) Improved technology:
exchange.
5: Stimulates Progress in other sectors: There is a use of improved technology for raising the
Industrialization stimulates progress in other sectors of production. The new technology, automation requires
the economy. A development of one industry leads to less workers than already employed.
the development and expansion of other industries. 3) Merger:
6: increased employment opportunities:
Industrialization provides increased employment Different organizations have merged together and the
opportunities in small and large scale industries. staff has become surplus.
7: Promotes Specialization: 4) Transfer of work:
Industrialization promotes specialization of labour. The
A business organization has transferred a part of its
division of work increases the marginal value product of
work to another organization and the need for
labour.
employees has gone down.
8: Rise in agricultural production:
5) Reduced funding:
Industrialization provides machinery like tractors,
thrashers, harvesters, bullodzers, transport, aerial spray The funds available to business in local or foreign
etc. to be used in the farm sector. currency are not available to the desired extent. As such
9: Easy to control industrial activity: there is no other way but to decrease the number of
The industrial activity compared to agricultural is easy employees.
to control: Q6: Critically examine the performance of Public Sector
10: Large scope for technological progress: Industries in Pakistan?
Industrialization provides larger scope for on the job Ans: book mai se refar ho ga
training and technological progress. Q6, 2010 Q 7B
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Measures For Development of Sugar Industry:

1. More area under cultivation of sugar cane
Q7: Discuss the nature and causes of present crisis faced 2. Extensive cultivation of sugar cane
by the Sugar Industry in Pakistan. What measures 3. Better fertilizers
would you recommend for the rehabilitation and 4. Control on wate loging and salinity
development of this industry? 5. More sugar mills
Ans: Crises Faced by Sugar Industry: 6. Control on smuggling of sugar
Sugarcance is one of the major crops of Pakistan, 7. Mechanization in agriculture sector
grown in Kharif season. It provides raw material to 8. Stroge facilities
sugar and sugar-related products. It generates income 9. Cheap and efficient transportation facilities of sugar
and employment for the farming community of the 10. Eradication of diseases of sugar cane crop.
country. It helps in value addition to essential item for Q8: Discuss the view that the policy of Nationalization of
industries like sugar, chipboard and paper. Its share in Industries in the early Seventies inflicted a serious
value added or agriculture and GDP are 3.6% and 0.8% blow to the industrial sector of Pakistan. How far the
respectively. For 2009-10 sugarcance has been sown in present privatization and de-regulation policies can
the area of 943 thousand hectares, 8.4% lower than last put the country back on the road to industrial
year which was 1029 thousand hectares. Sugarcane development?
production for year 2009-10 is estimated at 49.8 million Ans: Nationalization of industries in Pakistan in 1972 very
tons, against 50.0 million tons last year. This indicates badly affected private industrial sector. Ten basic
declne of 1.3% over the production of last year. industries including iron and steel, heavy engineering,
There are 82 functional sugar mills in the counry petro-chemicals and natural gas etc were nationalized by
out of which 45 are in Punjab, 32 in Sindh and 5 in the Govt. this resulted in the depressed level of
Khyber Pakhtonkhwa. The total sugar production investment activity in the country during 1970 to 1977.
capacity is 6.8 million tons n a season. In the current Nationalization of industries gave a heavy blow to the
crushing season 2009-10 a total quantity of 3.1 million investment activity in the country.
tons new sugar has been produced in the country nearly 1. Govt. heavy criticized the industrialists.
achieving the target estimated production level of 3.1 2. National of industries discouraged private sector
million tons. However, the annual consumption of Sugar investment.
is 4.2 millions tons thus the balance of 1.1 million tons 3. Proper compensation of these nationalized industries
is being imported to meet the gap. was not paid.
Factors Contributing Lesser Sugar Production: 4. Fear of further nationalization by the Govt. reduced
1. Maximum area under wheat production during 2008-9 private investment in the country.
restricted the sugarcance acreage. 5. Indusrial labor and their unions were supported by the
2. Shortage of canal water. Govt. investment in the private sector diminished due to
3. Load shedding of electricity. the labor agitations, strikes and demands.
4. Realization of lower prices in the preceding season. 6. Foreign private investors due to the fear of
5. High rates of inputs discouraged the farmers to grow nationalization did not set up their business, factories
more sugar cane crop. and workshope in the country.
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7. Pakistani currency was heavily devalued which resulted Q9: High Cost of Production and Limited home Market
in the increase in the cost of machinery and equipment, are main obstacles in the way of industrial
thus reducing private in the country. development of Pakistan. Disucss.
8. Private secotr investment in the country further Ans: Reasons of Industrial Backwardness:
diminished due to many other factors that is increase in  Shortage of investment capital
cost of imported raw material, increase in the wages of  Shortage of infrastructure facilities
labor and competition of Pakistani’s products in the  Lack of technical knowledge
international market.  Lack of by product and subsidiary industries
9. In spite of monetary and fiscal measures, indusrial secor  Insufficient spare parts and repair workshops
could not progress.  Racial disturabances and political instability
10. However Govt. realized the situation tha the  Non-cooperative behavior of general public
nationalized industries coult not deliver the goods  Lack of industrial research
properly and focused attention on the private secotr by  Poor and unskilled level of management
giving many concessions and promoises.  Over capitalization.
Privatization of Industries in Pakisan: 1) Shortage of Investment Capital
Privatization is a process by which Govt. owned Establishment of industries requires huge capital
factories and services are transferred to private sector by whereas our businessmen do not have sufficient funds at
their sale. Foreign investors can also purchase there their disposal. There is non availability of industrial
industries and services. In order to sale Govt. enterprise finance. The procedure and requirements of loan giving
open bids are invited from private sector. In some case institutions are very complicated and their formalities
shares of enterprise are sold through Stock Exchanges. are too much. They demand properties documents for
Dregulation means reducing rules and regulations and to motgage purposes in order to have security of their
make investments easy for local and foreign investors. funds. Since such formalities cannot be fulfilled hence
Now foreign nationals can set up their factories industries could not be easily setup in the country.
anywhere in Pakistan without going through a 2) Shortage of Infrastructure Facilities:
complicated procedure of Govt. permission. Basic infrastructure facilities for setting up of
Advantages of Privatization: industries are not available in the country. For
1. Increase in efficiency and profitability industrialization roads, railways electricity, water gas
2. Increase in foreign investment and in export earnings are a must. Transport and communication facilities are
3. Broadenign the base of share capital and stock market vital for progress, development and expansion of
4. Decrease in political pressure on the administration of industries but Govt. does not adequately provide these
enterprises facilities. Whaterver transport facilities are available
5. Use of latest technology and know-how by private they are very expensive. Power supply is short and
owners expensive and there are too much breakdowns in its
6. Decrease in deficit financing supply, this increases cost of production, hencle prices
7. Increase in infratrucure facilities of final products increases.
3) Lack of Technical Knowledge:
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Workers are not skilled and trained. They do not with each other on petty matters. This results in strikes
know how to operate machines properly. They are and lockouts and industrial disturbance, which
inefficient and incapable for doning jobs in industrial ultimately increase cost of production similarly there is
sector. They are neither hardworking nor they adopt no political stability in the country. No firm industrial
industrial way of life. Their background is agrarian and and economic policy is adopted. When Govt changes,
they want to go back to their villages after earning some economic and industrial policies change hence
oney from industries of the cities. This results in the businessmen are always hesitate to invest in industries.
reduction of output and increase in cost of production of 7) Non-Cooperative Behavior of Gerneral Public:
final goods. Pakistanis are generally poor people their income
4) Lack of Subsidiary & By-Product Industries: and purchasing power is very low, therefore their
In order to reduce cost of production a policy of demand for industrial goods is also very low. Those
specialization should be adopted and different processes people who have purchasing power, do not support local
of production should be carried out in different industries due to their demonstration effect, they prefer
industrial units. This is however not done in industrial to purchase and use the imported industrial goods. Thus
sector of Pakistan rather the entire process of production the narrowness of demand hampers the development of
from the beginning up to the final product is done in one industries.
factory. This policy is a negation of specialization. 8) Lack of Industrial Research:
Similarly there is shortage of by product industries. By Industrial research results in the new methods
product are those industries which use waste material of and techniques of production of goods quality products
large industries as their input and produce final goods. at the lowest cost. Local raw material is used for
Automobile industries should be divided into spare parts production of goods. Since there is dearth of industrial
industry and tyre and tubes industry. This results in research in the country the improvement in production
reduction of cost of production of the main automobile techniques and the use of local raw material could not be
industries. In Pakistan there is short of by product possible. This ultimately increase the cost of production.
industries. 9) Poor & Unskilied Level of Management:
5) Insufficient Spare Parts & Repair Workshops: Industries are not managed, supervised and
All most all industries of our country are based controlled by the experienced talented and professional
on imported machinery. In case of any break down spare persons. They lack quality of decision-making and
parts are not easily available wheras workshops do not leadership. Some time delay in decisions increases cost
exist to repair them. The production stops till machines of production and industry suffers a lost. There is also
are not put into operation, which increase cost of lack of marketing and industrial consultancy firms in the
production of final goods. country who could guide and advise prospective
investors for setting up the gainful and profitable
6) Racial Disturbances & Political Instability: industries.
Industries are located in main cities whereas 10) Over Capitalization:
labor force from different regions of the country to Industries of Pakistan are based on imported
work. Due to difference in regional languages, casts, and machinery and raw material. Industrialists not only
race they make their own groups. These groups clash import machinery but they also import excessive
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quantity of spare parts and raw material so that they may which are directly or indirectly assisting industrial
not face any production problem due to non-availability sector. The most important research institutes are
of spare parts and raw material. This situation of over- Pakistan council of Scientific and Industrial Research,
stocking, results in capitalization of funds which Centeral Testing Laboratories, and Pakistan Standard
ultimately increases cost of production and hence prices Institute.
of final products. 5) Protection Policy:
Q10: What steps would you suggest to remove these In order to protect new and infant industries,
obstacles? Government has adopted the protection policy for new
Ans: Steps & Measures for Industrial Development: industries ie.e. Goods, which are producted by the local
 Industrial trading estates industry are not allowed to be imported, so that local
 Technical training centers industry may grow quickly.
 Tax concessions 6) Export Processing Authority Zones:
 Research institutes Sparate export processing zones have been
 Protection policy established where those industries are established which
 Export Processing authority are engaged in production of exportable goods. Entire
 Investment promotion bureau infrastructure is made available their and all facilities are
 Provision of industrial credit given to these industries in order to increase export
 Investment friendly interest rate earnings of the country.
 Revial of sick industries 7) Export Promotion Bureau:
1) Industrial trading estates This Government department helps in the export
Government has established industrial trading of locally produced goods by arranging exhibition,
estates where the entire basic infrastructure such as seminars and inviting prospective foreign investors. It
roads, communication, water, gas, power, banks, police also arranges exhibitions of Pakistani products in
protection etc. has been provided. Most famous international markets and di9seminates different types of
industrial estate of Pakistan is Sindh Industrial Trading information for progress and development of industrial
Estate. sector.
2) Technical Training Centers: 8) Provision of Industrial Credit:
In order to remove shortage of technical labor, In order to meet loan requirement, both in local
Govt. has established Polytechnic Institutes & colleges and foreign currency, Govt. has established many
in various industrial cities. financial institutions such as industrial Development
Bank of Pakistan, paksitan Industrial Credit and
Investment Corporation, Investment Corporation of
3) Tax Concessions: Paksitan, National Investment Trust etc.
In order to develop industrial sector, Govt. has 9) Investment Friendly Rate of Interest:
granted tax holidays and concessions to the industries. Government has reduced rate of interest so that
4) Research Institutes: the investors may feel happy to borrow and invest in
For progress and development of industries industrial sector. Low rate of interest increases margin
government has established many research institutes,
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of profit thus businessmen establishes more industries in

the country.
10) Revival of Sick Industries:
Many industries, which has were closed, are now
being revived. Their dues of taxes, loans and interest etc
have been drastically reduced and they are now being
put into operation. This is being done so that the
industries may become prosper and export earnings of Chapter: 12
the country may increase.
11) Privatization Policy:
Most of the State owned industries are inefficient
SMALL – SCALE & COTTAGE
and are running in losses, when these will be transferred INDUSTRIES
to private sector, their administration will improve and
non-development expenditures decrease to a greater Q1: Examine the role of Cottage and Small Scale
extent, their efficiency will increase and such industries Industries in the economic development of Pakistan?
will be converted into profitable ventures. Ans: Small- Scale Industry:
In an industrial policy statement of the Government, the
definition of small-scale industry has been stated as
under.
“An industrial project with fixed assets (excluding land
and buildings) the original cost of which does not
exceed Rs. 2 million before grant of loan”
The maximum capital investment limit of Rs.2 million
has been fixed to a small-scale industry and therefore, it
can be treated more or less like a medium scale industry.
Cottage Industry:
The planning commission of Pakistan has defined
cottage industries as
“Those industries which are located in homes, usually
operated with the help of members of the family and
man-made instruments are cottage industries”.
1) Rich contribution to the economy:

Currently, the contribution of small-scale industries

comes to 32%of the value-added in manufacturing
sector and more than 6% to GDP. It is mainly in the
private sector which employs more than 81% of
industrial labour force.
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2) Dissemination of Strong socio-economic impact: force and contributes 21% to GDP. Though agriculture
is the major sector of the economy. Yet it has not been
The development of small-scale industries can help in developed on proper lines. The socio-economic
disseminating the impact of strong socio-economic conditions of the rural population is far form
benefits in the country for which it is really needed. satisfactory. The rural population is faced with multiple
3) Effective means of stimulating entrepreneurship: problems such as low productivity, under employment,
income disparity, lack of education etc.
The development of small-scale industries can also serve Agro-based industries are those industries which have a
the purpose of effective means of stimulating backward linkage with the agricultural sector. The ago-
entrepreneurship in the society which at present is based industries include rice and wheat milling, gur and
mostly confined to buying and storing activities. sugar making, oil crushing, cotton ginning, hosiery,
4) Helpful in solving over-population problem: poultry, fish processing, dairy products etc. et c.
(1) Crops (2) Non-Crops (3) Livestock
Pakistan is a country whose graph of population growth
(4) Fishery
is alarmingly ascending. By developing small-scale
industries this trend can be checked to some (5) Poultry (6) Edible oil. We now describe the
mentionable extent. importance of reach are of agro-industries in brief.
5) Helpful in serving the purpose of downstream units: 1) Crops:

The importance of establishment of the small-scale The villagers can manufacture a variety of products
industries is all the more great, particularly in a form husks of wheat and rice. The residues of cotton can
developing country like Pakistan; for the reason that be used for making cotton linters, oilcakes, livestock
these industries sere the function as the downstream feed etc.
units of the large-scale industries. 2) Non-Crops:
6) Helpful in solving unemployment problem:
The wastes of certain fruits like bananas and citrus can
Small-scale industries, being labour intensive can help be used for making pulp oil. The fruits can be dreid and
in solving the acute unemployment problem, which is their supply can be maintained throught the year. They
increasing day by day. are also a good item for export.
7) Benefit of absolute advantage of cheap labour cost: 3) Livestock :

Pakistan is the country where labour is available at Livestock industry is less capital intensive Goats, sheep
comparatively cheaper cost and an acute unemployment buffaloes can easily be reared up by the small farmers
problem is swinging in full. and tenants.
Q2: What are agro – based industries? 4) Fishery:
Ans: Agro – Based Industries:
Our economy is predominantly agricultural in character. Pakistan has a sea coast of 550 miles. It is rich in
There are in all 45000 villages having a population of fishing. Fishing can be carried out deep into the sea for
about 7 crores. Agriculture engages 45% of the labor
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increasing the supply of fish both for consumption at 7) Debt equity ration for all industrial units has been fixed
home and export. at 70:30
5) Poultry: 8) Five Micro Credit Banks have been set up to provide
Rural poultry can provide an additional source of credit facility to the small enterprises in the country
income to the farmers. Poultry farming is growing quite 9) SMEDA (Small and medium Enterprise Development
rapidly in the country. Authority) has been reorganized to provide technical
6) Edible Oil: assistance to poterntial small investor.

The farmers at present are not considering sunflower,

soybean and sunflower as cash crops. If production of
their seeds for extracting oil is carried on commercial Q4: What steps the Government of Pakistan is taking to
lines, it can fetch higher income than other traditional promote these industries? Explain.
crops. Ans: The medium and large scale industries are the second
Q3: Discuss steps taken by Government to Assist agro and third stages while the small and cottage industries
based industries? are the first state for overall industrial development. It is
Ans: The government of Pakistan is quite aware of the but, natural that if the first stage is not stable, how the
importance of agro-based industries. It has taken the
second and third stages can be in other words, if the
following measures for the promotion of agro-based
industries in the country. industrial development is to be flourished, it is a must
1) The infrastructure facilities such as roads, that the small and cottage industries should be
communication and electricity are being provided in the developed first.
rural areas. The development of infrastructure is a This fact has never denied in Pakistan that the
prerequisite for the development of agro-based small and cottage industries, for the development of the
industries. industrial environment, occupy the decisive place and
2) Cold storage and warehouse facilities are being provided the dream of overall economic development can’t be
near the processing plants. culminated into reality without the development of the
3) In order to ensure balanced growth, the agro-based small industries. Under the same belief, the Government
industries are being developed according to availability of Pakistan created 4 separate corrporations for the
of raw material in the region. development of the cottage and small industries in all
4) Five year the holiday is available to all industries set up the 4 provinces of Pakistan. Briefly speaking, for the full
in rural areas. comprehension of the role of government for the
5) Imported machinery for rural industries is exempt now development of small industries, the roles of these
from custom duty. corrporations are to be kept in view.
6) No question is asked for souce of income. These corporations were assigned the following
functions.
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1) To promote small industries throughout the province. Some of them are being discussed in the following
2) To collect statistical information’s pertaining to small paragraphs.
and cottage industries by conducting different surveys. 1) Problem of Standardization:
3) To make and implement development schemes for small Non-standardization is also one of the reasons which
and cottage industries. make cottage industries unpopular. Non-classificaton of
4) To provide training through the government program cottage industries into standards creates a doubt among
and project for achieving both traditional and non- the buyers. They are not sure that they will have next
traditional skills. time the same thing. Consequently they avoid the use of
5) To guarantee supply of raw material for craftsmen and substandard goods.
artisans. 2) Inadequate Credit Facilities:
6) To provide credit facilities to the small industries The cottage industries need credt facilities to
through commercial banks. Specialized credit insitutions cover business expenses, meetin personal and family
and the industrial development banks of Pakistan. needs and purchase of tols and rew meterials. The credit
7) To provide marketing facilities to the craftsmen with the sources included money lenders, commercial banks,
help of corporations own shop and the exhibitions. cooperative societies and specializaed credit insitutions.
8) To create industrial estates for the small industries. Personal resources are limited, cottaged units owners
9) Arranging education and training in product designing. have not credibility in the commercial banks,
The government has provided various incentives membership of the cooperative societies is limited and
to the investors for installing the industries in the the special credit institutions are reserved for big
industrial estates of Dadu, Kandhkot, Mirpur Khas and industries and business.
Khairuu. These incentives include the examptions from 3) Ulitercy of the Enterpreneurs:
the taxes and the rebate on the duty imposed on import The people who establish and run the cottage
of machines. For the assistance of small investors, 32 industries are generally illiterate. Due to the lack of
feasibility reports have been prepared on the different education, they constantly follow the same traditional
industries based of related to agriculture. These reports and outdated tracks drawn by either their (USTADS)
reveal that which industries will be suitable to install in teachers or forefathers. Consequently, the cottage
a particular industrial estates? These reports can be had industries are deprived of inventions and cottages
from any office of the corporations office spread over industries are deprived of inventions and innovations
the province. and remain the vicitim of slow progress.
Q5: Problems of Cottage Industries in Pakistan? 4) Differential Costs:
Ans: Cottage industries of Pakistan are confronting a large The cottage industries, due to lack of mutual
number of complicated problems which are restricting coordination every producer uses, different metod of
their progress and limiting their expansion and growth. productions. As a result of this situations, two differen
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producers produce the same commodity at different are taken just to supplemen the income of artisans and
consts, the prices, due to difference of costs, also differ. craftsmen.
When the buyers face different prices, they loose
confidence and switch over to machine made goods
because machine-made goods, due to the dame costs,
command the same price also.
5) Unpatronizing Attitude of the Measses:
As the Pakistani buyers prefer to purchase
machine-made goods as compared to the hand-made Chapter: 13
items,the cottage industries don’t have patronage of the
masses. Nevertheless, this also can’t be denied that the SOURCES OF INDUSTRIAL
machine-made are better than handmade in quality and FINANCE
cheaper in price. Due to this reason, the cottage
industries are not patronized. Q1: Name internal and external sources of industrial
6) Lack of Marketing Facilities: finance in Pakistan?
The cottage industries owners, because of lack of Ans: Sources of External Finance:
finances, are not capable to bring their goods in the There are three major sources of external finance to
Pakistan’s industrial sector. They include.
market. There is no proper arrangement for
1) Consortium or Paris Club Source:
standardization and designing and they are not capable
to use wide publicity for their products. In this maner, This is the biggest source of external finance to
they have only local markets to sell. The local brokers Pakistan. It includes 10 industrial developed countries
purchase their goods therefore the middle men take lion and 5 international finance institution. 10 industrial
share in the profits. developed countries include
Belgium, Canada, France, Germany, Italy, Japan,
7) Subsistance Level of Operation:
Netherlands, Norway, Sweden, united Kindom and
Most of the cottage industries produce just to United States of America.
provide with a bare necessities of life or to supplement Five international Finance Institution include:
the income due to which on the one hand production  International Monetary fund.
falls and on the other, cost increases. The owerns of  Asian Development Bank (ABD)
these industries bridge up te negative gap of income and  International monetary fund (IMF)
expenditure only by establishing to cottage industries.  International bank for reconstruction development
(IBRD), commonly known as the World Bank.
They do not run them on commercial basis, this attitude
 Internal Development Association (IDA)
is common in the rural areas where the cottage industries  International Finance Corporation (IFC)
2) Non-Consortium source:
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This source comprises of following 10 countries. requirements and those derived from net export
Australia, Austria, China, Czechoslovakia, Denmark, earnings.
Finland, Rumania, Switzerland, Russian Federation and 3) Raising of Revenue for Development:
Yogoslavia. The government can mobilize financial resources
3) Islamic countries / Bank / Organisation: for development projects by taxing the projects operated
with the help of private foreign investment
This source consists of the following countries/agencies
Abu-Dhabi, Kuwait, Libya, Qatar and Saudi-Arbia, 4) Gap in Management:
Organization of Petroleum Exporting countries (OPEC) The private foreign investment not only provides
and Islamic Development Bank. capital for development but a package of managerial,
SOURCE OF INTERNAL FINANCE: technological skill, innovations in techniques of
Source of internal finance to Pakistan in industrial production etc to their local counterpart, by means of
sector consists of following financial institutions. training programme and the process of learning by
 Domestic nationalized/denationalize, specialized doing.
and private scheduled banks.
 Foreign Commercial Banks
 Development finance institutions.
 Stock-Exchanges
 Leasing Companies and Modarabas, and
 The National Saving Organisation.

Q2: How does Foreign Investment differ from Foreign

Aid?
Ans: Importance of foreign private investment:
The importance of foreign investment in the industrial
development of the country is controversial. The
traditional economic arguments given in support of
private investment are as under.
1) Fills savings – investment gap:
The flow of foreign private investment in the
country helps in filling the resource gap between the
targeted investment and locally mobilized savings. The
country is thus able to achieve growth and development
targets.
2) Filling Trade Gap:
The inflow of foreign private capital contributes
in filling the gap between targeted foreign exchange
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

The question of paramount importance is whether self

sufficiency in wheat can be acquired? If the following
measures are taken, it is possible.
1) Support Price Policy:

The government, at the time fixing the price of wheat,

should keep in view that the price should be fixed at a
Chapter: 14 level lwhich could motivate the farmers to grow heath.
An other step can also be taken that the export price of
wheat and the local price should be equal so that export
ROLE OF STATE IN of wheat may be reduced giving the impact as if local
DEVELOPMENT OF production of wheat lhas been increased.
2) Crop Management:
INDUSTRIES
Q1: To emerge as an Economically strong and viable Introduction of Crop Management amongst the
nation in the 21st century Pakistan must build new cultivators is highly neede so that both output and
DAMS and generate cheap electricity” discuss. quality of wheat may be increased and improved. Crop
Ans: Pakistan, basically an agrarian economy because more management means that the farmers should know that
than 24 of GDP is contributed by this sector. which crop can better be cultivated on what type of land
Approximately 70 per cent of population resides in rural and soil or which kind of fertilizer should be on a
arease getting employment directly or indirectly from particular land and what methods should be used for
the same sector. This sector contributes 42 per cent controlling the weed in the farms?
foreign exchange earning. Despite the fact that 4.04 3) Use of High Yield Varieties:
million agricultural farms are there in Pakistan, we have
Presently, the variety of wheat is being cultivated in
not yet been self sufficient in wheat requirement with is
Pakistan which, no doubt, give more yield but it is not
the min ingredient of common men food. He is a big
capable to face the plant diseases. It is, therefore, needs
negative gap between the demand for and available
that those high yield varieties should be used which can
supply of wheat due to which import of wheat is
protect them form plant diseases. The measure can
increasing year by year. In 2004-05, 280,000 metric
increase the wheat production.
tones of wheat were imported while in the same period
4) Vertical Break Through:
of 2005-06 200,000 metric tones was imported. Briefly,
Pakistan is not self sufficient in wheat. It should be kept Approximate wheat productivity in Pakistan is 1834 kg.
in view at this stage that self sufficiency is to a static per hectare while standard is 2600 Kg. per hectare. This
concept because it is determined by various factors like situation demands Vertical Break Through. In other
availability of seed, income, elasticity of demand, prices. words, better seeds, chemical fertilizer and scientific
Etc. methods of cultivation should be used, quality should be
stressed, losses during showing and reaping should be
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

saved and the un-irrigated (the areas depending on 9) Vertical Expansion:

natural rain) should be brought under wheat cultivation. As a result of fall in the fertility of land and other
5) Better Technology: agricultural problems, negative gap between the
Per cent of the total arease under cultivation of population growth and food supply is being increased
wheat copriese of the subsistence farms on which year by year. For solving this problem, vertical
cultivation is being carried on subsistence level. expansion rather than horizontal expansion is needed. In
other words, better seed, more fertilizers and modern
Outdated and traditional methods of cultivation are used
agricultural tools and machines should be used.
on these small farms. Use of modern agricultural
technology and scientific methods is a must to increase 10) Supply of Seeds on Subsidized Rates:
the production of wheat which is not possible without
assistance of the government. The farmers should be Wheat productivity can be increased by replacing
provided modern implements and other agricultural common seed by testified seeds which are prepared
specially for sowing purpose. Testified seeds are
inputs in the form of Taqavi Loans.
currently being used on merely 10 per cent of the total
6) Protection to the Crop Losses: land under wheat cultivation in Pakistan. Testified seed
is not used because it is beyond the purchasing power of
One of the important causes of fall in agricultural
the poor farmers. The government should provide these
production is different losses incurred between sowing
testified seeds at subsidized rates.
and reaping the crops like waste of wheat combs due to
Q2: What are the suggestion to make Privatization
their fall during reaping, mixing of wheat grains in husk
process a success ?
at the time separation of grains form husk. These losses
Ans:1 A Strong and Long-Term Political willful support:
can be saved by using harvesters and other machines at
Privatization process, particularly in Pakistan like under-
the time of reaping.
developing country, where dirty politics has its deep-
7) Control on smuggling:
rooted effects, is not a simple matter, rather it is a severe
Wheat is smuggled from Pakistan to Iran and pain taking, an extra-ordinary continuous patience-
Afghanistan every year in the large quantity crating the deserving, complex-nature and a long-term process.
local shortage of wheat in Pakistan. Controlling
smuggling may help food problem can be solved by 2) Formation of transparent and spotless privatization
raining the productivity to the level of population policy:
growth. Privatization process can only work smoothly if all
8) Increase in Rate of Wheat Productivity: potential components e.g., the government the company
going to be privatized, the investors particularly foreign
Production of wheat in Pakistan is increased at the rate investors, the employs and the public are fully aware of
of 2.2 per cent a year while the population in increasing the rules.
at the rate of 3 per cent. The food problem can be 3) Formation of Legal Framework:
addressed if the rate of wheat production is raised to the One of the keys to a successful privatization process is
level of population growth. the formation of necessary legal framework compatible
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to international standard with all necessary clarification 4) Should be helpful in dispersion and diversification of
about legal status of companies, property rights, foreign industries:
investment procedure, corporate tax, dividend transfers, An effective industrial policy should serve the
and employees right etc. purpose of dispersion and diversification of industries.
4) Formation and implementation of a liberal economic 5) Should contain adequate incentives:
policy: That industrial policy is considered the most
A liberal economic policy can help in disposing of state- effective one, which contains adequate incentives for the
owned units at reasonable price. Experience provides installation and expansion of industrial units in the
ample example about the fact that private-owned country.
companies cannot operate successfully in a rigid and
state-oriented economic environment.
5) Application of Step-by-step approach:
Privatization process must be based on step by step 6) Should lead to wide distribution of ownership:
approach e.g. its pace must remain quite flexible and An effective industrial policy should lead to wide
adaptable to the situation of units, the economic distribution of the owner ship of industries instead of its
environments; the absorption capacity of the market, the concentration to certain section of small group of
administrative capacity of the authorities and the entrepreneurs.
management of the units targeted for privatization.
Q3: Discuss Characteristics of an Effective industrial
policy ?
Ans:1 Should lead to welfare of the people:
An effective industrial policy is that which leads
to the welfare of the people by providing them
opportunities for gainful employment and higher income
2) Should Strengthen the linkage:
An effective industrial policy should have the
quality to strengthen the linkage of the industrial sector
with other sectors of the economy in general and with
agro and agro-allied and mineral based industries in
particular.
3) Should lead to a balanced industrial growth:
An effective industrial policy must lay down the
rules, terms and conditions related to the location of
different types of industrial units in a clear cut way so
that there may not exist any ambiguity. It should also
indicate they way in which the industries are to be
developed and dispersed in different areas of a country.
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If a country has efficient transport and

communication net work, it helps in the best utilization
of available resources and contributes to productivity
improvement in all the sectors of the economy.
2. Reduction in Production Costs:

The countries which are well connected with

each other by rail, roads, canals and internet, are
positioned advantageously in terms of over all
competitiveness of goods, production of quality goods
and reduction in production costs.
3. Stimulates Internal and External Trade:
Chapter: 15
Efficient Transport and communication system
brings additional buyers and sellers into contact with
TRANSPORT & one another both at home and with the rest of the world.
COMMUNICATION The cheap and quick means of transport and
communication, thus, encourages growth of modern
Q1: Highlight the role of means of Transportation and exchange economy.
Communication in the economic development of 4. Exchange of goods between rural and urban areas:
Pakistan?
If the means of transport and communication are
Ans: The transport and communication system are of basic
quick, cheap and improved, they facilitate the exchange
importance in the development process of a country.
of goods between the urban and rural areas of the
They play an importance role in socio economic
country. The surplus agricultural goods are transported
development of the country. The transport and
to the cities and the goods manufactured in urban centers
communication sector consists of two sub-sectors i.e.
are moved to the villages. The people living in cities and
Transport sector is composed of roads network,
villages, thus, both benefit from the efficient means of
railways, air transport services and posts and shipping
transport and communication.
services. The communication sector includes postal,
telephone, and telegraphic services and mass media i.e.
5. Geographical Specialization:
T.V. and radio and information technology. Transport
and communication sector in Pakistan account for If the means of communication and transport are
10.2% of GDP. The role of transport and well developed in a country, they lead to specialization
communications in economic development is summed of agricultural and industrial production in rural and
up under the following three heads:- (1) Economic (2) urban center. Specialization enlarges production and
Social and (3) Political reduces costs per unit.
A) Economic Benefits: 6. Increase in Agricultural Production:
1. Productivity Improvement:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Improved transport and communication facilities traffic is now (2010-11) reduced from 41% to 10% for
make available the improved agricultural input at the passengers and from 73% for freight traffic.
door-step of the farmers. The agricultural production is 1) Railway’s Share in the Transport Sector Allocation
thus increased by efficient transport. Reduced:
B) Social Benefits:
The railways share in the transport sector
The improved means of transport and allocation in the Second Five Year Plan 1955-60 was
communication help in achieving the following social 76% against the road share of 21% in the Eighth Five
benefits of a developing country. Year plan 1993-98, it has come down to 30% and
1. Spread of Education: allocation for road transport was around 57%. The
reduced allocation is only Rs 9.28 billion in 2004-05
The well developed means of transport and 2) Depleting Stock:
communication greatly help in the provision of
education facilities at the primary, secondary and Due to low investment, the railways rolling has
university level. Students can come from far off distance gone down. The locomotive fleet which numbered 1076
to receive education. They can also benefit from the during 1965-70 came down to 531 by 2005-06. The
special programmes of education broadcast from radio replacement of the depleting stock of locomotives is
and television of the country internet etc. another serious problem of PR.
2. Sense of Unity and Brotherhood: 3) Worn Out Rails and Sleepers:
The cheap, fast and improved means of transport The condition of other major assets of PR i.e.
and communication help in the mobility of persons rails, sleepers, wagons ketch is still more worse. About
within and outside the country. When the people of 60% of its rails and sleepers have outlived their
different regions of the country and of various nations operational normal life. The other machinery of PR is
freely meet, they develop brotherhood and sense of unity almost overage by 50%. The immediate replacement of
which is of utmost importance for establishing peace the operational assets like track, signaling system,
and stimulating economic activities among the countries. locomotive etc. is a big constraint in the smooth working
C) Political Benefits: of railways.
1. Maintaining Law and Order: 4) Operational Activity to be Separated from its
Production units:
The fast and improved means of transport and
communication help in restoring peace and maintaining At present the operational activity of PR is
low order in the country. The pace at home is regarded a combined with its production units. Both the units are
key factor of economic development. unman gable.
Q2: Identify the problems of Pakistan Railways and 5) Uneconomical Sections:
suggest remedial measures?
Ans: Pakistan Railways was the primary mode of transport in
the country till 1970’s declined. Its share of inland
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Due to political pressure, the PR is operating sector can here also be involved to improve its
certain branch routes which are uneconomical. The efficiency.
problem of closing these routes in itself is a problem. 3) Uneconomic Section:
6) Corruption:
The uneconomical sections and stoppages be
Corruption in various branches of PR i.e. done away with.
reservation of tickets, parcel bookings, resale of tickets 4) Introduction of Fast Inter City Trains:
etc remain unchecked. The minimization of corruption
can improve the services offered to the passengers and Emphasis on lower air conditioned coaches,
businessmen. improving customers services can increase the revenue
7) Lack of Commercial Skill: of the PR.
5) Issue of Tickets to Private Sector:
There is lack of commercial skills in most of the
employees. The private sector on important routes can also
8) Lack of Accountability: be involved for issuing of tickets and supervision of
trains.
There is lack of financial and administrative Q3: State the various means of Transport and
accountability which is creating problems of Communication Pakistan?
inefficiency, malpractices and indiscipline. Ans: The different means of Transport used in Pakistan are as
9) Unhealthy Union Activities: follows.
Road Transport:
The unhealthy union activities in the In Pakistan, trucks, trailers etc are used in road
organization has adversely affected the performance of transport. Goods are usually transported through trucks
railways. in places where there is sufficient road network. Road
How to Improve the Performance of PR: transport is a very convenient means of transportation
Lack of investment and corruption in various but due to the lack of road networks all over the
branches of railways has ruined the PR. The following country, it is unusable at few places.
suggestions are given for the improvement of railways.
1) Privatization of PR: Railway:
Railway system is also used for transporting
Due to financial constraints, it is not possible to huge quantities of goods. There are separate dedicated
replace the outlived locomotives, sleepers, tracks etc. it trains for transportation. In places where there is no or
is, suggested that Pakistan Railways be privatized in insufficient road network, railways system is used.
parts. Ships and Ports:
2) The Production Units be given Autonomy: Ships are used for transport of goods between
countries. For sea transport to exist, ports are necessary
The production units like the sleeper factories, where ships can land and the goods can be unloaded. In
locomotive factory etc be given autonomy. The private Pakistan, there is a port in “Kemari” (Karachi).
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Government of Pakistan has also made another port in At present, there are 3 sea ports operating in
“Gwadar” (Baluchistan) Pakistan keamari Port, Port Bin Qasim and Gawadar.
Airplanes: The details of these three posts are given as under.
Air transport is also used in few rare cases for Karachi Port:
the transport of goods. Usually, it is used by companies Karachi port is the biggest sea port of Pakistan
to ship goods to customers which are to very much in which covers about 60 per cent of the national trade. It is
quantity and when goods are of the perishable nature. a port which satisfies the international standards. This
Air transport is most expensive. port is located in the west of River Indus on its delta in
The different means of Communication used in the Arabian Sea. Karachi port is the safest port because
Pakistan are as follows: the depth of sea at Manora and Kemari is according to
Traditional Mail Service: the international standards for the ships. At Monora and
Pakistan Post Office is in charge of the Kemari the force of water is died down. All kinds of
traditional mail service in Pakistan. In past, the ships and tankers can reach without andy risk.
performance of Pakistan Post office was not very Port Bin Qasim:
appreciable. But, recently the quality of service has As with the passage of time, cargo load increased
improved. People enjoy various service of the post on Karachi Port the new port was badly needed. After
office like sending letters, money order etc. getting various sight surveyed, Phitti Creek near
Telecommunication Networks: Pakistan Steel was selected for the new port of Pakistan
Telecommunication network is used for and Port Qasim Authority came into being in june, 1973.
telephonic conversation. With the advancement in IT, Port Muhammad Bin Qasim is the second deep port
telecommunication services in Pakistan have improved which began in 1977. The first phase of the prot was
and the charges have also declined sharply giving completed with 12 berths in 1982 at the cost of Rs.2,700
telephonic facility into the hands of common people. million.
Electronic Media: Gawadar Port:
Electronic media consists of radio and television. Gawadar Deep Sea Port, for accomplishment of
There used to be one or two channels in Pakistan till national needs, is a strategic need of Pakistan. Apart
90’s. but, nowadays, there are more than 20 channels from multidimensional advantages, political,
working in Pakistan and the availability of information geographical and defense advantages would also be
has become ever easier . achieved by completion of Gawadar Port. The work is
Internet: going on rapidly on this project which was initiated on
The usage of internet has also increased in March 22, 2002 and it is hopped that the project would
Pakistan. Business use e-mail for correspondence. They be completed in due course of time. This port become
make websites which serves as an electronic shop which capable to receive the ships in January, 2003 and for this
remain opens 24 hours a day and transaction can be purpose, tones of cargo was received by ships.
done online with a click of a mouse. Importance:
Role of Shipping in Economic Development: Water transport is a cheap of transportation.
Capital goods, heavy machinery and bulk raw and
finished goods can easily and cheaply be transported
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

from and out of the country to the foreign countries. Its 2009 REG Q 7B
importance can be judged from the following facts.
Q4: Elaborate the role of shipping in the economic Q6: Highlight the importance of Electronic Media in
development of Pakistan? Pakistan?
Ans:1 Increase in Economic Activity: ANS 2009 P Q9 B
If country has a sufficient and sound
infrastructure in the form of ports and waterways, the
economic activity increase because many ships with tons
of goods move in and out of harbors of the country.
2) Increase in Foreign Exchange:
Water transport increases the foreign trade, as it
increases the imports and exports of merchandise from
one to the other pars of the world. International trade
flourishes and trading partners are benefited a lot.
3) Decrease in Transportation Cost: Chapter: 16
Transportation cost reduces too much. Thus
goods become cheap which improves the international
trade between the various nations of the world.
FOREIGN AND OR FOREIGN
4) Increase in Government Revenue: ECONOMIC ASSISTANCE
When foreign trade increases, it not only benefits
general public, but it also becomes a great source of Q1: Discuss the cost and benefits of Foreign Economic
revenue for the government by way of customer duties. assistance in the light of Pakistan’s economy?
5) Increase in Employment Opportunities: Ans: There is a controversy over the impact of inflow of
Too many people get jobs in shipping industry, capital for the development of a country. It is argued that
as well as in loading the goods from the ships. Thus capital is one of the variable in the growth process. It
directly and indirectly lost of job are created. This alone cannot act as decisive factor to economic
increase the general welfare of the people of the country. development. For instance, if the government of a
6) Increase in Foreign Investment: country is ineffective and inefficient, education standard
is low, justice is denied to the people and people are not
Foreign countries shipping offices are opened receptive to social changes, the inflow of capital
and investments in infrastructure facilities are set up, resources and technical assistance would go waste. In
which causes an increase in the foreign investment of case, the developing national have the will to absorb
the country. capital and technical knowledge and the social and
Q5: Proper rods and flyovers have an extra ordinary political barriers are overcome, capital then becomes the
importance in enhancing the overall Economic touchstone of economic development.
activities. Discuss? 1. Increasing the level of Investment:
ANS
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Most of the developing countries are facing the countries are equipped with every thing but developing
problem of low rate of savings and as a result there is nations have nothing. Developed countries are exporting
low level of investment. Foreign loans are required to while developing are importing economies and the
supplement domestic savings for bridging the resources masses of developing nations are compelled to live
gap between the desired investment and the domestic below poverty line. Income of less developed countries
savings. is less than their indispensable consumption. they, to
2. Building Infrastructures: bridge this negative gap between income and
expenditure, ask for international loans.
Foreign loans can help the country in developing There is a wide economic gulf, between developed and
various infrastructural facilities which require huge developing countries. There are two ways to achieve this
investment such as transportation, communication, objective.
power generation, irrigation etc. First : Developed counties should decelerate the
3. Undertaking Risky Projects: pace of their economic Development
Second: Underdeveloped countries should
Due to shortage of capital and low expertise, the accelerate the pace of their economic
domestic capital is usually shy of undertaking risky development
projects, like oil and gas exploration, mineral resources The first option is not practicable because
etc. the country with the help of foreign capital and developed national can’t be the hurdle for their
necessary expertise can undertake such risky projects economic progress themselves. The underdeveloped
and explore the nature resources for economic countries, therefore, have one choice, to expedite the
development of the country. pace of their economic development. For having the fast
4. BOP Support: pace of economic development, they need huge financial
resources which are not with them. Apart from it, huge
Most of the developing countries including projects are needed for fast pace of economic
Pakistan due to heavy import of machinery, chemicals development like energy, irrigation, technology project.
and other necessary equipments are facting deficits in Underdeveloped countries, for this purpose, need loans
the balance of payments years after years. The foreign from foreign countries.
exchange gap caused by excess import / export is filled Advantages of International Loans:
up with the inflow of foreign capital from IMF. Following are the advantages of international
5. Development of Basic Industries: loans:
1. Huge projects can be initiated and completed with the
Foreign loans can assist in building the basic
industries like iron and stell, petroleum, heavy help of international loans.
engineering etc. in the country. 2. Foreign loans are received in money or commodities.
Q2: Discuss the cost and benefits of “INTERNATIONAL Developing countries like Pakistan are the victim of
LOANS”? food shortage therefore, this problem can be solved
Ans: The modern world has been divided into two blocks through international commodity loans.
developed and under developed. The developed
economies are America and European Developed
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3. The big project which will be initiated through foreign 3. If the loan receiving government is not serious and
loans, will increase employment opportunities in the committed for the welfare of resources are wasted and
borrowing countries and the unemployed youth will get no benefit of such loans is achieved by the debtor
employment. country.
4. Increase in employment would increase the disposable
income of the people due to with demand for goods and Q3: Why Pakistan needs foreign aid?
Ans: Pakistan need foreign aid for various development
services would also increase. This enhanced demand purpose. Some of them are of the following nature.
would motivate the investors to invest and so further 1. For reorganization of the economic structure:
increase would take place in employment.
5. High investment and increase in employment would Pakistan needs foreign aid for reorganization of
bring the country’s human her economic structure which cannot be made possible
through limited indigenous resource. This reorganization
6. The people having low average income can’t save
process will lead to speedy transformation of economy
therefore, big development project can be initiated by agrarian to industrial one.
foreign loans only. 2. For implementing social uplift Programmes:
7. Educated and trained people, due to curse of
unemployment, leave the country and go abroad. The Pakistan also needs foreign aid for implementing
talent of the country, in this way, is drained out and no the social uplift programmes, which include education,
health and enlightening the people with modern social
returns are achieved through the resources consumed on
values. These programmes require to only huge money
them. investment but also the modern machinery, tools and
applicants.
Disadvantages of International Loans:
3. For Accelerating Economic Activities:
Disadvantages of foreign loans are given below:
1. According to one of Hadith of Mohammad (pbuh) hand Pakistan needs foreign aid to accelerate her
which gives rests up and the receiving hand rests below economic activities so that the production level can be
ir, other words, creditor country takes under economic raised effectively. Accelerated activities can be made
and political advantages from the debtor country and can possible through huge investment which requires
compel the Detor country to accept just or unjust adequate earning and saving level in the country.
demands. 4. For Strengthening the Defiance Force:
2. Interest is paid on foreign loans therefore, the huge Strengthening the defense forces is the primary
amount of interest is paid on huge loans. Consequently, need of the country which is not possible to be achieved
after repaying the installment of loans and the due from indigenous sources.
interest, nothing is left for investment. As a result of 5. Overcoming the Scarcity of Consumer and Capital
this, the countries involve in curse of loan have no way Goods:
to come out of this vicious circle of indebtedness.
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Pakistan needs foreign assistance in the form of The donor countries and international financial
commodity aid in order to overcome the problem of agencies must be persuaded to provide additional soft
scarcity of consumer and capital goods. The economy loans on concessionary rate of interest. These loans
has to rely on foreign aid for these things until it reaches should be used for repaying the obtained hard loans.
at equilibrium of full employment level. 4. Trade Barriers Must be Removed
6. For Removing the Shortage of Funds:
Currently, Pakistan has to face a number of trade
Pakistan needs foreign aid in the form of public barriers in terms of quota etc. imposed by the developed
and private investment for removing the shortage of countries. Pakistan is basically a labour intensive
funds and to provide adequate quantity of foreign country.
exchange for industrial, agricultural and commercial 5. Trade Liberalization Must be Benefited:
development project.
7. For Implementing the Development Projects: With the implementation of Uruguay Agreement,
globalization act will reduce the tariff and remove non-
Foreign aid in the form of technical assistance is tariff barriers.
also needed for the implementation of development 6. Privatization Proceed Must Be Used to Repay the
projects which have been completed through five-years Debt Only:
plans.
Q4: Suggestion to Solve Problems of heavy indebtedness? The amount, which is being received from
Ans: To get rid the problem of heavy indebtedness is not an selling state owned enterprise must be used only to
easy task. The following measures, however, can do a repay domestic and foreign debts.
lot, if are carried on the right direction with full devotion 7. Remittance Must Be Encouraged:
and vigour.
1. Political Disputes must be Settled Earnestly: Pakistanis working abroad must be encouraged
to send their remittance regularly through proper
Pakistan has to spend every year more than 35% channel. Illegal transfer of remittance must be
of her annual budget on defense due to persistent hostile discouraged vigorously.
attitude of India. Both the countries have been wasting 8. National Debt-Retirement Programme must Be
their scarce resources on purchasing arms and Implemented Devotedly:
ammunition from the foreign countries, at the heavy cost
of depriving their people from basic necessities. The Government of Pakistan launched a National
2. Donor Countries must write off their Loans: Debt Retirement Programme few year ago. Under this
programme. A special drive to boost exports, liberal
The donor countries should show the generosity incentives to attract foreign-investment and improving
be writing off their loans at least of those poor countries national – savings were the suggested measures.
whose per capital income falls less than 700 dollar. 9. Pakistan must be allowed to Use Aid-Funds
3. Additional Soft Loans must be Provided: According to its Will:
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Bulk of the aid which is received by Pakistan is with united aid, which can be spent in any wary.
tied by resources or utilization, for which Pakistan has to Tied Aid may be of less value than united aid of
pay, in most of the case, comparatively higher price.
equal amount, as tying restricts the choices open
Q5: Differentiate between “FOREIGN AID” and to the recipient country, though where the
“FOREIGN INVESTMENT”. recipient imports a lot from donor country,
Ans: Foreign Aid is economic assistance from one howerver in any case tying may not be effective.
country to another country, he recipient beign a As tied Aid reduces danger that giving aid may
less developed country. Aid is intended either to cause balance of payments problems for donor,
provide humanitarian relief in emergencies, to more aid may be available if it is given on a tied
promote economic development, or to finance basis.
military expenditure. Foreign Aid may take the 2) Un-Tied Foreign Aid:
from of out right gifts of money,which may be This type of aid is given to less developed
tied to purchases from donor or un-tied and countries, which has to be spent on good and
available for expenditure any where. It may take services from any country. This is contrasted
the form of soft loans, on terms easier than those with tied foreign aid, which has to be spent on
available to borrower in world capital markets. goods and services from donor country. Untied
Foreign Aid may also be given in kind, Foreign Aid may be of greater value than tied
including food, plant and equipment, military aid of an equal amount, as tying restricts the
supplies or technical assistance. Bi-lateral Aid is choices open to the recipient, effective. As
given directly by a donor to a recipient country. untied aid may cause balance of payments
Multi lateral Aid is channeled through an problems for the donor, less aid may be
international organization, without direct contact available if it is given on an untied basis.
between donors and recipients. How much Foreign Investment:
actual good in done by Aid varies widely from Foreign investment means acquisition by
case to case, and is often the subject of residents of a country of the assets abroad.
considerable controversy. Thses assets may be real, in the case of foreign
direct investment or financial, in the case of
acquisition of foreign securities or bank
deposists. Foreign investment may be carried
1) Tied Forein Aid: out by state or by private sector and foreign
This type of aid is given to less developed securities required may represent private or
countries which, has to be spent on goods and assets in a country, this is inward foreign
services from donor country. This is contrasted investment. Net foreign investment. Net foreign
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

investment is the excess or outward over inward they operate withing certain restrictions, which
foreign investment. are given below.
Advantages of Foreign Investment: Importance Advantages of Foreign
Foreign investment contributes towards Investment:
filling the gap between targated foreign 1) Foreign investment is an instrument through
exchange requirements and those derived from which gaps between economic objectives and
net export earnings plus net public foreign aid. accomplishments can be plugged. The gaps may
This is so called foreign exchanges or trade gap. lie in the form of domestically available supplies
An inflow of foreign capital can not only of saving, foreign exchanges, Govt. revenue,
alleviate part or all of the defici on balance of human capital skills and desired levels of these
payments current account but can also function resources necessary to achieve growth and
to remove that deficit overtime if the foreign development targets. If savings can be
owned enterprise can generate a net function to domestically mobilized, the rest of the capital
remove that deficit overtime if the foreign for achieving a desired target growth rate can be
owned enterprise can generate a net positive obtained through foreign investment.
flow of export earnings. Foreign investmen 2) Foreign investment contributes towards filling
provide not only financial resources and new the gap between targeted foreign exchange
factories to the poor countries, but also supply a requirements and those derived from net export
complete package of requisite skills tha can be earnings plus net public foreign aid this is called
transferred to their local countre parts through foreign exchange or trade-gap. An inflow of
the process of learning by doing and training foreign capital can not also function to remove
programs. Foreign investment bring knowledge that deficit overtime if foreign owned enterprise
aout sophisticated production processes while can generate a net positive flow of export
transferring modern technical equipment to the earnings.
poor countries as these are considered both 3) Another gap to be filled by foreign investment is
desirable as well as necessary for he host the gap between targeted Govt. revenues and
conuntries. locally raised taxes. By taxing profits of multi
national corporations and participating
financially in their local operations, the less
Q6: Foreign Investment plays a vital role in the developed countries governments are thought to
Economic Development of Pakistan, Argue. be better able to mobilized public financial
Ans: Foreign Private investment is very helpful for resources for developmental projects.
economc development of a host contry provided
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4) Fourth gap is in management, entrepreneurship, inequalities. They tend to promote interest of

technology and skill presumably required to be small number of well to do sections, ignoring
filled partly or wholly be local operations of masses. They divert resources aways from foods
private foreign companies. These multinational productions activities to the manufacture of
firms provide not only financial resources and products catering to the requirement of only
new factories to poor countries, but also supply few, thereby creating and imbalance between
complete package of requisite resources poor and rich classes and creating a flow of rural
including management, experience, urban migrations.
entrepreneurial abilities and technological skills 3) Another argument that goes against private
that can be transferred to their local counterparts foreign investment is that they produce
through the processes of learning by doing and inappropriate products which are demanded and
training programs. Multi national companies consumed only by a small rich minority of local
also bring knowledge about shophisticated population. They stimulate inappropriate
production process while transferring modern consumption patterns through advertising and
technical equipment to developing countries as their monopolistic market power. As a result of
these are desirable and necessary for the host all this, local resources tend to be mis allocated
countires. which in turn tends to aggravate the already
Dis-Advantages of Foreign Investment: sizable inequality between rich and poor on the
1) Those whow argue for foreign investment cite one hand and a serious imbalance between
availability of capital as resons for their support, urban and rural economic opportunities.
but capital so provided by multi national
companies can lower domestic savings and
investment rates by stifling reinvest much of
their profits. Foreign exchange position of
recipient counry may not increase as much as it
may reduce foreign exchange earnings on
current and capital accounts.
2) The most common argument made against multi
national companies is that the impact of
multinational companies on development is un-
even and multi national impact of multinational
companies activities reinforece dualistic
economic structures and exacerbate income
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3. To Reduce Unemployment:
Poverty leads to another problem i.e.
unemployment. Poor people lack in skills, training and
education and find it very hard to get employment of any
kind. Reducing unemployment and providing people with
skills needed for better employment and the employment
opportunities is also a major objective of economic
planning.
4. To Achieve Rapid Industrialization:
Before the industrial revolution, a country solely
depending on agriculture sector could have survived. But
Chapter: 17 after the industrial revolution, it become important for
every country to shift their economics from entirely
ECONOMIC DEVELOPMENT agricultural based towards industrial based.
5. To Increase Social and Welfare Services:
THROUGH PLANNING One major objective of economic planning is to
increase the living standards of economic planning is to
Q1: Despite putting Pakistan on the track of a free increase the living standards of people by providing them
market economy development of pakistan cannot be with adequate health, education, housing, electricity,
understimated. Disucss? telephone, gas, hospitals, recreational parks and other
Ans: The major objectives of economic planning in Pakistan are facilities.
discussed in the following lines: 6. To achieve self sufficiency in food:
1. To achieve Balance Growth: Pakistan is an agricultural country but it is not
Pakistan is historically an agricultural country. self sufficient in food. Pakistan has to spend huge amount
About 50% of the population is connected with of foreign exchange for the import of food items. One
agriculture. Historically, agriculture sector has had a major objective of economic planning is to achieve self
dominat share in GDP. One major objective of economic sufficiency in food.
planning is to achieve balanced growth in the economy by Importance of Economic Planning:
acieving growth in all sectors of the economy. Unplanned Economic has been exemplified as a
2. To Reduce Poverty: ship which is sailing in the sea determining no destination
In Pakistan, more than 30% people live below with the assumption that it would be reaching on the
the line of poverty. The poor people find difficulty in destination if there is any. An unplanned economy is
survival. Moreover, they lack in education and generally nothing more than aiming the target in dark. Since such an
never become capable of doing anything which can economy has no realization of real needs of the society, it
imp[rove their economic conditions. Therefore, the fails in achieving the social welfare. Profit rather than
vicious circle of poverty passes to generations after service is the central point in such an economy. The
generations. For economic development, poverty method and the objective under which such an economy
reduction in a basic prerequisite. works, can’t render any guarantee of development and
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growth. We may say that developed countries are not controlling on these unjust and unfair practices to earn
needing development but the developing economic like profits.
Pakistan are badly in need of development which is not 3. Optimum Utilization of Resources:
possible without planning. All the underdeveloped which The planners of a planned economy are well
is not possible without planning. All the underdeveloped aware of the fact that which goods are necessary and
counties has realized the need of economic development which are not for the economy. They, by discouragingh
and also soon. It is the argument in favor of planning that unecessary and encouraging necessary goods, can make
achieving economic development without planning is not the utlization of scarce resources optimum. Since the
only difficult but impossible. profits are made the central point of activities in an
For explaining the need and significance of unplanned economy, social welfare and losses are ignored
economic planning here we extend some arguments out of and the resources are allocated for the production of such
which some are general and other are specific pertaining goods which ensure the high profits. The resources to be
to the underdeveloped countries like Pakistan. wasted in the production of unnecessary goods can be
1. Resistant to Instability: canalizaed towards the production of necessary goods and
The ultimate result of Market Economy is optimum use of the resources, in this way, can be
economic instability bacuase the forces of demand and guaranteed.
supply do not remain in equilibrium all the times but they 4. State Judgement V/S Individual Judgement:
are subject of rapid auscultations casing instability. Planning is advocated on the ground that the
Demand and supply can artificially be controlled and so state can judge better than the individual in economic and
stability may be achieved. If the private sector is left freee, social spheres. Since the economic problem are more
business cycles, unemployment and economic problems serious and complex, they can be left on individuals. The
are created. Economic stability can be achieved by government having the experience of centuries as well as
keeping the business cycles balance for a long period collective thinking, is in a better position to judge the
through economic planning. Developed countries, no social needs as compared to the individuals. Collective
doubt, may not be desirous for developments but actions, as compared to the individual actions, obviously
sustaining the present level of development definitely is should be more rational and better and the state planning
there need. For keeping the existing pace of economic is the outcome of collective actions.
development, working of planning is also necessary for 5. Proper Coordination:
them. In an unplanned economy, millions of the
2. Remedy To artifical Shortage: producers act without having the knowledge about other
In a free under developed country private secotr, allied activites. Consequently, the result of collective
by hording supply, creates artificial shortage of goods and uncoordinated activities is nothing but frustrations and
it is borne by the people in the form of paying the high chaos. Limer, in this behalf gives a very interesting
prices. The producers motivated by profits adopt the high example:
profit policy forming cartels, trusts and the price “Unplanned economy is a car which has no
agreements. The planning authority can controal this driver but all passengers in the car are eager to move the
tendency in the interest of the society. The government, starring of the car according to their individual shish”
through planning, acquires the unlimited power for
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Obviously, if such a car reaches safe at the destination, it Ans:

would be a miracle. Economic decisions, in an unplanned
economy are uncoordinated, irrational, short sighted, Q3: Descrie various forms of economic planning?
complex and damaging for the economy. On the contrary, Ans: Various of Economic Planning:
the decisions of a planned economy are rational and Economic planning is the initiation, control and
balance for the economy. No over staffing and repetition regulation of economic activity by the state with a view to
of one function is avoided due to resources are not wasted. achieving a well defined objective within a given time
6. Eliminating Wasteful Competition: interval. The controal of the state on economic activity
Perfect Competition is considered as the most varies from country to country. In some countries there is
prominent advantage of the Market Economy but perfect a controlled planning with complete control of the state
Competition is not fund in the practical life. Just and fair over all the sectors of the economy.
competition may be made possible by the government but
through planning therefore, Market Economy may 1. Central Planning:
guarantee the just and fair competition through its Former USSR is the opiner in economic
intervention; economic planning. The waste of economic planning. The Soviet Government set up a Supremer
resources caused by undue and unnecessary competition Economic Council in 1917 to take up the responsibility of
may be saved by combining Market Economy and planning and regulating the economic activity in the
Planning at Various Stages. country.
7. High Rate of Capital Formation: 2. Indicative Planning:
Private Sector prefers present profits and Indicative planning also called induced planning
advantages over those of future but the government is at the other extreme of central planning. It is practiced
prefers future advanates over the present profit. The in France and Netherlands. In indicative planning, reliance
government sacrifices small benefits of present over the is made on the market mechanism for the allocation of
high advanatages of future. The profits of public resources in the country.
undertakings add in the national assets while the profits of 3. Development Planning:
private sector go in the pockets of the people and add In all the developing countries of the world,
expenditure and decrease investment. development planning is considered an essential means for
8. Decrease in Social Cost: acclerating economic development. The reasons are that
Social costs can be decreased through planning the market mechansim here does not function properly.
which emerge in the free society becaused of market Q4: Mention factors contributiong forwards effective
economy in the form of industrial accidents, unhealthy Planning?
environment, industrial pollution and the Cyclical Ans: Plan Formulation and Requisites of Effective
Unemployment. All these socio-economic problems are Planning:
the gift of Capitalistic Free Economy. Since planning 1. Setting up a Planning Commission:
enhances public contrl and ownership therefore, the evils In order to promote socio-economic development
of capitalistic economy may be eradicated and controlled in the country, in a planned manner, it is very essential to
by Planning. set up a planning commission (PC). The function of the
Q2: Define the concept of Economic Planning? PC should be preparation of periodic national prespective,
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medium term and annual plans for the social and with the improvement in the socio-economic conditions of
economic development of the country. the economy.
2. Collection of Accurate Statistical Data: 1. Achievement of full Employment:
Another prior condition for the successful In the economically advanced countries of the
economic planning is the collection of adequate, accurate world, the major objective of planning is to increase the
and reliable statistical information about the existing productive capacity of the economy in such a manner that
eresources of the economy. it achieves full employment non-inflationary NNP. In the
3. Objectives of Planning: less developed countries, however, the main objective of
Antoher prerequisite for successful planning is to planning is to create employment opportunities by proper
lay down goals and ojectives to be achieved during the allocation of resources and reduce unemployment.
plan period. 2. Increase in National Income:
In the developed countries, as a result of the
4. Fixation of Targets and Priorities: increase in the quantity and quality of resources and
For sound planning, it is essential that growth technological progress, planning is aimed at maximization
targets to be achieved during the paln period should be of national income.
clearly laid down. 3. Reducation of Inequalities in Income:
In the less developed countries, the inequalities
5. Mobilization of Resources: in income and wealth have widened. The most unfortunate
The success of the plan depends upon the timely, feature of poverty is that it tends to be self perpetuating,
availability of funds both from the internal and external i.e. poverty breeds poverty.
resouces. A government can raise finances from domestic 4. Minimizing Regional Economic Disparities:
resources through increasing voluntary savings, from One of the important objecties of planning is to
profits of public enterprises, taxation, bank borrowing, reduce regional economic disparities. If one region of the
reducing budgetary deficits and narrowing the negative country is developed at the expense of others, it will create
import and export gap. heart burning and hatred among the people of the less
6. Proper Balancing in the Plan: developed or neglected parts of the country.
The planning authority should formulate the plan 5. Self Sufficiency in Food:
in such a way that all the important sectors of the In most of the developing countries of the world,
economy ae properly developed. The imbalances if any, priority is being given for increasing domestic food
should be reduced to the minimum. production.
Q5: What are the Objectives of Planning? 6. Redressing Imbalance in the economy:
Ans: A planning authority makes a comprehensive survey of A realistic development plan aims at reducing
the available resources and draws up objectives and imbalance in the economy. If one sector of the economy,
targets of the plan to be achieved in a time period which is say agriculture, is developed and the other important
usually five years. The objectives of planning are varied sector industry is neglected, the country will not achieve
and complex. They differ from country to country. Even maximum rate of development.
in the same country, the objectives of planning change 7. Provision of Social Services:
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In the less developed countries, the provision of replacement of the worn out and outdated machinery. The
social services forms an important objective of planning. labour became aggressive and hostile to the capitalist
8. Population Welfare Programme: class.
In the developing countries of the world, there is In late seventies, the Martial Law Government,
a greater recognition of the importance of population modified the strategy of the People’s Party Government.
planning to development. They encouraged private sector to take up investment and
9. Long Term Economic Growth: play positive role in increasing the rate of economic
Another major objective of the planning is to lay development.
the foundations of long term economic growth. This The Sixth Five Year Plan (1983-88) aimed at
objective of planning can be achieved by mobilizing rapid equibale development of the country and progressive
resources for development purposes through self help Islamization of the economy.
basic decentralized administrative set up. The Seventh Five Year Plan (1988-93) laid
10. Increase in National Savings: emphasis on efficient growth of output and improving the
Domestic savings is an important source in the quality of life of the people. The 8th Five Year Plan 1993-
capital formation of a country. Different Five Year Plans 98, focused on strengthening of private enterprise and
envisage an increase in domestic savings through market mechanism.
propaganda compaign.
11. Wider Outlook: Q7: Factors Inhibiting Effective Planning in Pakistan?
The planners in the developing countries are Ans:
attaching importance to improving the quantity and 1. Lack of Basic Data:
quality of the education system. In order to draw a comprehensive and realistic
Q6: Strategy of Economic Planning in Pakistan? plan, the accurate statistical information about the existing
Ans: The process of economic planning in Pakistan was conditions of the economy should be available to the
initiated in the 1950’s. The First Five Year Plan was planners.
published in May. 1956. Then there were seven other 2. Appointment of Non-Technical Persons:
plans in the subsequent period. The 7th Plan covered the Another important factor standing in the way of
period from 1988-93 and the 8th Five Year Plan 1993-98. effective planning in Pakistan is the appointment of Non-
Since 1950 there has been sharp changes in the technical persons in drawing up and execution of the
development strategies of Pakistan. In the fifties, the plans.
major elements of the economic, strategy were (1) 3. Lack of Public Co-Operation:
excessive emphasis on industrialization (2) reliance on Lack of co-operation and mistrust of the
private sector for speeding up industrial progress (3) Government has remained an important hurdle to effective
setting up a system of tax concession (4) reliance on planning in Pakistan.
indirect taxation (5) increasing inequalities of income for 4. Political Instability Another Major Bottleneck to
achieving rapid rate of savings and growth. Effective Planning is the Political Instablity in
The private sector on accountof the Pakistan.
nationalization policy of the Government was discouraged The rapid change overs of the government set up,
and stopped further investment in industries. There was no has led to unplanned, haphazard economic growth.
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5. Role of Foreign Assistance:

Pakistan has been relying on foreign aid for
quickening the tempo of economic development since the
first day of economic planning in Pakistan.
6. Natural Calamities:
Agriculture is the backbone of our country. It
now contribute 21% to GDP, accounts for 66% of foreign
exchange earning and engages 45% of the labour force.
7. Dualism:
Dualism is another important constraint on the
effective planning in Pakistan.
8. Ambitious Plan:
If we look at the objectives of all the Eight Five Chapter: 18
Year Plans, we will find them too ambitious.
PUBLIC FINANCE

Q1: Define Budget. How the Budget deficit can be

removed?
Ans: Budget (federal or provincial) is an annual statement of
the expenditure and revenue of the government. Through
it, the concerned government sets out taxation and
expenditure plan for the particular financial year.
Pakistan has to face persistent huge budget
deficit since the mid of eighties. Borrowing for budgetary
support stood at Rs. 45.9 billion during 1993-97. It
increased to Rs. 72.5 billion in 1996-97.
1. Rapid Increas in Government Expenditure:
There has been a rapid increase in the
government’s development as well as non-development
expenditure year after year. Pakistan, so far, has not been
able to meet its expenditure from its own resources.
2. Increasing Fiscal Deficit:
The fiscal deficit remained at an average of
around 7% of GDP in the eighties. The pbulic debt burden
continued to soar from 66% of GDP in 1980 to almost
100% by mid of 2000,
3. Fiscal Indiscipline:
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Fiscal policy lack discipline. It is not based on In addition to borrowing from the banks, the
any effective rule which casued to rise in public debt. government is also siphoning off a part of private sector
4. High Consumption of the Society: savings through various savings schemes inducing by
Pakistani society due to lavishly spending on combined effect of high mark-up rates and tax
consumer goods is termed as consumption-oriented concessions.
society. Her saving propensity is very low; nearly 16%, 5. Private Sector is Being Crowding out Subsequently
which is not conducive to required saving. by the Government:
5. Highest Population Growth Rate: Apart from the past, as of May 10, 1997 the
The highest population growth rate is serving as government borrowed Rs. 93 billion as against the revised
a great hindrance in the economic progress of the country. target of Rs.40 billion for the year, while the original
target for deficit financing in 1996-97 budget was Rs. 20
6. Dissaving Policy of the Government: billion. Same practics has been followed in the subsequent
Pakistan is one of those countries where year.
dissaving policy has been persistently followed. Q2: Describe the main heads of revenue and expenditure of
7. Low Level of Revenue and Inadequate Revenue Federal Government of Pakistan?
Structure: Ans: Main sources or heads of revenue of the Federal
Pakistan’s rate of tax GDP, comes hardly to Government of Pakistan consist of the following types of
15%, which is one of the lowest in the world. receipts.
i) Revenue Recipts
Consequences of Huge Budget Deficit: ii) Capital Receipts
Huge budget deficits are serving with following iii) External Resources and
severe consequences. iv) Self-Financing by Autonomous Bodies.
1. Leading to a High Rate of Monetary Expansion:
Huge budget deficits have been leading to a high 1. Revenue Reciepts:
rate of monetary expansion which, in turn, fuelling Revenue receipts consist of the following three heads:
galloping inflation. i) Tax Revenue:
2. Accumulation Huge External and Domestic Debt: Tax revenue is collected through
As a result of government borrowing to finance a) Direct taxes such as income-tax, property tax and
budget deficits Pakistan has accumultated huge external wealth-tax, and
and domestic debt. b) Indirect Taxes such as custom duties, central excise
3. Discouraging Private Savings: duties and sales tax.
Deficit financing and inflaion are contributing ii) Non-tax Revenue:
regressive income contribution, consumption liberalisation Non-tax revenue is obtained through government
and lowering the rate of savings. Government borrowing property and enterprise, interest on securities, capital
and inflation are the two factor mainly discouraging gain, civil administration and income from other
private saving. functions.
4. Supply of Savings for the Private Sector is reducing: iii) Surcharges:
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Surcharges that are imposed on natural gas and Canon of Certainty, Canon of Convenience, Canon of
petroleum. Economy, Canon of Elasticity and Canon of Simplicity.
Of them, tax revenue contributes more than 75% 5: Lack of Diversification:
of the total revenue receipts, while the contribution of The taxation structure of Pakistan is also lacking
the non-tax revenue comes to 18 to 20% and the rest is diversification. Direct taxes have only three major
contributed by surcharges. heads-income tax, corporate tax and property tax.
2. Capital Receipt: Income tax may be further classified into tax on salaries,
Capital receipts consist of external borrowing interest or profit gained from securities, income form
and internal non-bank borrowing including unfunded property,
debt, public debt, treasuy and deposit receipts, the 6: Exclusion of the Biggest Sector:
revenue account surplus and surplus earned by public The taxation structure of Pakistan is lacking the
sector etc. support of the biggest sector of the economy; the
agriculture sector. Though it has also become a
commercial sector with inclusion of a number of agri-
Q3: Salient Features of taxation structure of Pakistan? based industries, yet the agri-income is exempted from
Ans: Salient Features of Taxation Structure of Pakistan: income tax.
1: Narrow and Deficient Base: 7: Dependency of Deficit Financing:
The taxation structure of Pakistan is established Another feature of the taxation structure of
on a very narrow base. Out of 170.0 million of Pakistan is its persistent dependency on deficit
population (2009), almost 9 million persons are tax- financing. Government has to depend upon this measure
payers; most of them belonged to industrials class and due to not availability of required funds from taxation.
salaried class. Agricultureists class the biggest class is Q4: What is fiscal Policy? Discuss the Importance?
exempted. Ans: Meaning of Fiscal Policy:
2: Deficient and Defective: The term Fiscal policy refers to those measures
The taxation structure of Pakistan, as a whole, is or line of action taken by the government for raising and
deficient and defective. It is so because neither it is spending the revenue. Such measures of the government
based upon the Principle of Equity, nor it is flexible have far-reaching effects on the economic activities of a
enough to be helpful in collecting the required revenue country.
for the government. Importance and Significance:
3: Proportion of Direct Taxes is Very High: 1) Acts as a Crucial Device of Capital Formation:
The proportion of direct taxes compared to direct Fiscal policy, in the words of Nurkse; “Assumes
taxes is not only very high but also has been increasing a new significance in the face of problem of capital
over the years. formation in under-developing countries”. The per
4: Complicated Structure: capital incomes and savings are very low in such
The taxation structure of Pakistan is a countries. A small class of the population usually
complicated one. It is furnished with formulas, rebates, comprised of big landlords. Feudel and industrialists
concessions and allowances etc. it is not complied with indule in conspicuous consumption.
most of the canons of taxations, like Canon of Equity, 2) Function as a Crucial Factor of Economic Growth:
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To increase saving rate is considered a crucial There is no precise definition of the term deficit
factor of growth. Saving rate can be raised by the financing. It a method used to finance the overall or net
government by involving expenditure in creating social budget deficit. Defict financing is said to have been
and economic overheads. practiced when the expenditure of the government both
3) Acts as a Crucial instrument of forced Saving: development and non developmet exceeds its current
Since in an under-developing country the rate of revenue and capital budget and the deficit is met through
voluntary savings is very low the instrument of taxation government borrowing.
can effectively be used for forced savings by way of Reasons for Deficit Financing in Pakistan:
curtailing wasteful consumption and other unessential The main reasons for resorting to deficit
expenditure of rich people. financing in Pakistan are as under.
4) Helps as an Effective adjunt to Monetary policy: i) Rise in Government expenditure:
In an under developing country where monetary As the years pass, there is a rapid increase in the
policy cannot play its effectgive role due to non- government’s current expenditure both development and
existence of developed money and capital markets, non-development.
fiscal policy can perform an effective role as an ii) No Rule Based Fiscal Policy:
important accompaniment to monetary policy in There is no effective rule based fiscal policy in
accelerating the rate of capital formation. the country. Fiscal indiscipline has resulted in the rise of
5) Performs an Effevtive role in Development Plans: public debt.
Fiscal policy also plays a significant role in the
development plans of under developing countries. In iii) Fiscal Deficit:
order to achieve a balance between real land monetary The fiscal deficit averaged around 7 percent of
terms in planning process, a physical plan has to be GDP in 1990’s. The public debt burden continued to
matched with a financial plan. increase from 66% of GDP in 1980 to almost 100% by
6) Proves to be Effecigve in Accelerating Public mid 2000.
Investment Activity: iv) Low Savings:
The UN Report on Taxes and Fiscal Policy The people in Pakistan are consumption oriented.
expresses the importance of Fiscal policy in these words. Due to high propensity to consume, the domestic saving
“Fiscal policy is assigned the central task of rate of about 16% is very low. As such the Government
wresting from the pitiful low output of under- is compelled to use deficit financing as an instrument to
developing countrie.s sufficient savings to finance cover the receipts expenditure gap.
economic development programmes and to set the stage v) Rapid Population Growth:
for more vigorous public investment activities. The rapid rate of population growth (1.8%) is
Q5: What is Deficit Financing? swallowing up whatever little economic progress is
Ans: When a government spends more than what it currently made. The Government is anxious to speed up the
receives in the form of taxes and fees during a fiscal economic development in the shortest possible period of
year, it runs into a deficit budget. When the budget time and is using the method of deficit financing.
deficit is financed by borrowing form the public and Sources of Financing Deficit:
banks, it is called deficit financing.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

There are three methods or sources which are

used to finance budgetary deficits in Pakistan. Each
method of financing has its own macro economic
implications which are discussed in brief.
The methods of deficit financing are:
i) Bank Borrowing
ii) Non-bank borrowing Domesitc Borrowing.
iii) External Borrowing
1) Bank Borrowing:
The Government meets the deficit in budget by
borrowing from the Central Banks of the country in two
ways: (1) The Central Bank (SBP) issues new currency
notes in the amount borrowed by the Government (2)
The Government draws upon the cash balances of the
past for meeting the budget deficit.
2) Non-Bank Borrowing: Chapter: 19
The government of Pakistan is also financing
fiscal deficit through non bank borrowing. The funds to
meet the deficits in the budget are mobilized through the
MONEY BANKING AND
sale of government. FINANCE SECTOR
3) Externalf Borrowing:
The persistence of large fiscal deficits has forced Q1: Disscuss he man objecives of Monetary Policy of
the government of Pakistan to borrow from overease. Pakistan?
The total foreign debt burden has gone up to Rs.4818 Ans: The main objectives of an effective monetary policy are
billion as in march, 2012. as under
1) To Help in maintaining Price Stabiltiy:
One of the desirous policy objectives of
monetary policy is to stabilize the price level.
Fluctuation in price bring uncentainty and instability to
the economy. Rsing and falling prices are both ban
tendencies as they brng unnecessary loss to some and
undue advantage to other.
2) To Help in Attainng Rapid Economic Growth:
Another the most important objective of
monetary policy in recent years has been considered the
rapid economic growth of an economic country
increases over a long period of time.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

3) To in Mantaining Equilibrium in Balance of With special reference to Pakistan State Bank of

Payment: Pakistan, at the time of formulation monetary policy
Another objective of the monetary policy, snce keeps the following objectives in view.
the beginning of fifties, has been recognized to maintan 1) Formation of Financial Units:
equilibrium in the balance of payments. One of the important objectives of monetary policy is
4) To Help In Maintaining Control of Credit: the establishment and expensions of the financial
To maintan credit control is also an objective of institutions. In a developing economy like Pakistan,
monetary policy. Expansion of credit leads to inflaton monetary and financial institutions are inclined to keep
which is highly undesirable from people’s welfare pont their activities confine to the urban areas while the
of view. Inflation beyond the full employment level adds dominant part of the country deprives of them.
nothing to the economy except ncreasng the volume of Consequently, a wide financial gap is created between
money supply. the rural and urban arease. The development of the
urban areas, in this manner, becomes neutralized by the
backwardness of the rural areas. The objective of a
standard monetary policy is to help the establishment of
Q2: Explain in detail, the control of Inflation through the such institutions which could gurantee the provision of
use of tools of monetary policy? required financial resources to all the sectors of the
Ans: Monetary Policy: economy.
The monetary and financial institutions of every 2) Credit Control:
country, without having direct link, works separately in Rapid economic process naturally creates
accordance with their respective needs and this is the inflation which is injurious for the economy and
reasons that exercising control on them is a bit difficult. specially for the developing country. When the private
In the less developed countries, for motivating savings commercial banks, under the motive of profit making,
and lesser availability of capital the rate of interest issue the credit recklessly for productive and
generally is low which influence investment. Rapid and unproductive purposes, the economy becomes
high changes in prices, decresing the purchasing power imbalance. The objective of the monetary policy is to
of the people, create multiple economic problems. For remove this imbalance. For achieving this objective the
tackling with all these economic problems, monetary State Bank of Pakistan uses different tools and methods
policy is prepared which can be defined as under. as discussed in the foregoing chapter.
“Monetary policy is the branch of economic 3) Balance Between Demand For and Supply of Money:
policy which is concerned to keeping the availability of Gap between demand for and supply of money
credit continue and the dedetermine its cost and affects the prices. In other words, the economy becomes
direction the central bank of the country State Bank of imbalance. The increase in supply is the symptom of
Pakistan has many tools through which financial and economic backwardness. But increase more than the
monetary institutions are compelled to work requirement increases speculative activities which, in
accordingly. Design and implementation of the turn, cause inflationary pressure. Consequently,
monetary policy is the jurisdiction of the central bank. economic problems arise for a common man. Fall in
Basic Objectives: supply of money causes Deflation which decreases
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

production. The objectgive of the monetary policy is to Q3: Is the Industrial Sector in Pakistan backward? Give
created a balance between demand for and supply of arguments?
money. Ans: The State Bank of Pakistan, since its inception, has been
4) Achievement of Full Employment: using form time to time according to need, the various
In the opinion of Keynes, since unemployment is types of instruments of monetary policy or credit control
the natural outcome of economic process therefore, with varying effects. These include:
unemployment is found in every economy in one way or i) Bank Rate Policy.
the other. Unemployment is not one problem but it is the ii) Open Market Operations.
root of various economic, social and political problems. iii) Cash Reserve Requirements.
As consequence of inflation, demand for goods falls iv) Liquidity Rates.
therefore production decreses ad deflation creates v) Selective Credit Control.
problems of voer production. In both the situations, vi) Moral Suasion, and
unemployment is te result. The objective of the vii) Imposition of Ceiling on Credit.
monetary policy is to increase employment by
controlling both inflation and deflation.
5) Economic Development:
Ultimate and aggregate objective of the 1) Bank Rate Policy:
monetary policy is the achievement of development and The State Bank of Pakistan, for discounting bills
growth. The symptoms of economic development and and eligible commercial papers, can raise or lower its
growth include maximum employment, capital and Bank Rate according to its need. The main objectives of
increase in real nation income. Stable prices are the this action are to improve balance of payments, to
basic condition for the investmetnt in and outside the encourage the inflow or discourage the outflow of funds,
country and the moneteary policy makes the prices to restrain inflationary pressure and to reduce the inflow
stable. or discourage the outflow of funds, to restrain
6) Improvement in Balance of Payments: inflationary pressure and to reduce consumption and
Favourable balance of payment shows reduction stimulate savings.
in imports and increased exports. But adverse or 2) Open Market Operations:
unfavorable balance of payments shows the situation The instrument Open Market Operations have
otherwise. In other words, adverse balance of payments not intensively been used up to 1993-94 by State Bank
make a contry indebted of other countries. Except a few of Pakistan, as an effective instrument of credit policy
years, the balance of payments position of Pakistan has for want of requisite marketable securities. In fact, there
persistently been unfavorable. How much is the foreign were many difficulties in their effectiveness. They
indebtedness is economically, socially and politically include: (i) the conflict between the Bank’s role as
harmful, every sensible person can conceive easily. The controller of credit and for stabilizing the prices of gilt-
objective of monetary policy is te correction of the edged securities, (ii) the tendency of commercial banks
adverse balcne of payments and increasing exports with to operate with excessive reserves and (iii) its
the decrease of import. nueutralization often through borrowing from the
Central Banks.
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3) Cash Reserve Requirements: establish more industrial estates to accommodate more

The rate of Cah Reserve Requirements remained industries.
5% up to 1992-93 of both time and demand liabilities. 2) Reducing High Cost of Establishing:
4) Liquidity Ratio: In establishing an industrial concern, one has to
All scheduled banks are required to maintain in bear high fixed cost initaially. In Pakistan, getting an
cash, gold or unencumbered approved securities not less industrial property is very difficult. For example, only in
than 35 precent of their total demand and time liabilities. Karachi, the industrial areas of Korangi, S.I.T.E and
Starting form 20% this ratio was increased to 25% in Sher shah are used to capacity. Therefore, government
1967, to 30% in 1972 and 35% till the end of 1990. has to establish more industrial estates so that the
5) Selective Credit Control: monopoly of landlords can be reduced.
The State Bank of Pakistan has power to 3) Reducing Excessive Documentation:
determine the policy of the commercial banks in relation There is a lot of documentation involved when
to advances.f the Bank may issue directions regarding one whants to establish an industry. An investor has to
the purpose for which advances may be made, the pay bribery at various instances for the people in charge
margins to be maintained in the secured advances, and of documentation. This discourages an investor and new
interest to be charged on advances. incumbents. Therefore, government has to make this
6) Moral Persuasion: process simpler and more industrial friendlier and
State Bank of Pakistan has been guiding provide one window operation to the industrialists.
commericla banks by adice and directions to wards 4) Modifying Taxation Policy:
desired objectives. The Banks has used this method Corporate taxes in Pakistan are very high. The
quite successfully. combined cost of high production and high corporate
7) Imposition fo Ceiling on Credit: taxes leave very little incentive for industrialist to
State Bank of Pakistan started to use this method operate in industry. That is the reason why, many units
of monetary management in 1968, and remained in force have shut down in the recent past. Therefore,
till 1971, when this method was discountiued, as a part government has to give tax exemptions and relaxations
of some other measures introduced to stimulate wherever possible to encourage investment in industries
economic activities in the country. and boost the morale of industrialists.
Q4: What steps would you suggest to improve the 5) Human Resource Development:
performance of Industrial Sector in Pakistan? It is the manpower which is capable, drives any
Ans: Measures to help industrial growth and development in sector and economy in general. But, unfortunately in
Pakistan are suggested. Pakistan, just like any other sector, the manpower in
1) Reducing High Cost of Production: industries lack in skills, eduction and capability.
In Pakistan, cost of production in doing any Therefore government has to provide vocational training
business is very high more so, in the case of industries. and establish training institutes where uneducated and
High cost of utility, high rent expense and the high low skill labor can sharpen their skills.
prices of industrial plots make it very difficult for any 6) Increasing the Use of Technology:
investor to establish an industry. Therefore, government Technology improves efficiency and
has to reduce the utility charges for industries and productivity. Illiterate and low skilled workers fear with
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

technology and resist it. Since the latest techonolgy is 4) Brings Stability in Values of Stock and Securities:
not utilized in out industries, the quality of our products A well conceived and developed capital market
remains far from desired. Therefore, governmet has to bring stability in the values of stock and securities. It
reduce import duties on the import of technological does so by providing capital to the needy institutions at
products and machineries. Moreover, government has to moderate interest/profits rates and helps in minmising
make sure that financial institutions and banks are speculative activities.
providing leasing for technological equipments. 5) Helps in Inducement to Save and Investment:
7) Providing Insustrial Finance: In a developing country, scarcity of capital is a
In establishing any industry, one needs a huge big problem, which in absence of a developed capital
amount of finance. Large industrialists can ge finance market, acts as a great hindrance to capital formation
for establishing another industry, but a middle class and economic growth. People being poor do not have
person will find it very difficult to acquire a loan for any inducement to save.
establishing a small industry. Therefore, government has
to make sure that every prospective industrialist does not
fail to establish an industry due to lack of finance.

Q5: Sigmificance and Importance of a Capital Market? Q6: Explain Money Market of Pakistan?
Ans: A capital market plays a vital role in mobilizing saving Ans: Money and Capital Markets:
and channelizing them into productive investments for The money market is a market wherein short-
the development of various sectors of an economy. term loans are dealt. The period of borrowing and
Thus, the capital market helps in capital formation lending in the money market is one year or less.
which functions like life-blood for economic growth of a Contrary to it, the Capital Market is a market where
country. A well-organised and fully developed capital long-term loans are traded. In this market funds are
market is a great source of following types of borrowed and lent for a period over one year.
advantages. Money Market of Pakistan:
1) Acts as Link between Savers and Investors: The money market of Pakistan is composed of
A capital market acts as a crucial link between the following institutions.
savers and investors. Funds,f which flow in the capital  State Bank of Pakistan
market and are supplied by individuals, commercial  Commercial Banks of Pakistan
banks and financial intermediaries are absorbed by  Foreign Commerical Banks
various sectors.  Co-operative Banks
2) Provides Incentives for Captial Formation:  Postal Savings Banks
A capital market provides incentives to savers in  Insurance Companies, and
the form of interest or dividend and transfer funds to  Stock Exchanges
investors. In this process, it leads to capital formation. 1) It is Not Fully Developed:
3) Encourages economic Growth: It has, however, crossed the initial stage of its
A capital market encourages economic growth growth. Of course, its progress is slow but steady. Its
by supplying life-blood in the form of capital.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

performance is comparatively better than many other such as industrial and agricultural machinery, ships,
developing countries money markets. aircrafts, railways and oil rigs etc.
2) It Lack of co-ordination and unification: i) Operating Lease:
It is not sensitive to the bank rate. It, thus, does In case, a lessor intends to operate his assets to
nto play an effective part in regulating the money supply make profit, can do this by providing it on hire to others
in the economy according to the real requirements of for use under an agreement. All the risks and rewards of
lthe economy. ownership will be born by the lessor.
3) It is Performing a Dual Roel Side by Side in the ii) Finance Lease:
Economy: This is a contract which virtually transfers all
In developed parts of the country it is risks and rewards of ownership of the asset in question
functioning like a developed money-market and from the lessor to lessee.
providing almost all opportunities to commerice, trade 2) Modarabas:
and industry. One the other hand, in under-developed A Modaraba is a participating type of business
areas of the country, it is functioning quite like a undertaking in which a participant articipates with his
underdeveloped money-makret. money-captial while the other with his human-capital
i.e, knowledge of are business, managerial skill,
4) It Does Not Extend Accommodation To Small experience and expertise.
Borrowers:
And due to this defect there has occurred the 3) Musharaka:
concentration of wealth in the hands of few. Generally, Musharaka is some sort of temporary
5) It Has To Confront The Black-Money Market: partnership on profit/loss sharing basis, for provision of
In the country which also functioning like a finance to trade and industry in the corporate sector.
parallel economy. Technically, it is a form of a business arrangement in
Q7: Islamic Mode of Financing? which the partners pool their repective resources to
Ans: The equity based or PLS based or non-interest based undertake any commercial/industrial concern.
investment modes of financing are meant both for an 4) Corporates:
indefinite period as well as for definite period. A corporation, according to an Islamic form of
 Leasing business, is akin to a joint stock company, which is
 Modaraba and formed as a combination of Modaraba and Sharika-al-
 Musharka Inam. It is a type of partnership is which the amount of
 Corporates capital of the partners and the ratio of profit is not
1) Leasing: maintained proportionately.
Leasing is a contractual arrangement, under Q8: What are the main causes of Inflation in Pakistan?
which one party, in return for an agreed rental for a Ans:
specific period of time, uses capital assets owned by 1) Impact of World-wide Inflaction:
another party. Such leased assets may be typically plants The inflationary pressure in Pakistan has been
and equipments but may include a wide range of assets considered mainly due to the global cause by the experts
and economists. Being linked with the economies of
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other countires on basis of foreign trade, economic levels of imports is posing various implication for
assistance, transfer to technology and direct foreign inflation.
investment, Pakistan cannot avoid its impact. 11) Low Tax Share to GDP Ratio:
2) Impact of de Linking of Pak Rupee From Dollar: The tax share to GDP ratio is very low; hardly 10
The de-linking of rupee from dollar has to 12 percent. This leaves the government short of funds
depreciated the external value of Pak rupee up to more to run the government’s machinery.
than 450 precent. 12) Highest Population Growth Rate:
3) Impact of constructional Activities: The highest growth rate has also aggravated the
Since the last thirty years constructional intensity of inflation.
activities in both the public and private sector have Q9: Role of State Bank of Pakistan in the Economic
increased to a greate extent. development of Pakistan?
4) Impact of Remittances: Ans: The working of the State Bank of Pakistan is not
Remittances from Pakistanis working abroad are confined to the issue and control of cash and credit but it
also accelaerating the rate of inflation in Pakistan. plays equally important role in establishing and
5) Impact of Increased Non-develped Expenditure: stabilizing a monetary and credit machinery in Pakistan
During the last few years the non-development which could play a decisive role in resources
expenditure have considerably increased. mobilization, distribution of these resources in the
6) Dismal Performance of the Various Sectors of the difference production sectors is necessary in such a
Economy: manner that they could cater the needs of the
It is a recognized fact that a sound rate of GDP development projects of these sectors. The main
growth plays an effective role in dampening the development sectors include agriculture, industry,
intensity of inflation in an economy. construction, transport energy etc. Apart from it, the
7) Affect of Administered Prices: State Bank also play a constructive role in correcting the
Government’s policy of administered prices has balance of payments, stability of prices and the
also played a crucial role in increasing the rate of provision of employments. The same thing can also be
inflation. stated that the State Bank of Pakistan play both of its
8) Irrational Monetary Expansion: developmental and expansion roles simultaneously.
Present intense situation of inflation can also be 1) Building up a Sound Banking System:
held responsible to the monetary phenomenon. State Bank of Pakistan played a paramount role
9) Devaluation/Depreciation of Pakistan’s Rupee: in building up a sound banking system, along with the
Pakistan’s Rupee has been devalued/ de- establishment of a number specialized financial
preciated by more than 400% during the last two instituations for mobilization of the country’s financial
decades. and real resources in the interest of economic
10) Large and Persistent Levels of Trade and Current development of the country. The National Bank of
Account Deficits: Pakistan (1949), the Industrial Development
Large and persistent levels of trade and current Corporation (1951) which later was reorganized as
account deficits mainly due to stagnant exports and high Industral Development Bank, the Agricultureal
Development Corporation and the Agricultural Bank
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were converted in 1961 into a single institution as their cash balances, collects revenue and makes payment
Agricultural Development Bank, not only sponsored but on their behalf. It also arranges for their borrowings.
also were given financial assistance by the State Bank of 2) Acts as Advisor:
Pakistan. It also encouraged the Cooperative Credit State Bank of Pakistan acts as advisor to the
System in the country. Government of Pakistan on all matters relating to
2) Produced Bankers and Financial Experts: monetary problems in the country.
State Bank of Pakistan has produced a large 3) Banker of Other Banks:
number of bankers and financial experts by offering State Bank of Pakistan acts as banker of other
training facilities to them. Thus, it not only filled the gap banks of the country, and under this capcity exercises
caused by the partition but also promoted further control over all comerical banks of the country in the
expansion of banking facilities in the country. For interest of sound banking Practices.
producing bankers and financial experts, the Bank 4) Authority of Issuing Currency Notes:
sponsored a Training Scheme in early period which has State Bank of Pakistan has the exclusive
played a vital role in meeting the demand for trained authority to issue currency notes (except on rupee notes,
personnel for banking nstitutions. coins issued by the government), and is responsible for
3) Monetary and Financial Policies: the management of the currency system of the country.
State Bank makes efforts to design such
monetary and financial policies which can check or
eradicate rat of inflation in the country and the financial
resources amy be made available to the production 5) Cusodian of the Country’s Monetary Reserves:
sectors in general and priority sectors in specific State Bank of Pakistan is the custodian of the
according to their genuine needs. country’s monetary reserves, including the resources of
4) Export Finance Scheme: foreign exchanges earned by various sectors of the
Under Exprot Finance Scheme, the State Bank of economy.
Pakistan provides financial resources to the Pakistani 6) Responsible to Economic Stability:
exporters. These loans are provided at minimum rate of State Bank of Pakistan has been charged with the
interest. responsibility of taking all possible step to ensure
Q10: What are the functions of State Bank of Pakistan? economic and monetary stability of the country. It has
Ans: Function: also been empowered to check that commericla banks
The State Bank of Pakistan, like all other central are following sound methods of banking business.
banks of the other countries, performs the usual central
banking function and is responsible for the monetary
management of the country so as to ensure its economic
stability and enhance the prosperity of the people.
1) Banker of the Central and Provincial Governments:
State Bank of Pakistan acts as the banker of the
Central and Provincial Governments and as such holds
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Balance of Payment:
The net difference between exports and imports
(or recipts and payments) of a country during a financial
year.
The balance of payment can be represented in
following forms:
1) Current Account:
Transaction of tangible (visible) and intangible
(invisible) goods. It show transaction of goods and
services.
2) Capital Account:
It shows the changes in the monetary assets and
liabilities of a country. Changes in assets arise due to
foreign exchange in possession, capital invested by
Pakistan is aborad, loan extended by Pakistan is etc.

Q2: What are the causes of persistent deficit in Balance

of Payments of Pakistan? Suggest remedial
Chapter: 20 measures?
Ans: Pakistan cannot afford to run a persistent deficit in the
INTERNATIONAL TRADE balance of payments on current account as it does not
have unlimited reserves of gold and foreign currencies.
It can neither persistently borrow from the rest of the
Q1: Distinguish “Balance of Payments” and “Balance of world. There is, after all, a alimit of accumulation of
Trade”? debt which may be fore the development purpose.
Ans: Balance of Trade: The adverse balance of payments can be
The net difference between exports and imports decreased in three ways:
(or receipts and payments) of visible or tangible goods”  The foreign earnings should be increased by export
The international trade consists of exchange in led growth.
value of goods as well as services. While balance of  The imports should be curtailed to essential items
payments shows the difference between receipts and only
payments, it incorporates both the visible goods and  The expenditure on invisible imports should be
invisible goods. Whereas, balance of trade only shows minimized.
the difference between receipts and payments of the Suggestions for Correcting the Adverse Balance of
visible goods. Therefore, for comprehensive analysis, Payments:
balance fo payment is more referrend to than balance of i) Export-oriented policy should be given top priority.
trade. ii) Imports should be confined to essential items only.
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iii) Curtailment of invisible policy should be implemented 5) Standard of Quality Should be Maintained at All
vigorously. Levels:
The above three methods are being explained briefly In order to attract foreign markets it is necessary
1) Adoption of Export – Oriented Led Policy: that not only the goods of high quality be produced in
Exports play a critical role in the growth of an the country at possible lowest cost, but also the standard
economy of a country. It is samply regarded a crucial of quality once is set should be maintained at all the
factor in the economic development process. Pakistan levels.
has abundance man-power and real productive 6) Export Duties Should be Reduced to Minimum:
resources. If they are properly exploited and proficiently To compete competitive prices, exporters should
utilized, a significant improvement in export potential be provided all sorts of facilities to be much helful in
can be achieved. Export-oriented policy may be accelerating exports.
implemented in the forms of following measures. 7) Quality Packing Should be Gien Proper Attention:
1) Diversification of Exports Must be Inducted: Promotion of exports also requires a high quality
Pakistan’s exports, since the very beginning, of packing.
have been comprised of mainly formal commodities –
primarily agricultural raw – material which also have
been remaining, most of the time, on the mercy of either 8) Role of Export Promotion Zones and Dry Ports
natural calamities at home or under pressure of Should be Made More Constructive:
international recession. In case of natural calamities, Role of export promotion zones and dry ports
agricultural production declines to that extene tthat must ont only be expanded further but also be made
sufficient surplus is nto available to export. more constructive.
2) Labour-intensive Industries Should Fully be 9) Foreign Investment in Joint – Ventures Should be
Promoted: Induced at its Best:
Pakistan is a labour abundant country. Priority, Foreign investment in such joint ventures which
therefore, must be given to develop labour intensive are capable to produce exportable goods should be
industries. Availability of cheap labour will give induced through necessary fiscal measures and legal
Pakistan a comparative edge in low cost of production protection.
over many other developing and developed countries. 10) Self – Sufficiency in Food Should Be Gained:
3) Industries relating to Low – Capital – Inpust Ratio Food efficiency is also causing to add in deficit
Should be Developed: to balance of payments. Food deficiency must be
Pakistan, due to be a capital deficient country, eliminated through sufficient increase in the agricultural
cannot afford to import heavy machinery, latest production with suitable measures.
advanced technology and highly skiful expertise. Q3: What are the major imports and exports of
4) Revial of Sick Industrial Units Should be Made: Pakistan?
Presently (2008), more than 4000 industrial units Ans: Major or principial exports of Pakistan can be
relating to different types of industries are sick to the categorized into four groups.
extent that most of them are either closed down or 1) Prmary Commoditties:
producing much less than to their installed capacity.
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This group is composed of following 11 ix) Molasses

comodities. x) Sugar.
i) Rise 4) Others:
ii) Raw wool (excluding wool tops) Apart from mentoned above groups of exports,
iii) Raw Cotton Pakistan also export many different items.
iv) Fish and products MAJOR IMPORTS OF PAKISTAN
v) Leather Major imports of Pakistan can be categorized
vi) Gura and guar products into following six main groups.
vii) Furits 1) Food Group:
viii) Vegeables This group of imports consists of the following 8
ix) Crude animal material items.
x) Oil seeds and nuts etc. i) Milk and cream including mlk food for infants.
xi) Wheat ii) Wheat non-milled
2) Textile Manufactures: iii) Dry fruits
This group consists of following 12 items. iv) Tea
i) Cotton yarn v) Spices
ii) Cotton fabrics (woven) vi) Edible oil, soya bean and palm oil
iii) Hosiery (knitwear) vii) Sugar
iv) Bed wear viii) Pulses
v) Towels 2) Machinery Groups:
vi) Cotton begs and sacks Under this group Pakistan is importing following
vii) Ready made garments types of machinery.
viii) Tarpaulin and other canvas goods i) Power generating machinery
ix) Tule Lace embroidery etc. ii) Office machinery
x) Synthetic textiles iii) Textile machinery
xi) Other textle made up iv) Constructon and mining machinery
xii) Waste materal of tex fbres fabrics v) Electrical machinery and apparatus
3) Other Manufactures: vi) Railways machinery, vehicles
Following 10 types of manufacturers are ncluded vii) Road motor vehicles
in this group. viii) Aircraft, ships and boats
i) Carpets, carpeting rugs and mats. ix) Agricultural machinery and
ii) Petroleum and petroleum products x) Other machinery
iii) Sports goods 3) Petroleum Group:
iv) Leather manufacturers In this group following two items are included.
v) Surgical and medcal instruments i) Petroleum products
vi) Cutlery ii) Petroleum crude.
vii) Onyx manufactures 4) Textile Group:
viii) Chemcials and pharmeaceutcals In ths group following three items are ncluded.
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i) Synthetic fibre Government is makng huge investment in

ii) Synthetic and artificial silk yarn improving of physical and financial structure to facliate
iii) Worm Colthing foreign trade ncluding shipment, clearance, cargo space,
5) Agriculture and other chemcials group: handling at the seaports and airports.
Following five items are included in this group. 3) Extablishment of Export Processing Zones:
i) Fertilizer Government has established export processing
ii) Insecticides zones at major industrial centres of the country. N these
iii) Worm Clothing zones all those necessary facilities are being provided
6) Metal Group: which are helpful in promoting exports.
Following three items are included in the group. 4) Priorty to Value-added Exports:
i) Iron and steel scrap Pakistan’s contributon in intermational trade is
ii) Iron and steel very meager hardly comes to 1.12%. Pakistan is very
iii) Aluminium wrought and worked. eager to increase her share.
7) Miscellaneous Group: 5) Encouraging to medium scale ndustries:
In ths group following four items are included. Government is providing loan and infrastructure
i) Iron and steel scrap facilities to encourage medum scale engineering
ii) Iron and steel industry at Gujranwala, and Gujrat, cutlery industry at
iii) Aluminum wrought and worked. Wazirabad, sport goods ndusry at Sialkot and marble
iv) Jute ndustry at Karachi.
v) Paper and paper board and maunfacturers. 6) Abiding by the WTO Rules:
Q4: Briefly describe the steps taken by the Government Pakistan being the member of World Trade
of Pakistan to promote exports? Organizaton s fully abidng by rules and regulations of
Ans: Government has taken a number of measures for the non discriminaton about tariff etc. among various
promotion of exports. They include: members of the organization.
1) Diversification of exports and exploring new 7) Extablishment of Trade Development Authority:
markets: Government has established a Trade
Government is gradually including higher valued Development Authority in place of farmer Export
products in exports list. Few year ago, Pakistan exports Promotion Bureau, for rapdly changing demand of
were hghly concentrated to five prodoucts cotton rice international trading enviorment.
leather taxtiles and synthetic. 8) Improving Labour Productivity:
Now Pakistan is gradually moving towards not Government is fully aware of the fact that the
only to higher value added products, but also has productivity of Pakistan labour is not up to international
become able to export engineering goods, marble and standard. It can be increased throuth education, on the
ganite like goods, IT, finance and accounting like job training, imparting new knowledge and latest
services. producton techniques.
2) Imporvement in Physical and Financial 9) Setting up Chain of Cold Storage:
Infrastructure: Government is encouraging setting up of a chain
of cold storage throughout the country.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

10) Gems and Jewellery Has Been Declared an Industry: cargo at seaport and airports so that smooth export of
In order to increase export of gems and goods may take place.
jewellery, it has been declared to be treated as an 6) Skill Development Should be Improved:
industry. For enhancing exports suress must be laid on
Measares Needed To Be Taken: increasing labour productivity through purposesful
Pakistan need following measures to be taken education.
wth full commitment if she wants sufficient increase n Q5: Discuss main elements of exports development?
her exports. Ans: Pakistan’s exports base is extremely narrow. About 50%
1) Diversification of Products and Market Must Be of its exports earning are contributed by the coton group
Met: alone. The other three items namely leather, synthetic
At present, Pakistan exports are hghly made ups and rice contribute about 15% of total exports.
concentrated in five products only cotton leather, rice, Unfortuneately the above four items are relatively low
textiles and synthetic. Pakistan has to add more value value added products. Pakistan has not made much
added products to its exports list. progress in increasing the number of products. Pakistan
is also vet to enter in hi-tech exports. In short, Pakistan
is lagging n product diversification, value addition
2) Value-added Exports Should be Included in Export diversification, hi-tech industries to face the fierce
List: global competition. Faced wth lower % share of ndustry
Pakistan’s share in international trade merely in GDP, the Government of Pakistan s taking the
comes to 0.12%. for increasing its share, Pakistan should following measures for export promotion.
include hgher value-added exports in its exports list. Q6: Discuss in detail Trade Policies of Pakistan
3) Medium Scale Industries Should be Encouraged: government?
Pakistan’s medium scale ndustres, like sports Ans: A trade policy signifies those measures taken by a
goods industry, surgical nstruments ndustry, ready made government, from tme to tme, wth an objective to
garments industry surgical instruments, industry, redy stimulate the trade activities and regulate the export and
made garments industry, electrical fans industry, import transactions of a country according to the
washing machines and cutlery industry etc. are already requirements of the economy so as to accelerate her
doning well in export sector. economc growth and enhance the welfare of her people.
4) Brand Names Must be Utilized: A trade policy usually includes following measures to be
Exporters must be persuaded to export their taken.
products by certain brand names. In international market o To protect the home industries in their infancy
those products are much more demanded, which are against the foreign competition.
beng sold under certain brand names. o To accelerate export earnings so as to increase
5) Adequate Improvement should be brought about in the importing capacity of a developing economy.
physical and financial instituations: o To correct the adverse balance of payments
Government should also give full attention on position,
improvement of physical and financial structure o To enable the country to have a larger share of
including, shipment, clearance, cargo speace, handing the gains from trade,
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

o To augment the rate of capital formation, and 7) Stabilises Internal Price-level:

o To promote industrialization. A well thought trade policy help in stabilizing
1) Helps n Expandng Trade Activities: the internal price-level of a country. It can also serve as
A well constituted trade policy helps in a check to inflationary trend created in a developing
expanding trade activities by reducing the gap between country.
the exports earnings and imports payments. The gap so 8) Reflects the Stage of economic Development:
ceated come in the way of expansion of trade activities, A well-planned trade policy reflects the stage of
particularly in the foreign trade. economic development of a country. If the policy adopts
2) Helps in Protecting the Indigenous ndustries in Their a restrictive attitude towards imports, it generally shows
Infancy: that the country has a developing economy and her
A well panned trade policy helps in protecting imports exceeds the exports-earnings.
the indigenous industries in their infancy aganst foreign
competitions.

3) Facilitates in Maximum Utilization of Foreign

Exchange:
A weel formulated trade policy helps in
facilitating maximum utilization of foreign exchange SECTION – B
hardly earmed by a developing country like Pakistan.
4) Helps in Minimizing Economc Dependency and
Stimulates the Economic Growth:
This objective can be achieved through
protection measure, which helps home industries to
expand their production activities, encourages
entrepreneurs to set up new industries.
5) Helps in Equal Distribution of National Income:
A good trade policy also helps in equal
distribution of national income. The export and import
licences when distributed widely and not concentrated to
favoured persons, leads to equitable distribution of
wealth.
6) Helps in correcting the Adverse Balance of
Payments:
A well-terned trade policy can also help in
correcting the adverse balance of payments by
controlling trade activities according to the pre- ECONOMIC EQUATIONS
determined objectives.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q1: For the given below evaluate the value of second derivate at the
points where the first derivative has a value of zero.
1 3 1 2
y x  x  6x  8
3 2
Solution:
dy d 1 3 1 2 
  x  x  6 x  8
dx dx  3 2 

Chapter: 21
ECONOMIC EQUATIONS
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

ECONOMIC DEVELOPMENT OF
PAKISTAN 2009
Time: 3 Hours (REGULAR) Max. Marks: 100
Instructions:
(1) Attempt any FIVE questions.
(2) Marks are indicated against each question.
Q1: What is meant by Human Development in an
economy? Examine the main components and
strategy of Human Development with
reference to Pakistan.
Ans: Copy karna hai
Q2: a) Identify the main factors responsible for the
agricultural backwardness of Pakistan.
Ans: See Q2 of Chapter8:
b) How far availability of cheap credit can help
to resolve these problems of agricultural
sector? Explain.
Ans: See Q of Chapter:
Q.3 Discuss the nature and causes of present crisis
faced by the Sugar Industry in Pakistan.
What measures would you recommend for the
rehabilitation and development of this
industry?
Ans: See Q7 of Chapter11: type karna hai
Q.4 Discuss the view that the policy of
Nationalization of Industries in the early
Seventies inflicted a serious blow to the
industrial sector of Pakistan. How far the
present privatization and de-regulation
policies can put the country back on the road
to industrial development?
Ans: See Q11 of Chapter: type karna hai
Q.5 Despite putting Pakistan on the track of a free
market economy the importance of economic
planning for the economic development of
Pakistan cannot be underestimated. Discuss.
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103
Ans: See Q1 of Chapter17:
Q.6. a) Differentiate between “FOREIGN AID” and ECONOMIC DEVELOPMENT OF
“FOREIGN INVESTMENT”. (08) PAKISTAN 2009
Ans: Copy karna hai
b) “Foreign Investment plays a vital role in the Time: 3 Hours (EXTERNAL) Max. Marks: 100
Economic Development of Pakistan,” Argue. Instructions:
(12) (1) Attempt any FIVE questions.
Ans: Copy karna hai (2) Marks are indicated against each question.
Q.7 a) What are means of Transportation and Q.1. a) Define Economic Development. Discuss the
Communication in Pakistan? obstacles in the process of Economic
Ans: See Q3 of Chapter15: Development of Pakistan.
b) “Proper roads and flyovers have an extra Ans: See Q1&3 of Chapter6&3:
ordinary importance in enhancing the overall b) Suggest measures to remove these obstacles.
Ans:See Q of Chapter:
Economic activities.” Discuss.
Q.2. a) “High Cost of Production and Limited home
Ans: See Q5 of Chapter15:
Q.8. Describe the reasons of power shortages in Market are main obstacles in the way of
Pakistan. What steps the Government of industrial development of Pakistan”. Discuss.
Ans: See Q of Chapter:
Pakistan has taken to develop these
b) What steps would you suggest to remove these
resources? Elaborate.
obstacles?
Ans: Copy karna hai
Ans:See Q of Chapter:
Q.9. a) What are the main objectives of MONETARY
Q.3. “Enhanced quality of human resources is
POLICY of Pakistan?
directly related with best utilization of
Ans: See Q1 of Chapter19:
Economic resources”. Comment
b) How inflationary pressures can be controlled
Ans: See Q1 of Chapter17:
through Monetary Policy?
OR Give the salient features of population in
Ans: See Q2 of Chapter19:
Q.10. Write notes on any TWO of the following: Pakistan. Is growing population always a
(i) Sources of Public Revenue hindrance in Economic development? Discuss.
Ans: See Q2 of Chapter18: Ans: See Q1 of Chapter17:
(ii) 7th NFC Award – 2009 Q.4. “To emerge as an Economically strong and
Ans: Copy karna hai viable nation in the 21st century Pakistan
(iii) International Monetary Fund (IMF) must build new DAMS and generate cheap
Ans: Copy karna hai electricity”. Discuss.
(iv) Pre-requisites of Mechanization Ans: See Q1 of Chapter14:
Ans: See Q3 of Chapter8: OR Identify the problems of Agricultural sector in
Pakistan. Suggest remedial measures.
Ans: See Q2 of Chapter8:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.5. a) What are the causes of persistent deficit in

ECONOMIC DEVELOPMENT OF
Balance of Payments of Pakistan?
Ans: See Q2 of Chapter20: PAKISTAN 2010
b) What measures should be taken to correct Time: 3 Hours (REGULAR) Max. Marks: 100
adverse Balance of Payments. Instructions:
Ans:See Q2 of Chapter20:
(1) Attempt any FIVE questions
Q.6 “FOREIGN AID” is a double edge sword”. (2) Marks are indicated against each question
Critically examine the statement. Q.1 a) Describe the factors responsible for the
Ans:See Q of Chapter:
Economic development in Pakistan.
Q.7. What are the main causes of “BUDGET Ans:See Q1 of Chapter2:
DEFICIT” in Pakistan, and how this deficit b) Examine the hindrances in the development of
can be minimized”? Pakistan's economy.
Ans:See Q1 of Chapter18: Ans: See Q1 of Chapter3:
OR a) Explain the role of “SMALL SCALE” and Q.2 a) The growing population of Pakistan is an
“COTTAGE” industries in Pakistan. asset for achieving the economic prosperity.
Ans:See Q1 of Chapter12: Discuss.
b) What steps the Government of Pakistan is Ans: See Q of Chapter:
taking to promote these industries? Explain
Ans:See Q4 of Chapter12: b) Discuss the salient features of population in
Q.8. Discuss the cost and benefits of Pakistan.
“INTERNATIONAL LOANS”. Ans:See Q of Chapter:
Ans:See Q of Chapter: Q.3 a) Discuss the role of Mechanization in the
Q.9. a) Explain the various means of Transportation agricultural development of Pakistan
and Communication in Pakistan. Ans:See Q3 of Chapter8:
Ans: See Q3 of Chapter15: b) The imposition of Tax on agricultural income
will boost up the economic development of
b) Highlight the importance of Electronic Media Pakistan. Comment.
in Pakistan. Ans: See Q1 of Chapter9:
Ans: See Q6 of Chapter15:
Q.10. Write notes on any TWO of the following: Q.4 a) "Agricultural development is the basis of
(i) Present Energy Crisis industrial development". Discuss with
Ans: See Q of Chapter: reference to Pakistan.
(ii) Privatization Policy of Pakistan Ans: See Q1 of Chapter8:
Ans: See Q of Chapter:
(iii) Agricultural Credit b) Highlight the main sources of Agricultural
Ans: See Q2 of Chapter9: Credit in Pakistan.
(v) Functions of State Bank of Pakistan Ans: See Q2 of Chapter9:
Ans: See Q10 of Chapter19:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.5 a) To overcome the acute shortage of POWER in Q.10 Write notes on any TWO of the following: (20)
our country, we must build new DAMS for (i) Heads of income and Expenditure of the
the generation of cheap electricity. Discuss. Government of Pakistan
Ans: See Q1 of Chapter14: Ans: See Q2 of Chapter18:
(ii) Causes of Inflation in Pakistan
b) Elaborate the significance of power resources Ans: See Q8 of Chapter19:
in the economic development of Pakistan. (iii) Deficit Financing
Ans:See Q of Chapter: Ans: See Q5 of Chapter18:
Q.6a) Examine the role of Cottage and Small Scale (iv) Role of State Bank of Pakistan in the economic
Industries in the economic development of development of Pakistan
Pakistan. Ans: See Q10 of Chapter19:
Ans: See Q1 of Chapter12:
ECONOMIC DEVELOPMENT OF
b) Name the various internal & external PAKISTAN 2010
Financial Sources of Pakistan. Discuss any
one in detail. Time: 3 Hours (EXTERNAL) Max. Marks: 100
Ans: See Q of Chapter: Instructions:
(1) Attempt any FIVE questions.
Q.7 a) Discuss the current position of Pakistan's (2) Marks are indicated against each question.
Balance of Payments. Q.1 a) What are the Pre-requisites of Economic
Ans: See Q of Chapter: Development?
b) What are the causes of Unfavourable Balance Ans: See Q1 of Chapter2:
of Payments of Pakistan? Suggest remedial b) How far they are available in Pakistan's
measures. Economy? Explain.
Ans: See Q2 of Chapter20: Ans: See Q of Chapter:
Q.2 a) Explain the main factors responsible for
Q.8 a) State the various means of Transport and Agricultural backwardness in Pakistan.
Communication in Pakistan. Ans: See Q2 of Chapter8:
Ans:See Q3 of Chapter15:
b) Elaborate the importance of Roads and b) Discuss the impact of Farm Mechanization on
Highways in Pakistan. the agricultural development of Pakistan.
Ans:See Q3 of Chapter15: Ans: See Q3 of Chapter8:
Q.9 a) Examine the role of Foreign investment in the Q.3 a) Discuss the problems of CAPITAL
industrial development of Pakistan. FORMATION in Pakistan.
Ans: See Q of Chapter: Ans: See Q of Chapter:

b) Suggest measures to invite foreign investment b) Name the various Internal and External
in Pakistan. sources of Industrial Finance in Pakistan.
Ans: See Q of Chapter: Highlight the role of any one in the
economic development of Pakistan.
Ans: See Q1 of Chapter4:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.4 To strengthen the economy of Pakistan, we Q.10 Write notes on any TWO of the following: (20)
must construct new DAMS for irrigation and (i) Problems of Agricultural Marketing
generation of low cost electricity. Argue. Ans: See Q1 of Chapter10:
Ans: See Q1 of Chapter14: (ii) Importance of Railways in Economic
Q.5 To keep the Economic development of Development of Pakistan
Pakistan in the right direction and on the Ans: See Q2 of Chapter15:
right track of progress, we must depend on (iii) Deficit Financing
Bilateral trade with Foreign countries instead Ans: See Q6 of Chapter18:
of the Foreign Aid with strings. Discuss. (iv) Problems of Cottage Industries in Pakistan
Ans: See Q of Chapter: Ans: See Q of Chapter:
Q.6 Describe the Natural resources of Pakistan
ECONOMIC DEVELOPMENT OF
and their role in the economic development of
Pakistan with special reference to Natural PAKISTAN 2011
gas.
Ans: See Q of Chapter:
Time: 3 Hours (REGULAR) Max. Marks: 100
Instructions:
Q.7 a) Explain the importance of industries in
(1) Attempt any Five questions.
Pakistan.
(2) All questions carry equal marks.
Ans: See Q4 of Chapter11:
Q.1 (a) “Development is a multidimensional process
b) Critically examine the performance of Public involving changes in structures, institutions
Sector Industries in Pakistan. and attitudes as well as the acceleration of
Ans: See Q6 of Chapter11: economic growth, reduction of inequality and
Q.8 a) What are the major imports and exports of the eradication of absolute poverty”.
Pakistan, Ans: See Q1 of Chapter3:
Ans: See Q3 of Chapter20:
According to the above statement what
b) Briefly describe the steps taken by the measures should be taken for the development
Government of Pakistan to promote exports. of a country? Explain in detail?
Ans: See Q4 of Chapter20: Ans: See Q1 of Chapter1:
Q.9 a) How does Foreign Investment differ from
Foreign Aid? (b) Explain the obstacles in the process of
Ans: See Q of Chapter: Economic Development of Pakistan.
b) "Foreign Investment plays a vital role in the Ans: See Q1 of Chapter3:
Economic Development of Pakistan". Give Q.2 (a) What are the main sources of Capital
arguments. Formation in Pakistan?
Ans: See Q of Chapter: Ans: See Q1 of Chapter4:
(b) Suggest measures to promote Capital
Formation.
Ans: See Q2 of Chapter4:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.3 (a) “Agriculture is the back bone of Pakistan’s (b) Describe the main heads of revenue and
Economy”. Discuss expenditure of Federal Government of
Pakistan.
(b) Explain the main factors responsible for Ans: See Q2 of Chapter18:
agriculture backwardness in Pakistan. Q.9 (a) Highlight the role of means of Transportation
and Communication in the economic
Q.4 (a) Differentiate between “Foreign Aid” and development of Pakistan.
“Foreign Investment”. Ans: See Q1 of Chapter15:
(b) Identity the problems of Pakistan Railways
(b) Discuss the measures taken by the and suggest remedial measures.
Government to enhance the Foreign Ans: See Q2 of Chapter15:
Investment in Pakistan. Q.10 Write notes on any two of the following:
(i) Problems of Agriculture Marketing
Q.5 (a) Distinguish “Balance of Payments” and Ans: See Q1 of Chapter10:
“Balance of Trade”.
Ans: See Q1 of Chapter20: (ii) Present Energy Crises in Pakistan
Ans: See Q of Chapter:
(b) What are the causes of persistent deficit in
Balance of Payments of Pakistan? Suggest (iii) Role of Cottage Industries in Pakistan
remedial measures. Ans: See Q5 of Chapter11:
Ans: See Q2 of Chapter20: (iv) Objectives of Economic Planning.
Q.6 (a) Discuss the main objectives of “Monetary Ans: See Q1 of Chapter17:
Policy” of Pakistan. ECONOMIC DEVELOPMENT OF
(b) Explain in detail, the control of Inflation
through the use of tools of monetary policy. PAKISTAN 2011
Time: 3 Hours (EXTERNAL) Max. Marks: 100
Q.7 (a) “Is the industrial Sector in Pakistan Instructions:
backward”? Give arguments. (1) Attempt any Five questions.
Ans: See Q1 of Chapter11: (2) Marks are indicated against each question.
(b) What steps would you suggest to improve the Q.1 (a) Discuss the main characteristics of a Developing
performance of Industrial Sector in Pakistan? Economy with reference to Pakistan.
Ans: See Q2 of Chapter11: Ans: See Q2 of Chapter1:
(b) Identify the obstacles in the Process of Economic
Q.8 (a) Define Budget. How the Budget deficit can be Development of Pakistan.
removed? Ans: See Q of Chapter:
Ans: See Q3 of Chapter11:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.2 Inflation, poverty and unemployment are the Q.8 (a) Industrial Development is the basis of
main problems of Pakistan. Discuss the role of Economic Development of Pakistan.
government to solve these problems. Elaborate.
Ans: See Q of Chapter: Ans: See Q4 of Chapter11:
Q.3 (a) Agriculture Sector plays a vital role in the (b) Highlight the role of Public Sector in the
Economic Development of Pakistan. Industrial Development of Pakistan.
Comments. Ans: See Q of Chapter:
Ans: See Q1 of Chapter8: Q.9 (a) Discuss the cost and benefits of Foreign
(b) Defective Agricultural Marketing is an important Economic assistance in the light of Pakistan’s
reason of low productivity in Agriculture Sector. economy.
Suggest remedial measures. Ans: See Q of Chapter:
Ans: See Q1 of Chapter10: (b) Name the Internal and External sources of
Q.4 (a) Explain the importance of Exports in developing Industrial Finance in Pakistan.
economy. Ans: See Q of Chapter:
Ans: See Q of Chapter: Q.10 Write notes on any Two of the following:
(i) Main Exports of Pakistan
(b) Suggest measures to enhance exports earning in Ans: See Q of Chapter:
Pakistan. (ii) Problem of Agricultural Credit
Ans: See Q of Chapter: Ans: See Q5 of Chapter9:
Q.5 (a) “Foreign investment plays in vital role in the (iii) Objectives of Economic Planning
Economic Development of Pakistan”. Argue. Ans: See Q1 of Chapter17:
Ans: See Q of Chapter: (iv) Present Energy Crisis
(b) Explain the cause of persistent Deficit in Balance Ans: See Q of Chapter:
of payments of Pakistan?
Ans: See Q2 of Chapter20: ECONOMIC DEVELOPMENT OF
Q.6 (a) Highlight the importance of means of PAKISTAN 2012
Transportation and Communication in the
Economic Development of Pakistan. Time: 3 Hours (REGULAR) Max. Marks: 100
Instructions:
Ans: See Q1 of Chapter15:
(1) Attempt any Five questions.
(b) Suggest measures to improve the efficiency of
(2) Marks are indicated against each question.
Railways.
Q.1 a) Differentiate between Economic Development
Ans: See Q2 of Chapter15:
and Economic Growth.
Q.7 (a) Explain the role of State Bank of Pakistan in
Ans: See Q3 of Chapter1:
control of the supply of money in Pakistan.
b) Highlight the factors responsible for the
Ans: See Q of Chapter:
Economic Development of Pakistan.
(b) “Privatization of banking sector in Pakistan is a
Ans: See Q1 of Chapter2:
good experience”. Comments.
Ans: See Q2 of Chapter14:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.2 a) Discuss the salient features of Population in Ans: See Q1 of Chapter20:

Pakistan. What are the main reasons of Unfavourable
Ans: See Q of Chapter: Balance of Payments in Pakistan? Suggest
b) How rapidly growing population affect the remedial measures.
economy of Pakistan. Discuss. Q.9 a) Distinguish between Foreign Investment and
Ans: See Q of Chapter: Foreign Aid.
Q.3 a) Discuss the role of Mechanization in the Ans: See Q of Chapter:
Agricultural Development of Pakistan. b) Discuss the cost and benefits of Foreign
Ans: See Q3 of Chapter8: Economic Assistance in the light of Pakistan’s
b) “Defective Agricultural Marketing is an Economy.
important reason of low productivity in Ans: See Q of Chapter:
Agricultural Sector”. Discuss. Q.10 Write notes on any TWO of the following:
Ans: See Q1 of Chapter10: (i) Agricultural Tax
Q.4 “Present Energy Crisis is an important problem Ans: See Q1 of Chapter9:
of Pakistan”. Discuss its reasons and remedies. (ii) Deficit Financing
Ans: See Q of Chapter: Ans: See Q6 of Chapter18:
Q.5 a) “Industrial Development is the basis of (iii) Sources of Public Revenue & Heads of Expenditure
Economic Development of Pakistan”. Elaborate. Ans: See Q2 of Chapter18:
Ans: See Q4 of Chapter11: (iv) Role of State Bank of Pakistan in the economic
b) Highlight the role of Public Sector in the development of Pakistan.
industrial development of Pakistan. Ans: See Q9 of Chapter19:
Ans: See Q of Chapter:
Q.6 a) Examine the role of Cottage and Small Scale
ECONOMIC DEVELOPMENT OF
Industries in the economic development of PAKISTAN 2012
Pakistan. Time: 3 Hours (EXTERNAL) Max. Marks: 100
Ans: See Q of Chapter: Instructions:
b) Name the various internal and external financial (1) Attempt any Five questions.
sources of Pakistan. Discuss any one in detail. (2) Marks are indicated against each question.
Ans: See Q2 of Chapter18: Q.1 What are the pre-requisites of Economic
Q.7 a) Define the concept of Economic Planning. Development? Discuss the obstacles in the
Ans: See Q2 of Chapter17: development of Pakistan's Economy.
b) Mention and elaborate the factors which are Ans: See Q of Chapter:
responsible for effective planning in Pakistan? Q.2 .a) What do you understand by Poverty?
Ans: See Q4 of Chapter17: Ans: See Q of Chapter:
Q.8 a) Distinguish between Balance of Trade and b) What strategy has been implemented by the
Balance of Payments. government to eliminate poverty in Pakistan?
Ans: See Q of Chapter:
102 Economic of Pakistan Iqra Publisher - B.Com. II Iqra Publisher - B.Com. II Economic of Pakistan 103

Q.3 Describe the reasons of Power Shortage in Q.9. a) What is the difference between Foreign
Pakistan. Highlight the steps taken by the Investment and Foreign Aid?
Government of Pakistan for the development of Ans: See Q of Chapter:
power resources in the country. Elaborate. b) “Foreign Investment plays a vital role in the
Ans: See Q of Chapter: Economic Development of Pakistan”. Give
Q.4 a) Discuss the salient features of Population of arguments.
Pakistan. Ans: See Q of Chapter:
Ans: See Q of Chapter: Q.10. Write short notes on any TWO of the followings:
b) Explain the effects of growing population on the (i) Deficit Financing
Economy of Pakistan. Ans: See Q6 of Chapter18:
Ans: See Q of Chapter: (ii) Problems of Cottage Industries in Pakistan.
Q.5. a) Discuss the problems of Capital Formation in Ans: See Q5 of Chapter11:
Pakistan. (iii) Objectives of Economic Planning.
Ans: See Q of Chapter: Ans: See Q1 of Chapter17:
b) Name the various Internal and External Sources (iv) Causes of Inflation in Pakistan.
of Industrial Finance in Pakistan. Highlight the Ans: See Q8 of Chapter19:
role of any one in the Economic Development of
ECONOMIC DEVELOPMENT OF
Pakistan.
Ans: See Q1 of Chapter13: PAKISTAN 2013
Q.6. a) Distinguish between Balance of Trade &
Balance of Payments.
Ans: See Q1 of Chapter20:
b) What are the main reasons of unfavourable
Balance of Payments of Pakistan? Suggest
remedial measures.
Ans: See Q2 of Chapter20:
Q.7. a) Discuss the role of Transport and
Communication in Economic Development of
Pakistan.
Ans: See Q1 of Chapter15:
b) Suggest measures to be adopted in improving the
performance of Pakistan Railways?
Ans: See Q2 of Chapter15:
Q.8. Discuss the role of State Bank of Pakistan in the
Economic Development of Pakistan.
Ans: See Q10 of Chapter9: