-bhutto by faheem vohra

8/10/2019 -Bhutto by Faheem Vohra

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Pakistan Economic

Conditionsin

1971 -1977


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Outline

Background

Nationalization

(3 Phases)

Outcome ofNationalization

Budget Deficit

Tax Policy Trade Policy

Inflation pressure

Subsidies

Industrial SectorAgricultural Sector

Land Reforms

Labor reforms

Social Services

Bad Luck Factors

Opinions

Conclusion


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Background

Pakistan lost its east wing which became Bangladesh

It greatly effected the economy because East

Pakistan was main producer of Jute and other food

crops to be exported

Bhutto became the first democratically elected

Leader in west, which was the separated Pakistan

He introduced Nationalization to the country


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Nationalization

Definition:Nationalization is a process of taking a private industry or private assets intopublic ownership by a national government or state.

Bhuttos Manifesto:

1. The means of production that generates industrialadvance or on which depends other industries must notbe allowed to be vested in private hands

2. All enterprise that includes infrastructure of nationaleconomy must be in public ownership

3. The institution dealing with exchange like Banking andInsurance must be nationalized.

*Objective was to curb the power of 22 families


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First Phase

The first phase took place in the largemanufacturing sector in the capital andintermediary goods market.

31 key industrial units were taken over under thenationalization but it was alleged thatnationalization was selective

Units included from fertilizers, chemical, Steel,cement, automobiles and so forth


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Second Phase

In the 2ndphase, he declared thenationalization of 13 Banks, over a dozenInsurance companies, 2 petroleum and 10

shipping companies

They said that the wealth of the nation must

be used for the benefit of the nation andcannot be allowed to concentrated in bank ofthe few individuals


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Third Phase

The third phase of Nationalization was 2000cotton ginning, rice husking and vegetable oilproducing units

It eliminated the role of middlemen and it wasrumored the producer and consumers are at themercy of these units

Producers were deprived of due share andconsumers were getting poor quality products athigher prices


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Outcome

Bhuttos economic policy led to deindustrialization and it created pro-government

lobby of landlords who were benefited from so-called land reforms

Private sector investment was wiped out and remained only

15% of what was in 1969

Nationalized industries were mostly inefficient and employed only 4% of large

scale industrial employment

The complete control of decision making was passed onto the hands of chairman

and top functionaries of political parties

Promises were broken

GDP fell to just 1.2% in 1972


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Tax Policy

The government was not able to use the tax policies as an effective instrumentof resource mobilization

The essential inelasticity of tax system remained intact with its heavydependence on indirect taxes and certain duties rather than direct taxes

In 1975/76, there was 40% increase in indirect taxes over preceding year

Profits of nationalized enterprises fell off rather quickly as inefficiencies creptin and growth slowed down

Collection from income and corporate tax during the 70s did not exceed 1% ofGDP

There was only a marginal improvement in total federal and provincial taxrevenues from 10.6% of GDP in 1972 to 11.9% in 1976


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Budget Deficit

During the Bhutto Era, budget deficit averaged

over 8% of GDP compared with 2% to 3% in

50s & 4% to 5% in 60s.

Government began to borrow on large scale

for current expenditures


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Trade Policy

Devaluation of Pakistani Rupee by 133%

Export bonus voucher scheme ended

Exports in 1972 increased by 153% and

manufactured exports were grew by 19% Export refinance scheme was started by State

Bank in 1973 and its lending rate was lower thanthe nominal banking rate

Import of luxury items banned

After 2 years of impressive growth, the lastthree years of Bhutto saw a reverse trend


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Inflation Pressure

High Inflation experience during Bhuttos regime

Imported inflation

The international Oil prices hike in 1973-74 and prices of

fertilizers also increased Import cost of petroleum has increased by 300%

Domestic economic policies

There was an increase in currency circulation (deficit

financing) during 72-76 Inflation rose by 20% to the previous growth

Reduction of consumer good and doubling of prices


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Subsidies

To Combat on Inflation, large subsidies were given on:

Wheat Efforts were made to keep wheat prices relatively low and procurement

price was increased from Rs. 0.5 in 1969 to Rs. 1 in 1975 which was 100%

increase

Fertilizers Large direct subsidies on fertilizers and pesticides were given for plant

protection

Energy Oil import bill was rising up although Gas prices were maintained at low

level to encourage use of an indigenous resource. But incentives forincreased production were not attractive and there was greatdependence on imported energy.


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Industrial Sector

Private sector confidence was totally eroded Public sector investment jumped from 5% to 75% in Bhutto

era

Public sector investment was concentrated in projects

which had no immediate pay off Areas such as automobiles, cements and oil refining were

profitable while others incurred losses

Inefficiency of Nationalized units Overstaffing, no accountability and corruption

Government was to appoint their own directors and therewas no parliamentary committee set up for scrutiny


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Agricultural sector

Green revolution in Ayub Khans era boomed theagricultural sector but it reversed in Bhuttos time

The agricultural sector which normally declines

with industrialization in the country, wasdeclining with lower industrial outputs

Despite the land reforms, the agricultural sectorwas poor

One major reason behind dismal growth werenatural calamities but there were other reasonstoo.


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Land Reforms

Land reforms was introduced by Bhutto in 1972 where he offered: The ceiling was lowered to 150 irrigated and 300 unirrigated units

which was 12000 produce index units

Retention of land up to 2000 produce index units for owners whoemployed modern techniques of cultivation

But landlords were not utilizing their lands fully and werecompensated for this land which was net gain to them

There was no as such addition to the land under cultivation in thisperiod where 25% of the land was classified as cultivated

Government was relying on private landowners to increase theacreage under cultivation but no efforts were made


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Labor Reform

They guarantee to the workers their long over

due fundamental rights of freedom and

collective bargaining, assurance old age

pension, free education for children andhousing and medical facilities.

New labor policy added about 12% to the cost

of labor


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Social Services - Education

New education policy was introduced Free and universal education up to class 8

Technical education for all

An educational program for women in rural areas

This was the only sector which was thriving in the erawith improvements

Immediate focus was the nationalization of privateeducational institutions and take over has effected the

quality of education adversely. Total govt. expenditure on education increased from

0.8 million in 1972 to 2.8 million 1976

Female education on primary level did relatively well.


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Bad Luck Factors

August 1973, Massive floods hit Pakistan, importof food grain

October 1973, international petroleum pricesincreased

World recession starts and demand for PakistaniExports remains depressed

Huge failure of cotton crop by as much as 25% atthe time when international cotton prices hadrisen

Worst floods in Pakistani history: agriculturalcrops destroyed and further import of food crops


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Opinions?


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Conclusion

According Oscar Lange, A socialist

government really intent upon socialism hasto decide to carry out the socialist program atone stroke or give it up altogether.

Bhuttos era was the mix of socialism andcapitalism altogether which led to economicdistortion

Not for forget some bad luck factor

The Bhutto era is said to be the dark era forthe economic development of Pakistan

-bhutto by faheem vohra

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