B.COM Part II Notes………………………………………………………Chapter 1
Definition of Economic Development
Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising gross national product and per capital income.
According to Lewis, Economic development means increase in output per head.
According to Michael Todaro, Economic development must be conceived of as a multi-dimensional process involving major changes in social structures, people's attitudes, national institutions, acceleration of economic growth and reduction of inequality.
According to Kindle Berger, Economic development means an increase in output of goods and services in the economy. It is more important than economic growth because economic development is more comprehensive process than economic growth. Economic growth is a quantitative term as it represents quantitative increase in the production of goods, services and factors of production, whereas economic development is a qualitative terms as it indicates continuous increase in real national income and structural changes in the economy of a country.
Definition of Economic Growth Economic growth means more production of goods and services growth is measured in terms of an increase in real gross national product (GNP or GDP) or an increase in per capital income.
According to Micheal Todaro, Economic growth is a steady process by which the productive capacity of an economy increases overtime to bring rising levels of national output and income.
Objectives of Economic Development
1. Increase of supply of food, clothing, health and education facilities.
2. Increase in standard of living of the people.
3. Increase in leisure, political freedom and equal opportunities of life.
4. Increase in capital formation that is new buildings and industries. Measurement Measurement of Economic Development Previously four methods including, national income method, per capital income method, welfare method and social indicators method were used for the measurement of economic development of a country but non of them provided an acceptable answer.
According to Prof. Todaro, The Human Development Index method, which is prepared by United Nations
Development Program is the best method, which should be adopted by the nations and organizations. This method includes the opportunities for education, health, income, employment, environment and economic freedom.
Measurement of Economic Growth
1. Increase in the real gross national product.
2. Increase in the real per capital income.
3. Increase in the general welfare of the masses.
4. Increase in social, economic and human development.
Factors Needed For Economic Growth
Ability of an economy to produce more goods and services depends on the following factors:
1. An increase in stock and quality of its capital goods.
2. An increase in quantity and quality of its labor force.
3. An increase in quantity and quality of its natural resources.
4. An efficient use of factor inputs so as to maximize their contribution to the expansion of output, through improved productivity.
5. Development and introduction of innovative techniques and new products i.e. technological progressiveness.
6. An increase in level of demand to ensure full utilization of the increased productive capabilities of the economy.
Achievement of a high rate of economic growth is one of the main objectives of macro economic policy. The significance of economic growth lies in its contribution to the general prosperity of the community. Growth is desirable because it enables the community to consume more goods and services. It also contributes to the provision of a greater quantity of social goods and services such as health and education, thereby improving real standard of living of the people. Govt. can stimulate growth process by increasing current spending in the economy through tax cuts by Fiscal policy and by increasing money supply and reducing interest rates by adopting Monetary policy.
Economic Factors Needed For Economic Development
1. Natural Resources Natural resources are one of the three main factors of production the other two are labor and capital. Natural resources include area of land, forests, rivers, climate and mines. If a country is rich in better quality of all natural resources, it will develop economically at a fast speed.
2. Capital Formation It is the process of adding net physical capital stock of an economy. Capital formation creates productive potential for future production. Capital formation has three stages namely • savings • financial institutions and capital market for mobilization of savings • act of investment in machinery and buildings.
3. Specialization Output is greater as a result of specialization. Specialization enables an economy to use its scarce resources more efficiently, thereby producing larger volume of goods and services. It increases the rate of economic development of a country.
4. Technology Inventions and innovations reduce manufacturing and distribution costs. Technological progress serves to change cost conditions in the long run; thus technological changes play an important role in the economic development.
5. Transport and Communication Efficient communication facilities increase the production capacity of all sectors of the economy. It reduces cost of production, increases mobility of goods within and outside the country.
6. Entrepreneurship If an entrepreneurship is capable, skillful and trained then out put of his organization will be greater. Entrepreneurship results in the introduction of new types of output, new techniques and new sources of supply of inputs for business and industry.
Non-Economic Factors
1. Social Values and Attitudes It includes culture, religion and life style of a society. Some societies are orthodox and do not like material approach of life. Religion does not allow them to keep themselves busy day in and day out for material prosperity. Most societies believe in festivals and different cultural ceremonies. They do not prefer to save money; hence savings rate reduces too much. In such societies material gains are not appreciated.
2. Political Stability Strong and stable Governments can prepare five-year development plans, they can enforce monetary and fiscal policies and change social attitudes and institutions, which may be progressive one. The frequent changes in Govt. setup results in the lack of concrete economic policy decisions.
3. Administrative Efficiency Educated, trained, skillful and hardworking Govt. officers can push development of a country at a very fast speed, whereas untrained administration of a country retards the economic development.
4. Economic Freedom Private ownership of resources and maximum freedom to deploy these resources in line with profit signals create strong incentives to work hard. If every body is allowed to participate in economic activity, then due to competition the rate of economic development will increase.
5. Right of Private Property Private ownership of the means of production results in the increase in supply of goods and services. In order to own and accumulate profit and property, people work hard, thus trade and business activity flourishes.
Difference between Economic Development and Growth
Economic Development Economic development is a qualitative term as it indicates continuous increase in the real national income and structural changes in the economy of a country. It means increase in output of goods and services in an economy. Economic development is more important than economic growth because economic development is wider and more comprehensive process than economic growth. Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising GNP and per capital income.
Economic Growth Economic growth is a quantitative term as it represents quantitative increase in production of goods and services in an economy. Economic growth is a steady process by which the productive capacity of an economy increase overtime to bring about rising levels of national output and income. Economic growth is the name of more production. Growth is measured in terms of an increase in real gross national product (GNP/GDP) over time or an increase in per capital income.
Definition of Economic Development
Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising gross national product and per capital income.
According to Lewis, Economic development means increase in output per head.
According to Michael Todaro, Economic development must be conceived of as a multi-dimensional process involving major changes in social structures, people's attitudes, national institutions, acceleration of economic growth and reduction of inequality.
According to Kindle Berger, Economic development means an increase in output of goods and services in the economy. It is more important than economic growth because economic development is more comprehensive process than economic growth. Economic growth is a quantitative term as it represents quantitative increase in the production of goods, services and factors of production, whereas economic development is a qualitative terms as it indicates continuous increase in real national income and structural changes in the economy of a country.
Definition of Economic Growth Economic growth means more production of goods and services growth is measured in terms of an increase in real gross national product (GNP or GDP) or an increase in per capital income.
According to Micheal Todaro, Economic growth is a steady process by which the productive capacity of an economy increases overtime to bring rising levels of national output and income. Objectives of Economic Development 1. Increase of supply of food, clothing, health and education facilities. 2. Increase in standard of living of the people. 3. Increase in leisure, political freedom and equal opportunities of life. 4. Increase in capital formation that is new buildings and industries. Measurement Measurement of Economic Development Previously four methods including, national income method, per capital income method, welfare method and social indicators method were used for the measurement of economic development of a country but non of them provided an acceptable answer.
According to Prof. Todaro, The Human Development Index method, which is prepared by United Nations Development Program is the best method, which should be adopted by the nations and organizations. This method includes the opportunities for education, health, income, employment, environment and economic freedom.
Measurement of Economic Growth
1. Increase in the real gross national product.
2. Increase in the real per capital income.
3. Increase in the general welfare of the masses.
4. Increase in social, economic and human development.
Factors Needed For Economic Growth
Ability of an economy to produce more goods and services depends on the following factors:
1. An increase in stock and quality of its capital goods.
2. An increase in quantity and quality of its labor force.
3. An increase in quantity and quality of its natural resources.
4. An efficient use of factor inputs so as to maximize their contribution to the expansion of output, through improved productivity.
5. Development and introduction of innovative techniques and new products i.e. technological progressiveness.
6. An increase in level of demand to ensure full utilization of the increased productive capabilities of the economy.
Achievement of a high rate of economic growth is one of the main objectives of macro economic policy. The significance of economic growth lies in its contribution to the general prosperity of the community. Growth is desirable because it enables the community to consume more goods and services. It also contributes to the provision of a greater quantity of social goods and services such as health and education, thereby improving real standard of living of the people. Govt. can stimulate growth process by increasing current spending in the economy through tax cuts by Fiscal policy and by increasing money supply and reducing interest rates by adopting Monetary policy.
Economic Factors
Economic Factors Needed For Economic Development
1. Natural Resources Natural resources are one of the three main factors of production the other two are labor and capital. Natural resources include area of land, forests, rivers, climate and mines. If a country is rich in better quality of all natural resources, it will develop economically at a fast speed.
2. Capital Formation It is the process of adding net physical capital stock of an economy. Capital formation creates productive potential for future production. Capital formation has three stages namely • savings • financial institutions and capital market for mobilization of savings • act of investment in machinery and buildings.
3. Specialization Output is greater as a result of specialization. Specialization enables an economy to use its scarce resources more efficiently, thereby producing larger volume of goods and services. It increases the rate of economic development of a country.
4. Technology Inventions and innovations reduce manufacturing and distribution costs. Technological progress serves to change cost conditions in the long run; thus technological changes play an important role in the economic development.
5. Transport and Communication Efficient communication facilities increase the production capacity of all sectors of the economy. It reduces cost of production, increases mobility of goods within and outside the country.
6. Entrepreneurship If an entrepreneurship is capable, skillful and trained then out put of his organization will be greater. Entrepreneurship results in the introduction of new types of output, new techniques and new sources of supply of inputs for business and industry.
Non-Economic Factors
Non-Economic Factors
1. Social Values and Attitudes It includes culture, religion and life style of a society. Some societies are orthodox and do not like material approach of life. Religion does not allow them to keep themselves busy day in and day out for material prosperity. Most societies believe in festivals and different cultural ceremonies. They do not prefer to save money; hence savings rate reduces too much. In such societies material gains are not appreciated.
2. Political Stability Strong and stable Governments can prepare five-year development plans, they can enforce monetary and fiscal policies and change social attitudes and institutions, which may be progressive one. The frequent changes in Govt. setup results in the lack of concrete economic policy decisions.
3. Administrative Efficiency Educated, trained, skillful and hardworking Govt. officers can push development of a country at a very fast speed, whereas untrained administration of a country retards the economic development.
4. Economic Freedom Private ownership of resources and maximum freedom to deploy these resources in line with profit signals create strong incentives to work hard. If every body is allowed to participate in economic activity, then due to competition the rate of economic development will increase.
5. Right of Private Property Private ownership of the means of production results in the increase in supply of goods and services. In order to own and accumulate profit and property, people work hard, thus trade and business activity flourishes.
Difference between Economic Development and Growth
Economic Development Economic development is a qualitative term as it indicates continuous increase in the real national income and structural changes in the economy of a country. It means increase in output of goods and services in an economy. Economic development is more important than economic growth because economic development is wider and more comprehensive process than economic growth. Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising GNP and per capital income.
Economic Growth Economic growth is a quantitative term as it represents quantitative increase in production of goods and services in an economy. Economic growth is a steady process by which the productive capacity of an economy increase overtime to bring about rising levels of national output and income. Economic growth is the name of more production. Growth is measured in terms of an increase in real gross national product (GNP/GDP) over time or an increase in per capital income.
B.COM Part II Notes………………………………………………………Chapter 2
AGRICULTURAL DEVELOPMENT
Importance of Agriculture
Agriculture is backbone and the largest sector of Pakistan's economy, which plays a very important role in its development. It provides food i.e. wheat, rice, pulses, vegetables, fruit and other items for growing population of the country. Nearly 22% of total output (GDP) and 44.8% of total employment is generated in agriculture. It contributes substantially to Pakistan's exports.Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products. Performance of agriculture during the year 2005-06 has been weak because its crops sector particularly major crops could not perform up to the expectations. Growth in the agriculture sector registered a sharp recovery in 2006-07 and grew by 5.0 percent as against the preceding year's growth of 1.6 percent. Agriculture employs 30% of work force. Country's 67% population lives in villages. It contributes about 25% to GDP. It provides raw material such as cotton, sugarcane, tobacco, cottonseed, edible oil seeds, citrus fruits, leather, wool, wood and other items for various industries. Major crops accounting for 35.2% of value added in agriculture, registered a decline of 3% as production of two of the four major crops, namely cotton and sugarcane has been significantly less for a variety of reasons including excessive rains at the time of sowing, high temperature at flowering stage, late harvesting of wheat crop, strong base effect (cotton) and incidence of frost, damaging sugarcane crop in the month of January 2006. Pakistan's agriculture has been suffering, off and on, from severe shortage of irrigation water in recent years.
Main Features of Agriculture
1. Main source of food supply.
2. Provides employment opportunities.
3. Major source of national income.
4. Provides raw material for industries.
5. Good market for agricultural machinery and equipment.
6. Market for fertilizers, pesticides and insecticides.
7. Main sour of foreign exchange earnings.
8. Expands industrial goods market.
Major Agricultural Crops.
There are two principal crop seasons in Pakistan, namely Kharif, sowing season begins in April-June and harvesting during October-December and Rabi, which begins in October-December and ends in April-May. Rice, sugarcane, cotton, maize, bajra and jowar are Kharif crops, whereas,wheat, gram, tobacco, rapeseed, barley and mustard are Rabi crops. Major crops wheat, rice, cotton and sugarcane account for 90.1 percent of the value added in the major crops.
1. Cotton Cotton is not only an export-earning crop but also provides raw material to the local textile industries. Pakistan is one of the largest cotton producing and consuming countries in the world. Under the WTO post quota scenario, the country appears to have the potential of becoming a leading force in the worldwide cotton and textile market place. There is also growing realization in the country that future gains in value added from cotton are only possible through qualitative improvement in raw cotton. Cotton accounts for 8.6 percent of the value added in agriculture and about 1.9 percent in GDP. Factors responsible for the decline in cotton production include: • Excessive rain at the time of sowing. • High temperature at flowering stage. • Late wheat harvesting resulting in decline of area under the crop. • Pest attack in some cottons growing areas of Punjab and Sindh.
2. Rice Rice is an important food cash crop. It is also one of the main export items of country. It accounts for 5.7 percent of the total value added in agriculture and 1.2 percent to GDP. Area and production target of rice for the year 2006-07 were set at 2575 thousand hectares, 0.2 percent higher than the target and 4% higher than last year. The size of the crop estimated at 5438 thousand tons, 2.0 percent lower than the last year and 4.5 percent lower than the original target.
3. Sugarcane Sugarcane crop serves as a major raw material for production of white sugar and gur. Sugarcane crop is highly water-intensive and an important crop. Sugar production in the country mostly depends on this crop, though a small quantity of sugar is also produced from sugar beet. Its share in value added of agriculture and GDP are 3.5 percent and 0.7 percent respectively. The higher sugarcane production is the result of increase in area, timely rains and judicious application of fertilizer, improvement in cultural practice, better management and attractive prices offered by the millers.
4. Wheat What is the main staple diet of country's population and largest grain crop of the country. It contributes 14.4 percent to the value added in agriculture and 3.0 percent to GDP. Area and production target of wheat for the year 2006-07 were set at 8459 thousand hectares and 22.5 million tons respectively. Wheat was cultivated on an area of 8494 thousand hectares, showing 1.0 percent increase over last year and 0.4 percent increase over the target. The size of wheat crop is, however provisionally estimated at 23.52 million tons, highest wheat production in the country's history, which is 10.5 percent higher that last year and 4.5 percent higher than the target. Higher production is due to following reasons. • The certified wheat seed availability was 50,000 tons more than last year to 2,17,000 tons. • The urea fertilizer availability for Rabi crop was 4.714 tons, which was more than the area requirements of 2.9 million tons for Rabi. Moreover subsidy was extended to phosphatic and potassic fertilizers. The price of 50 kg. bag of these fertilizers were reduced by Rs. 250 and further to Rs. 400 per bag to promote balanced use of fertilizers. • The water availability for Rabi was 31.2 million acre feet. This was an improvement of 3.7 percent over the last year Rabi water use of 30.1 million acre feet. • Last year the agricultural credit disbursement to farmers was Rs. 130 billion. This year credit availability has been increased to Rs. 160 billion. The banks were also instructed to focus on small and medium scale growers for credit disbursement.
Minor Agricultural Crops.
1. Oilseeds The major oilseed crops include cottonseed, rapeseed/mustard, sunflower and canola etc., the total availability of edible oils in 2005-06 was 2.905 million tons. Local production stood at 0.793 million tons which accounts for 27 percent of total availability while the remaining 73 percent was made available through imports. During 2006-07 local production of edible oil is provisionally estimated at 0.855 million tons. During this period, 2.201 million tons edible oil was imported and 0.349 million tons edible oil was recovered from imported oilseeds. The total availability of edible oil from all sources amounted to 3.405 million tons during 2006-07.
2. Other Minor Crops The production of two pulses namely mung and masoor were higher by 21.5 percent and 17.9 percent respectively during 2006-07. However production of mash decreased by 3.6 percent. The main reason for decline in production of mash as compared to last year has been the shortfall of area dedicated to the crop, which declined by 4.6 percent. The production of potato was significantly higher by 67.2 percent and stood at 2622.3 thousand tons while it was 1568 thousand tons last year. However the production of onion decreased by 14.3 percent mainly due to 16.5 percent reduction in corp area. The production of chilies is decreased by 49.6 percent as 32.4 percent area of the crop decreased due to excessive rains in Sindh.
Problems of Agriculture
1. Old Methods of Cultivation Primitive methods of cultivation i.e., use of wooden Hul, Phaora, Sohaga and Bail (Oxen) cannot increase output. It is therefore the need of the day that our farmers should use tractors, threshers, bulldozers and tube-wells.
2. Shortage of Finance Our farmer is poor. In order to meet his demand he borrows money from relatives, friends and money lenders at a very high interest rate. Due to shortage of finance he cannot adopt new methods of cultivation.
3. Lack of Irrigation Facilities Development and progress of agriculture is based on regular supply of sufficient quantity of water. Rains in Pakistan are uncertain and unpredictable, whereas irrigation system is
unsatisfactory. Inadequate water supply through irrigation system, i.e., from wells, ponds and canals are causing low agriculture productivity.
4. Under Utilization of Cultivation Land The total area of Pakistan is 80 million hectares out of which 22 million hectares of land i.e. 25% land is being cultivated. Due to various reasons a greater potion of land is not used for cultivation purpose, that's why our agriculture output is low. We should bring a greater portion of land under the use of agriculture.
5. Uneconomic Holdings It means small area of land, which is uneconomical to cultivate. Due to inheritance system, land is divided and subdivided into small pieces, making it uneconomical to cultivate. Small and scattered holdings produce less output.
6. Concentration of Land Ownership In Paksitan, Jagirdars and Zamindars who one majority of land area live in big cities and do not take much interest in the development of agriculture. They give their lands to landless people for cultivation on the basis of heavy Lugan and Batai (some agreed proportion of output). Since a greater portion of output goes to the zamindars and very less is left to small and poor peasants, they get frustrated and do not take interest to raise productivity.
7. Inadequate Supply of Inputs Our farmers uses poor quality seeds. Due to lack of finance and ignorance he do not use fertilizers, insecticides, pesticides, improved high yielding seeds and modern machinery, therefore his output keeps on decreasing.
8. Water Logging and Salinity With the continued use lands have become waterlogged and saline. Excess and salty water is very harmful for production of agricultural goods. This situation is decreasing area of cultivatable land.
9. Soil Erosion Winds and floods take away fertility of land, causing the land sandy and barren, thus output decreases drastically.
10. Natural Calamities Heavy rains, floods, droughts, hailstorms and pest attacks are frequent in our agricultural sector causing heavy damages to the standing crops.
11. Insufficient Infrastructure Stores, power supply and road facilities are very less, which hampers development of agriculture sector. Produce is stored on open places, which is destroyed due to rain, winds and insects.
12. Absence of Regulated Markets Markets are far away and there is no transport with the farmers. It is very difficult to carry the products to far-flung markets therefore farmers are forced to sell their produce at a low price to the local commission agents.
13. Lack of Education and Training Our farmer is uneducated and untrained. He does not know the latest multiple cropping, pest, control equipment, the use of technology and other modern farming practices. All this results decrease in output per hectare.
14. Improper Agriculture Research Research facilities in agricultural sector result in the development of better quality seeds, modern storage facilities, economical use of water, cheap fertilizers, effective low cost insecticides and locally produced cheap machinery. Due to shortage of funds proper research is not being carried out in this field.
15. Lack of Alternative Occupations In case of failure of crop due to some reason, our farmers become distressed. They live from hand to mouth and their source of income dries down. There is lack of agro-based industries such as dairy, poultry and livestock farms, which may increase income of farmers during off-season.
Measures for Improving Agricultural Marketing
1. Department of Agricultural Marketing Government has established Agricultural Marketing Department in order to improve marketing system of agricultural crops. Department surveys the agricultural marketing and prepares its recommendations for provincial departmental. It also develops agricultural cooperative marketing.
2. Construction of Farm to Market Roads Government is constructing roads and bridges to link farms with markets in order to reduce time and cost of transportation. Quick and easy accessibility of markets will increase income of farmers and their economic position will improve.
3. Price Awareness Govt. through newspapers, radio and television is providing information to farmers about current prices of different crops, fertilizers, insecticides and other inputs, which are prevailing in different markets and cities. Special programs are being broadcast regularly for awareness about modern techniques of cultivation. Modern methods of cultivation are being taught through TV programs.
4. Big Stores and Cold Storages Stores and cold storages are being constructed in regulated markets so that the farmers output may not be destroyed. These facilities also help in stabilizing prices of the produce. Tax concessions are given to those who construct stores.
5. Regulated Markets and Uniform Weight Measurements Regulated markets are being set up and uniform weights and measurement system has been introduced so that the farmers may not be cheated and they may get the proper return of their produce. In regulated markets, Market Committee system has been introduced which controls and solve these problems. Moreover attention is being paid on standards and grade of the produce.
6. Education and Training Main cause of all evils in agricultural sector is lack of education and training of farmers. Govt. has started providing education/training facilities about modern methods of cultivation and marketing of agricultural output. Staff of regulated markets is being trained in order to manage marketing system in a decent manner.
INDUSTRIAL DEVELOPMENT
Importance of Industries Industries play a dominant role in the economic development of a country. Western countries enjoy all comforts and luxuries of life due to higher productivity of goods and services in their countries. This is due to industrialization. Unfortunately there were no industries when Pakistan came into being but now wit the efforts of Govt. and the people there is an improvement in this regard however more is required to be done. The overall manufacturing sector continued on its strong positive trend during the current fiscal year 2006-07. Overall manufacturing recorded and impressive and broad based growth of 8.45 percent in 2006-07, against last year's growth of 9.9 percent. Large scale manufacturing account for 69.5 percent of overall manufacturing registered an impressive growth of 8.75 percent in the current fiscal year 2006-07 against last year's achievement of 10.68 percent. There has been a slight decline in growth in the manufacturing sector due to multiple reasons like reduced production of cotton crop, sugar shortage, steel and iron problems and the last but not the least global oil prices. All of these reasons contributed to reduced growth in 2006-07 but high levels of liquidity in the banking system, an investment friendly interest rate environment, a stable exchange rate, low inflation, comfortable foreign exchange reserves, stronger domestic demand for consumer durables and high business confidence among other things will again boost the manufacturing sector growth rate up to a reasonable level.
Main Industries of Pakistan
1. Textile Industry The share of textile industry in the economy along with its contribution to exports, employment, foreign exchange earnings, investment and value added makes it the single largest manufacturing sector. It contributes around around 8.5% to GDP, employs 38% of total manufacturing labor force and contributes between 60-75% to total merchandise exports. Pakistan is one of the largest textile exporters in the world. The variety of products ranges from cotton yarn to knitwear. Garment made-ups and bed wear are most important export products with an export value of about $1.35 billion each. Knitwear, ready-made garments and cotton yarn also have important shares in total exports. Major importers of textile products are USA, European Union, UAE and Saudi Arabia.
2. Automobile Industry The auto industry growing is fast and may soon begin to achieve economies of scale. The tremendous rise in automobile demand has resulted in increased production, giving a healthy impetus to industrial output and generating over 1,50,000 direct employment opportunities besides contributing tax revenue to the Govt. since 2001-02 the automobile market is growing rapidly by over 40% per annum. Long-term investment friendly policies of Govt. and up-gradation of production facilities considered as pre-requisite by experts.
3. Fertilizer Industry In order to promote the use of fertilizer. Govt. offered various incentives, which ultimately resulted in excessive demand for fertilizer. The fertilizer use in Pakistan is a growth story in the field of agriculture. Presently they are 10 manufacturing units in operation. Out of these, four units are located in public sector and six are in private sector. The average annual growth of the fertilizer sector is at 6% per annum. Its share in GDP is 0.5%.
4. Paint and Varnish Industry There are 22 units in organized and 400 units in unorganized sector for the manufacture of paints and varnishes. The per capital consumption of paints in Pakistan is low. The demand for paints and varnishes is rising due to the resurgence of housing and construction sector.
5. Cement Industry Cement industry has shown significant growth. At the moment there are 27 cement manufacturing units in the country. The boost during the period in the performance of cement industry activity is because of high level of construction activity in country and increased development expenditure of the government.
6. Home Appliance Industry Production of television, refrigerators, deep freezers and air conditioner has almost doubled in the last three years. The pace of growth in demand for home appliances is the direct result of the banks and leasing companies policy of consumer financing package. Many dealers have initiated their own schemes of easy installments, which is further increasing demand.
Importance of Industries in Economic Development
1. Increase in National Income Progress of industrial sector of the country results greater production of goods and services. Output of goods and services is known as GDP. Increase in national income increases per capital income of the people. Higher per capital increases general welfare of people and standard of living of masses improves.
2. Increase in Employment Opportunities Industries create may types of employment opportunities. Disguised unemployment prevailing in agricultural sector is removed as labor moves for jobs to the cities. Increase in employments results increased savings, which is utilized for further investment in industries.
3. Increase in Productive Capacity Industrialization increases productive potential. Specialization results in mass production of superior quality goods at a cheaper cost. Greater employment opportunities increase income; income increases demand for goods for goods and services and increases in demand increases investment in industries and other sectors of economy. Effective demand through acceleration principle increases investment and a small investment through multiplier effect increases national income many times and in order to meet demand of people productive capacity develops.
4. Development in Agriculture Agriculture is backbone of the economy of Pakistan whereas agriculture itself depends upon the progress of industries. Industries produce all inputs that are needed by agriculture such as fertilizers, insecticides and machinery etc. Agricultural output such as cotton, sugarcane, edible oils, fruits, tobacco etc becomes input for industries. All these factors increase income of farmers. Thus agriculture and industries are inter-dependent sectors of economy.
5. Increase in Government Revenue Industries provide revenue to the Govt. through different sources such as tax on the profit of the company, income tax, sales tax, excise duty, import duty, export duty. Thus industries provide a greater proportion of taxes to the Govt.
6. Improvement in Balance of Payments Exports of industrial goods increases foreign exchange earnings. Likewise processing of raw material reduces expenditure on imports and foreign exchange earnings improve balance of payments of Pakistan.
7. Economic Stability and Political Domination Arms, ammunitions, communication appliances, vehicles and other defense requirements are produced by domestic industries, which make defense of Pakistan strong. Industrialization provides economic and political stability. It provides name and fame in international community. Hence a political domination is achieved.
Measures for Industrial Development
1. Industrial Trading Estates Government has established industrial trading estates where the entire basic infrastructure such as road, communication, water, gas, power, banks, police protection etc., has been provided. Most famous industrial estate of Pakistan is Sindh Industrial Trading Estate.
2. Technical Training Centers In order to remove shortage of technical labor, Govt. has established Polytechnic Institutes and colleges in various industrial cities.
3. Tax Concession In order to develop industrial sector, Government has granted tax holidays and concessions to the industries.
4. Research Institutes For progress and development of industries Government has established many research institutes, which are directly or indirectly assisting industrial sector. The most important research
institutes are Pakistan council of Scientific and Industrial Research, Central Testing Laboratories and Pakistan Standard Institute.
5. Protection Policy In order to protect new and infant industries, Government has adopted the protection policy for new industries i.e., Goods, which are produced by the local industry are not allowed to be imported, so that local industry may grow quickly. 6. Export Processing Authority/Zones Separate export processing zones have been established where those industries are established which are engaged in production of exportable goods. Entire infrastructure is made available their and all facilities are given to these industries in order to increase export earnings of the country.
7. Export Promotion Bureau This Government department helps in the exports of locally produced goods by arranging exhibition, seminars and inviting prospective foreign investors. It also arranges exhibitions of Pakistani products in international markets and disseminates different types of information for progress and development of industrial sector.
8. Provision of Industrial Credit In order to meet loan requirement, both in local and foreign currency, Govt. has established many financial institutions such as Industrial Development Bank of Pakistan, Pakistan Industrial Credit and Investment Corporation., Investment Corporation of Pakistan, National Investment Trust etc.
9. Investment-Friendly Rate of Interest Government has reduced rate of interest so that the investors may feel happy to borrow and invest in industrial sector. Low rate of interest increases margin of profit thus businessmen establishes more industries in the country.
10. Revival of Sick Industries Many industries, which had 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 the country may increase.
11. Privatization Policy Most of the State owned industries are inefficient and are running in losses, when these will be transferred to private sector, their administration will improve and non-development expenditures decrease to a greater extent, their efficiency will increase and such industries will be converted into profitable ventures.
Small Scale Industries.
Importance of Small-Scale Industries
1. Use of Local Machinery and Local Raw Material Small industries can be set up easily because no technical and administrative expertise and training is required. Since in it local machinery and local raw material is used therefore no foreign exchange is required.
2. Employment Opportunities These industries provide greater employment opportunities to local people. The disguised unemployment is reduced and migration of people towards cities for search of jobs is reduced. Since unemployment person can get job in small industries, the rate of dependent persons is reduced.
3. Increase in Standard of Living These industries provide job opportunities, income of people increases, which result in the increase in standard of living. These also reduced income disparity between the rich and the poor.
4. Increase in Export Earnings Foreigners heavily demand goods produced by small industries, which results in the increase in foreign exchange earnings of Pakistan. These enterprises increase name and fame of Pakistan in international market.
5. Act as By-Product and Subsidiary Industries Small industries purchase wasted raw material of large industries to be used in their own production process, thus they increase income of large-scale industries. These industries manufacturing nuts, bolts and spare parts required by large industries at a very low price, hence both of them are benefited with each other.
6. Expansion in Home Market SMEs produce goods keeping in view needs and requirement of local market therefore home market is expanded. Increased supply of goods increases business activity and national income. With increase in output the prevailing high rate of inflation can be controlled.
7. Diversification in Industrial Products Goods using different types of material result in diversification of product. Different varieties of goods are produced according to the demand of different customer's purchasing power.
Privatization Policy. Privatization is a process by which Govt. owned factories and services are transferred to private sector by their sale. Foreign investors can also purchase these industries and services. In order to sale Govt. enterprise open bids are invited from private sector. In some cases shares of the enterprises are sold through Stock Exchanges. Deregulation means reducing the rules and regulations and to make investment easy for local and foreign investors. Now any foreign national can set up his business anywhere in Pakistan without under going a complicated procedure of government permission. Privatization process varies somewhat depending on the nature of the asset being privatized, on the proportion of shares being offered for privatization and on whether a transfer of management is involved. Privatization Commission prepares the summary justifying the need for privatizing the property and the regulatory framework. Once endorsed by the Board of Privatization Commission, it is submitted to Cabinet for approval.
Advantages of Privatization.
1. Increase in efficiency and Profitability Most Govt. industries and services are inefficient and running in losses, when these will be transferred to private sector, their administration will improve and non-development expenditures will be reduced, their efficiency will increase and will be converted into profitable ventures.
2. Increase in Foreign Investment and Export Earnings Privatization will increase foreign investment when foreigners will purchase them. Their production will increase which will more foreign exchange for Pakistan and if these enterprises are set up by foreign loans, these loans will be repaid out of the sale proceeds, which will reduce the burden of foreign loans.
3. Broaden the Base of Share Capital and Stock Market Sale of enterprises through stock exchanges will broaden the base of share capital hence stock market will develop, because general public will be in position to purchase their shares and investment opportunities for general public will increase.
4. Decrease in Political Pressure There are always political pressures on Govt. owned industries, banks and other institutions for employment of political workers and loan facilities from banks. When these enterprises will go in the hands of private owners then these illegal pressures will be reduced to a great extent.
5. Use of Latest Technology and Know-How Private domestic investors and foreign investors will adopt latest technology and know-how for the increase in output and their profits. This will result in the increase in national product, thus national income of the country will grow.
6. Decrease in Deficit Budgeting and Increase in Infrastructure Govt. enterprises usually run into losses and to keep them going. Govt. provides funds every year. After privation, Govt. need not to resort to deficit financing and the funds provided to these enterprises will be utilized for construction of social infrastructure of the economy.
Disadvantages of Privatization.
1. Increase in Tax Evasion Private sector generally tries to avoid payment of taxes. Thus privatization of enterprises will result in the decrease of tax income.
2. Concentration of Wealth Privatization of large industrial units and services sector such as banks and insurance companies will increase concentration of wealth in private hands. It means only rich people will reap the fruits of industrialization and the society will be divided between "haves and have-nots".
3. Exploitation by Private Sector Privatization will result in exploitation by rich people. They may charge more prices for their goods and services. They may terminate workers to reduce cost of production. Thus different types of exploitation may be started and the concept of welfare state for Pakistan will be jeopardized.
4. National Security Endangered Telecommunication, Civil Aviation (Airlines) and railways if privatized then it would be a security risk for the country.
