Economy in shambles

Tragically, we have innumerable useless governmental departments that are incessantly failing to perform the functions for which they were formed - for example the Federal Board of Revenue that, after utter failure to tax the rich and mighty, has now decided to rob the existing taxpayers through the Presidential Ordinances promulgated on March 15, 2011.
Another example is that of Agricultural Census Organisation (ACO), an attached department of the Statistics Division of the Ministry of Finance and Economic Affairs, was established in 1958 to liaison with the concerned provincial government departments, planning, and supervising field operations in the whole country including Azad Jammu & Kashmir, Tribal Areas and Northern areas of Gilgit and Baltistan. But it has failed to achieve this goal miserably - like many of its sister concerns. On visiting the website (http://www.statpak.gov.pk/aco/home) of ACO, one would be shocked to see that the last agricultural census available is for 2000. According to information available at the website, the ACO would publish the agricultural census 2010 by 30 June 2012! In between - nothing!! The latest (sic) work published by the ACO is 'Pakistan Mouza Statistics 2008' and 'Pakistan Livestock Census 2006'. Admittedly, the government has no agricultural census since 2000.
The figures relating to agriculture available in the Economic Surveys of Pakistan, a yearly publication of the Ministry of Finance, released before the announcement of the national budget, are also highly debatable. But these confirm little improvement in the utilisation of land and development of livestock. One of the reasons for growing poverty is mass migration of people from the rural areas to the urban sectors. We have failed to create new employment opportunities in the rural areas by not establishing agro-based industries. With farm mechanisation during the last four decades, a vast majority of the rural population in the agricultural sector was rendered jobless and was forced to seek menial jobs in nearby towns or in big cities. Urban centres lacking facilities to accommodate massive migration have been converted into ghettos, while the rural areas remain backward as nothing substantial is being done to improve their infrastructure. This is the sad story of Pakistan since its inception.
In the Economic Survey for 2006-2007 [page 15], it was observed, "agriculture continues to be the single largest sector, a dominant driving force for growth and the main source of livelihood for 66 percent of the country's population. It accounts for 20.9 percent of the GDP and employs 43.4 percent of the total workforce. As such, agriculture is at the center of the national economic policies and has been designated by the government as the engine for national economic growth and poverty reduction. Agriculture contributes to grow as a supplier of raw materials to the industry as well as a market for industrial products and also contributes substantially to Pakistan's export earnings. Thus any improvements in agriculture will not only help the country's economic growth to rise at a faster, rate but will also benefit a large segment of the country's population".
The above rhetoric, when juxtaposed with the fact that after 2000 we had no agricultural census, makes a mockery of everything. This merely shows what we are doing with agriculture, which according to official admission, "is at the center of the national economic policies and has been designated by the Government as the engine of national economic growth and poverty reduction". If so, the facts speak otherwise.
In the latest Economic Survey of Pakistan (2009-2010) at page 13, the government admitted unabated failure in improving this vital sector of the economy in the following words:
"Despite its critical importance to growth, exports, incomes, and food security, the agriculture sector has been suffering from secular decline. Growth in the sector, particularly in the crop subsector, has been falling for the past three decades. Productivity remains low, with yield gaps rising. Critical investments in new seeds, farming technology and techniques, and the water infrastructure are not being made. Without major new investments in agriculture, it is unclear how prepared Pakistan would be to tackle emerging challenges, such as declining water availability, and climate change".
It was observed at the same page that: "the agriculture sector continues to play a central role in Pakistan's economy. It is the second-largest sector, accounting for over 21 percent of the GDP, and remains by far the largest employer, absorbing 45 percent of the country's total labour force. Nearly 62 percent of the country's population resides in the rural areas, and is directly or indirectly linked with agriculture for their livelihood. The agriculture sector's strong linkages with the rest of the economy are not fully captured in the statistics. While on the one hand, the sector is a primary supplier of raw materials to downstream industry, contributing substantially to Pakistan's exports, on the other, it is a large market for industrial products such as fertiliser, pesticides, tractors and agricultural implements".
It is really painful to note that even after knowing the critical importance of the agriculture sector and its deteriorating state, no government - civil and military alike - has done anything significant for changing the state of affairs. Efforts are only confined to expressing concerns in government publications or indulging in rhetoric here and there. The fact is that during the last six decades, agriculture has grown at the rate of less than 4 percent per annum - which is simply deplorable. There was no consistency in policies and actions that resulted in unpredictable variation in growth - between 6.5 percent and 1.0 percent. The major reason for this unnatural fluctuation was heavy dependence on major crops.
During 2009-10, the overall performance of agriculture sector was pathetically much below the targets fixed. The growth rate was less than 2.5 percent against the expected 3.5 percent. According to government's own admission, "major crops, accounting for 32.8 percent of agricultural value added, registered a negative growth of 0.2 percent as against robust growth of 7.3 percent in 2008-09". It is an admitted fact that minor crops, contributing 11.1 percent to overall agriculture, posted negative growth of 1.2 percent. Production of minor crops continuously declined for the five years since 2004-05, a worrying trend which, according to Economic Survey, "is partially contributing to food price inflation".
Food inflation is playing havoc with the lives of common people who, an already victims of an uncontrolled and unchecked price hike, hit by a horrifying natural calamity - unprecedented floods bringing devastation of inconceivable magnitude - are finding it extremely difficult to meet both ends. Many experts fear a great decline in GDP, substantial fall in taxes, food shortages, more debts, all-time high fiscal and current account deficits and an unbelievable soaring inflation. During hard times, unscrupulous traders demand prices of their choice. The unprecedented rise in the prices of eatables has created further problems for the many poor who have meagre incomes.
According to figures released by the Federal Bureau of Statistics (FBS), the Sensitive Price Index (SPI) during the week ending on March 12, 2011 showed a substantial surge over the corresponding period of the previous year. Increase in the weekly inflation was caused by major increase in prices of kitchen items, overburdening the already poverty-struck segments of our society. The inflation rate of over 14% was admitted by FBS in February 2011. There was increase of over 170% in prices of items like onions and tomatoes in February 2011, as compared to the same month in 2010.
In the wake of floods in 2010, many economists predicted that inflation would keep on soaring and it has proved to be the correct assessment. Not only inflation has been continuously rising, it is badly hitting low-income groups due to the constant increase in the prices of essential food items and frequent hikes in petroleum products that further aggravate the situation for them, stemming from high cost of transportation.
The FBS revealed that out of the 53 surveyed items, the prices of 50 essential items increased (by as much as 128 percent in some cases) during the week as compared to the previous year. Traditionally, pulses, rice, and roti are considered essential components of a poor man's meal. The FBS statistics showed that masoor pulse price surged by nearly 34 percent, gram pulse rate increased by 53 percent and the hike in the prices of moong and maash pulses was also over 45 percent. The price of average quality wheat flour increased by over 20 percent.
The average quality wheat also became costlier by 22 percent. The rates of basmati and irri-6 rice also increased above 30 percent. Low-income groups are not happy with their lives. Government servants complain that the increase in their salaries, which the government announced in the federal budget 2010, was not proportionate to meet daily needs at a time when the rate of essential commodities was increasing on an hourly basis.
In its 63 years of existence, Pakistan at this point in time is grappling with the worst inflationary pressure. Official statistics admit that consumer price index has increased forty-nine fold during the period 1949-50 to 2009-10. The government was expecting an annual inflation target of 6.5 percent during 2007-08, which was raised to 12 percent for 2008-09 and 14 percent from 2009-10. Food inflation in June 2010 soared to a record high of 28 percent. The core inflation (non-energy and non-food) escalated to 13 percent in June 2010, as compared with the modest figure of 5.7 percent in the same month last year.
The Wholesale Price Index (WPI), which is generally used to measure the cost of production, registered a record increase of 16.21 percent during 2009-10. SPI, which reflects the prices of 53 essential commodities, mostly kitchen items, recorded a disturbing rise of 28-37 percent during the last week of FY 2009-10. CPI recorded worrisome and substantial rise of 21.83 percent in June 2010 over the corresponding month of last year. This unhealthy trend prior to the floods is now bound to aggravate further.
From FY 2001 to FY2010, the situation started deteriorating and upward surges in SPI became continuous and at a rapid pace. From 2001-02 to 2006-07, the annual rate of increase was around 7 to 11 percent. The government policy of more and more reliance on indirect taxes was the real cause behind this disturbing trend. In the total revenue collection of the Federal Board of Revenue (FBR) from 2002-2003 to 2009-10, the share of indirect collection was between 65 to 70 percent.
The steady momentum of inflation during the last twenty months is also related to increase of one percent in the General Sales Tax (GST) from 16 percent to 17 announced in the budget 2010. The SPI surges are directly related to rise in poverty. According to Centre for Research on Poverty and Income Distribution (CRPID), there are 63 percent of poor in Pakistan in the category of the 'transitory poor'.
The State Bank of Pakistan (SBP) also admitted this fact in its annual reports that the standard definition of 'transitory poor', includes those households that are below the poverty line for most of the time but not always during a defined period. The rest of the 32 percent and 5 percent of the population subsisting below the poverty line have been found to be 'chronic' and 'extremely poor', respectively. Chronic and extremely poor are households that are always below the poverty line, at all times during a defined period. Similarly, on the other side, 13 percent and 21 percent of total non-poor (above the poverty line) were classified as 'transitory vulnerable' and 'transitory non-poor', respectively.
The cost of electricity has increased 23.3 percent during the last 8 months. Frequent POL price hikes have been playing havoc with the lives of the ordinary peoples as ultimately these push everything upwards, making life miserable for the have-nots. Take just the example of dal moong that registered an increase of 100 percent in just seven months.
This portrays an alarming situation as with a rise in inflation, more and more people will move from the transitory category to chronic category, courtesy inequitable distribution of wealth, unjust economic system and regressive tax policies. Rulers in Pakistan have never shown any concern for redistributive economic and social justice as their political goal - not even mentioned in the manifestos of all the political parties.
The 15% surcharge imposed from 15 March 2001 to 30 June 2011 on income tax, withdrawal of sales tax exemption on tractors and increase in the rate of federal excise through Presidential Ordinances, has once again proved that there is no will to tax the rich and mighty. No tax is imposed on the sprawling bungalows, huge commercial buildings, absentee landlords, services of clubs enjoyed by the elite and wasteful spending, eg marriage parties in 5-star hotels etc. By levying taxes on the weak sections of society, the government is bent upon aggravating the situation without realising the magnanimity of the prevalent financial crisis that may lead to civil commotion.
(The writers, tax lawyers, are Adjunct Professors at Lahore University of Management Sciences.)