Course: Economic Development of Pakistan-I (4659) Semester: Autumn, 2021
Level: M.Sc.
Assignment No.2
Q.1 How did the “terms of trade” affect the nature and extent of a country’s development? Explain your answer in detail.
ANS
The terms of trade (TOT) is the relative price of exports in terms of imports[1] and is defined as the ratio of export prices to import prices.[2] It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.
An improvement of a nation’s terms of trade benefits that country in the sense that it can buy more imports for any given level of exports. The terms of trade may be influenced by the exchange rate because a rise in the value of a country’s currency lowers the domestic prices of its imports but may not directly affect the prices of the commodities it exports.
The expression terms of trade was first coined by the US American economist Frank William Taussig in his 1927 book International Trade. However, an earlier version of the concept can be traced back to the English economist Robert Torrens and his book The Budget: On Commercial and Colonial Policy, published in 1844, as well as to John Stuart Mill‘s essay Of the Laws of Interchange between Nations; and the Distribution of Gains of Commerce among the Countries of the Commercial World, published in the same year, though allegedly already written in 1829/30.
erms of trade (TOT) is a measure of how much imports an economy can get for a unit of exported goods. For example, if an economy is only exporting apples and only importing oranges, then the terms of trade are simply the price of apples divided by the price of oranges — in other words, how many oranges can be obtained for a unit of apples. Since economies export and import many goods, measuring the TOT requires defining price indices for exported and imported goods and comparing the two.[3]
A rise in the prices of exported goods in international markets would increase the TOT, while a rise in the prices of imported goods would decrease it. For example, countries that export oil will see an increase in their TOT when oil prices go up, while the TOT of countries that import oil would decrease.
Two country model CIE economics
In the simplified case of two countries and two commodities, terms of trade is defined as the ratio of the total export revenue[ a country receives for its export commodity to the total import revenue it pays for its import commodity. In this case, the imports of one country are the exports of the other country. For example, if a country exports 50 dollars’ worth of product in exchange for 100 dollars’ worth of imported product, that country’s terms of trade are 50/100 = 0.5. The terms of trade for the other country must be the reciprocal (100/50 = 2). When this number is falling, the country is said to have “deteriorating terms of trade”. If multiplied by 100, these calculations can be expressed as a percentage (50% and 200% respectively). If a country’s terms of trade fall from say 100% to 70% (from 1.0 to 0.7), it has experienced a 30% deterioration in its terms of trade. When doing longitudinal (time series) calculations, it is common to set a value for the base year] to make interpretation of the results easier.
In basic microeconomics, the terms of trade are usually set in the interval between the opportunity costs for the production of a given good of two nations.
Terms of trade is the ratio of a country’s export price index to its import price index, multiplied by 100. The terms of trade measures the rate of exchange of one good or service for another when two countries trade with each other.
Multi-commodity multi-country model
In the more realistic case of many products exchanged between many countries, terms of trade can be calculated using a Laspeyres index. In this case, a nation’s terms of trade is the ratio of the Laspeyre price index of exports to the Laspeyre price index of imports. The Laspeyre export index is the current value of the base period exports divided by the base period value of the base period exports. Similarly, the Laspeyres import index is the current value of the base period imports divided by the base period value of the base period imports.
Where
price of exports in the current period
quantity of exports in the base period
price of imports in the current period
quantity of imports in the base period
price of imports in the base period
Q.2 Examine the performance of major industries producing exportable commodities during 1970’s and early 1980’s.
ANS
Many people still do not understand what happened to commodity prices in the 1970s, which is leading to various problems of interpretation today. The basic story is simple: the dollar’s value fell, so it took more dollars to buy commodities. That’s about all there is to it. Indeed, commodity prices fell — a lot! — in real terms, i.e. in terms of the amount of gold needed to buy them.
While the story is the same for virtually all the commodities, we will concentrate on petroleum, since that is one that grabbed the most attention at the time and which is getting the most attention now due to the possibility that it may have become very difficult to increase production any more than it is today.
Well, here it is, that Chart We Have All Been Waiting For, the King of the commodities price charts, the value of crude oil in gold oz.:
This chart is updated to March 2007, unlike our previous charts which only went to the end of 2003. Here we see some interesting phenomenon: there certainly seems to be a “central tendency” around the 80 oz. of gold level. That’s about where we are now. There was also a period of depressed prices in the 1985-2000 period. Why?
The inflation of the 1970s caused confused price signals. Although the gold price of oil didn’t do much, the dollar price of oil soared in the inflationary environment. This made oil companies wildly profitable, and to make more profit they produced more oil. At the same time, many interpreted the rising dollar oil prices to be a sign of shortage, and there was a lot of government pressure to produce more oil. Although the rate of growth of oil production in the 1970s was not as much as the 1960s, nevertheless this period is anomalously above the hypothetical Hubbert Curve for world oil production.
Do you see that peak in the late 1970s and the decline afterwards? It came almost completely via overproduction of the Middle East fields. Oddly enough, when prices collapsed in the late 1980s, there was actually less oil being produced than in the late 1970s. Interesting. And why were people using so much oil in the late 1970s, when there was supposedly an oil shortage? We can see by the top oil/gold graph that the real price of oil, measured in gold, was actually quite cheap in the 1978-1980 period.
While it is true that US oil production peaked in the early 1970s, this did not cause the rise in oil prices worldwide, and indeed the shortfall thereafter was easily accommodated by increased production elsewhere, resulting in cheap real oil prices for the next thirty years.
Just as the mistaken inflationary price signal confused the oil sector, it also confused commodity producers of all sorts, who overinvested, overproduced, and caused collapsing values for their products.
For investors, we see that today’s oil prices are really, in 1960s dollars, about the same level as they were in 1960. However, the supply/demand situation is wildly different than the 1960s.
Thus, although oil prices in real (gold) terms reached their highest ever in late 2005, hinting at things to come, we really haven’t seen any price reaction yet to the tightening supply/demand situation. Most of the oil rise since 1998 can be explained as a “return to normalcy” for prices plus a decline in dollar value (inflation). One thing we do know is that markets clear via the price mechanism, so it seems possible to me that we could return to the late-2005 levels or even 50% beyond that. At, say, 200 oz. of gold/1000 barrels (or a 5:1 oil/gold ratio), and the dollar at $1000/oz., both very feasible outcomes over the next 24 months, we get a $200/barrel oil price. Remember that the dollar is a floating — or sinking — currency, and it is entirely possible that we could see a barrel of oil worth $1 trillion from inflation alone. (In such a situation the real price of oil, in gold terms, would likely be depressed due to economic depression.)
In the early 1970s, several people became aware that humans’ exponential growth would eventually hit the limits of the global Petri dish, and they tried to model when that may happen. For the most part, they concluded that around the first or second decade of the 21st century would be the time when people would reach the so-called “limits to growth.” However, as commodity prices in dollar terms soared in the 1970s (even as their real values declined), people grasped on to this idea of “limits to growth” and concluded that humans were reaching those limits then, in the 1970s.
The early 1980s recession was a severe economic recession that affected much of the world between approximately the start of 1980 and early 1983.[1] It is widely considered to have been the most severe recession since World War II.[2][3] A key event leading to the recession was the 1979 energy crisis, mostly caused by the Iranian Revolution which caused a disruption to the global oil supply, which saw oil prices rising sharply in 1979 and early 1980.[1] The sharp rise in oil prices pushed the already high rates of inflation in several major advanced countries to new double-digit highs, with countries such as the United States, Canada, West Germany, Italy, the United Kingdom and Japan tightening their monetary policies by increasing interest rates in order to control the inflation.[1] These G7 countries each, in fact, had “double-dip” recessions involving short declines in economic output in parts of 1980 followed by a short period of expansion, in turn followed by a steeper, longer period of economic contraction starting sometime in 1981 and ending in the last half of 1982 or in early 1983.[4] Most of these countries experienced stagflation, a situation of both high interest rates and high unemployment rates.
Globally, while some countries experienced downturns in economic output in 1980 and/or 1981, the broadest and sharpest worldwide decline of economic activity and the largest increase in unemployment was in 1982, with the World Bank naming the recession the “global recession of 1982”.[1] Even after major economies, such as the United States and Japan exited the recession relatively early, many countries were in recession into 1983 and high unemployment would continue to affect most OECD nations until at least 1985.[2] Long-term effects of the early 1980s recession contributed to the Latin American debt crisis, long-lasting slowdowns in the Caribbean and Sub-Saharan African countries,[1] the US savings and loans crisis, and a general adoption of neoliberal economic policies throughout the 1990s.
Q.3 What were the major determinants of economic development during 1960’s in Pakistan.
ANS
During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its rapid progress. Many countries sought to emulate Pakistan’s economic planning strategy, including South Korea, which replicated the city of Karachi’s second “Five-Year Plan.”
Since Indian independence in 1947, the economy of Pakistan has emerged as a semi-industrialized one, the on textiles, agriculture, and food production, though recent years have seen a push towards technological diversification. Pakistan’s GDP growth has been gradually on the rise since 2012 and the country has made significant improvements in its provision of energy and security. However, decades of corruption and internal political conflict have usually led to low levels of foreign investment and underdevelopment.[1]
Historically, the land forming modern-day Pakistan was home to the ancient Indus Valley Civilization from 2800 BC to 1800 BC, and evidence suggests that its inhabitants were skilled traders. Although the subcontinent enjoyed economic prosperity during the Mughal era, growth steadily declined during the British colonial period. Since independence, economic growth has meant an increase in average income of about 150 percent from 1950 to 1996, But Pakistan like many other developing countries, has not been able to narrow the gap between itself and rich industrial nations, which have grown faster on a per head basis. Per capita GNP growth rate from 1985 to 1995 was only 1.2 percent per annum, substantially lower than India (3.2), Bangladesh (2.1), and Sri Lanka (2.6).[2] The inflation rate in Pakistan has averaged 7.99 percent from 1957 until 2015, reaching an all-time high of 37.81 percent in December 1973 and a record low of -10.32 percent in February 1959. Pakistan suffered its only economic decline in GDP between 1951 and 1952.[3]
Overall, Pakistan has maintained a fairly healthy and functional economy in the face of several wars, changing demographics, and transfers of power between civilian and military regimes, growing at an impressive rate of 6 percent per annum in the first four decades of its existence. During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its rapid progress. Many countries sought to emulate Pakistan’s economic planning strategy, including South Korea, which replicated the city of Karachi‘s second “Five-Year Plan.”
After gaining the right to collect revenue in Bengal in 1765, the East India Company largely ceased importing gold[19] and silver, which it had hitherto used to pay for goods shipped back to Britain.[20] In addition, as under Mughal rule, land revenue collected in the Bengal Presidency helped finance the company’s wars in other part of India.[20] Consequently, in the period 1760–1800, Bengal’s money supply was greatly diminished; furthermore, the closing of some local mints and close supervision of the rest, the fixing of exchange rates, and the standardization of coinage, paradoxically, added to the economic downturn.[20]
During the period 1780–1860, India’s status shifted from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods.[20] Fine cotton and silk had been the main exports from India to markets in Europe, Asia, and Africa in the 1750s. Yet, by the second quarter of the 19th century, raw materials, which chiefly consisted of raw cotton, opium, and indigo, accounted for most of India’s exports.[21] In addition, from the late 18th century, the British cotton mill industry began to lobby the government to both tax Indian imports and allow access to markets in India.[21] Starting in the 1830s, British textiles began to appear in—and soon inundate—Indian markets, with the value of textile imports growing from £5.2 million 1850 to £18.4 million in 1896.[22]
While British colonial rule stabilized institutions and strengthened law and order to a large extent, British foreign policy stifled India’s trade with the rest of the world. The British built an advanced network of railways, telegraphs, and a modern bureaucratic system that is still in place today. However, the infrastructure they created was mainly geared towards the exploitation of local resources, and left the economy stagnant, stalled industrial development, and resulted in an agricultural output that was unable to feed a rapidly accelerating population. The common public in British India was subject to frequent famines, had one of the world’s lowest life expectancies, suffered from pervasive malnutrition, and was largely illiterate.
1950s and 1960s:
Economic growth during the 1950s averaged 3.1 percent per annum, and the decade was marked by both political and macroeconomic instability and a shortage of resources to meet the nation’s needs. After the State Bank of Pakistan was founded in 1948, a currency dispute between India and Pakistan broke out in 1949. Trade relations were strained until the issue was resolved in mid-1950. Monsoon floods between 1951–52 and 1952-53 created further economic problems, as did uneven development between East and West Pakistan.
Pakistan’s economy was quickly revitalized under Ayub Khan, with economic growth averaging 5.82 percent during his eleven years in office from 27 October 1958 to 25 March 1969. Manufacturing growth in Pakistan during this time was 8.51 percent, far outpacing any other time in Pakistani history. Pakistan established its first automobile and cement industries, and the government constructed several dams, (notably Tarbela Dam and Mangla Dam), canals, and power stations, in addition to launching Pakistan’s space program.
Along with heavy investment in manufacturing, Ayub’s policies focused on boosting Pakistan’s agricultural sector. Land reforms, the consolidation of holdings, and strict measures against hoarding were combined with rural credit programs and work programs, higher procurement prices, augmented allocations for agriculture, and improved seeds as part of the green revolution. Tax collection was low, averaging less than 10 percent of GDP.[25] The Export Bonus Vouchers Scheme (1959) and tax incentives stimulated new industrial entrepreneurs and exporters. Bonus vouchers facilitated access to foreign exchange for imports of industrial machinery and raw materials. Tax concessions were also offered for investment in less-developed areas. These measures had important consequences in bringing industry to Punjab and gave rise to a new class of small industrialists.[26]
Some academics have argued that while HYV technology enabled a sharp acceleration in agricultural growth, it was accompanied by social polarization and increased interpersonal and interregional inequality.[27] Mahbub ul Haq blamed the concentration of economic power to 22 families who were dominating the financial and economic life of the country by controlling 66 percent of industrial assets and 87 percent of banking.[28]
In 1959, the country began the construction of its new capital city.[29] A Greek firm of architects, Konstantinos ApostolosDoxiadis, designed the master plan of the city based on a grid plan which was triangular in shape with its apex towards the Margalla Hills.[30] The capital was not moved directly from Karachi to Islamabad; it was first shifted temporarily to Rawalpindi in the early sixties and then to Islamabad when the essential development work was completed in 1966
Q.4 Indentify the role of Central bank and Commercial Banks in the field of economic development. Discuss in detail.
ANS
The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.
This refers to the practice of acceptability deposits, giving loans, advising and assisting customers on monetary matters. A bank is therefore an institution where banking takes place. There are five main types of banks
- Commercial banks
• Merchant banks
• Serving banks
• Investments or developments banks
• Central banks
NB: In this page we will be dealing with just a central and commercial banks
Commercial Banks
The commercial bank is the principal banking institution, it is a business set up to transact normal banking business,(that is accepting deposits, giving loans and providing monetary services in order to make profit for ir owners. In addition to their customers bank law obligations to their customers, which require the banks to meet all demands for cash(notes and coins). Commercial banks are also called joint-stock banks examples include Amity bank, Union bank, CBC standard chartered bank, BICEC, SGBC.
Roles of Commercial Banks
Accepting deposits
It is the basic function of the commercial bank to accept deposits. There are 3 main types of deposits which are accepted by the commercial banks namely savings accounts, fixed accounts and current account.
Making payments
Commercial banks make payments on behave of its customers the main means of payments is by the use of cheques. Cheques makes it possible for bank deposits to be transferred from one person account to that of another. Methods of payments by the commercial banks could also be made by standing orders, direct debits and credit transfer.
Lending to customers.
Commercial banks loan to the customers. This advances are made to this customers either in the form of overdraft, bank loans or by discounting bill of exchange.
Acting as a foreign exchange transactions
The commercial banks assist traders engaged in foreign trade as well as their customers who want to travel abroad by issuing them with foreign currencies, letters of credit and travelerscheque.
Act as references
Commercial banks act as references in confirming the financial standing of customers in contact of trade for example. A supplier may request reference from a new customer who wants to buy goods on credit. The new customer to act as reference by giving the relevant information’s to the supplier.
Keeping of values
Commercial banks keep their customers valuables such as wills, certificates, jewleries , land deeds, etc.
Night of valuables facilities
Some banks provide facilities so that their customers can deposit money in a special safe in the bank not side working overs.
Acting as agent for customers
Banks act as agent for their customers in the purchase or sale of stock exchange securities. Acting as trusties and exchange: commercial banks act as trustees and executors in the distribution of a deceased person’s estate.
The central bank
The central bank is the state owned bank which is establish to control and supervise the countries monetary system. It exercises control over all examples of central banks are the Bank of England, BEAC and the central of Nigeria. BEAC (Banks of Central African States) functions as the central bank of Cameroon and the other Central African countries.
Roles of the Central Bank
Sole currency issuing authority
The central bank is the only authority empower by law to issue the currency of a country. This functions enables the central bank to control the amount of money in circulation.
Banker to the government
The central bank acts as the banker to the government by managing the government account, the national debt and supervising foreign exchange control the central bank advices the government on financial matters and maintains close links with over sees central bank and international monetary organizations e.g IMF(International monetary fund).
Baker to the commercial banks
The commercial banks deposit part of their cash reserve in the central bank and they draw notes and coins from the central bank when they need cash. The central bank assist the clearing of cheques and enables the central bank to control the commercial bank.
Storing the country’s Gold and foreign exchange reserve
The central bank holds the country’s gold and foreign exchange reserve and takes measures to safeguard them.
Lender of last resorts
The central bank is the lender of last resort to the commercial banks and other financial institutions such as the discount houses. The central bank lends to the commercial banks and the discount houses buy re-discounting bills of exchange or by making advances(i.e giving loans to them to enable them, meet customers demand for cash.
Responsibility for monetary policy
The central bank is responsible for monetary policy. Monetary policy involves regulating the amount of money in circulation to ensure economic stability. The central bank is able to perform this function because of its control over the commercial bank and other financial institutions.
There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting economic development. The role of a commercial bank in a developing country is discussed as under.
1. Mobilising Saving for Capital Formation:
The commercial banks help in mobilising savings through network of branch banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelise them into productive investments. Thus they help in the capital formation of a developing country.
2. Financing Industry:
The commercial banks finance the industrial sector in a number of ways. They provide short-term, medium-term and long-term loans to industry. In India they provide short-term loans. Income of the Latin American countries like Guatemala, they advance medium-term loans for one to three years. But in Korea, the commercial banks also advance long-term loans to industry.
In India, the commercial banks undertake short-term and medium-term financing of small scale industries, and also provide hire- purchase finance. Besides, they underwrite the shares and debentures of large scale industries. Thus they not only provide finance for industry but also help in developing the capital market which is undeveloped in such countries.
3. Financing Trade:
The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing foreign exchange facilities to importers and exporters of goods.
4. Financing Agriculture:
The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide agricultural credit. They provide finance directly to agriculturists for the marketing of their produce, for the modernisation and mechanisation of their farms, for providing irrigation facilities, for developing land, etc.
They also provide financial assistance for animal husbandry, dairy farming, sheep breeding, poultry farming, pisciculture and horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the regional rural banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people.
5. Financing Consumer Activities:
People in underdeveloped countries being poor and having low incomes do not possess sufficient financial resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities.
6. Financing Employment Generating Activities:
The commercial banks finance employment generating activities in developing countries. They provide loans for the education of young person’s studying in engineering, medical and other vocational institutes of higher learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.
7. Help in Monetary Policy:
The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.
Thus the commercial banks contribute much to the growth of a developing economy by granting loans to agriculture, trade and industry, by helping in physical and human capital formation and by following the monetary policy of the country.
Q.5 Critically evaluate the fourth and sixth five years plan with reference to their program priorities and strategies.
ANS
Fourth Five Year plan was the first plan launched by Indira Gandhi government amid pressure of drought, devaluation and inflationary recession. The country was fighting with population explosion, increased unemployment, poverty and a shackling economy. In addition, the situation in East Pakistan (now independent Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place. Funds earmarked for the industrial development had to be used for the war effort. The result was that this plan period was also no better than the third five year plan.
Notable Points
- India fought yet another war with Pakistan and helped in creation of Bangladesh. Needed to tackle the problem of Bangladeshi refugees after the 1971 war.
- Nationalization of 14 major Indian Banks was a key even during this war. This boosted the confidence of the people in banking system and started greater mobilization of private savings into banking system.
- At the end of this plan, India also performed the Smiling Buddha underground nuclear test in 1974. This test was partially in response to the US deployment of the Seventh Fleet in the Bay of Bengal to warn India against attacking West Pakistan and widening the war. The international community took several harsh measures against India, which affected the domestic economy.
- The Oil Crisis of 1973 skyrocketed the oil and fertilizer prices leading to a very high inflation.
Critical Assessment of Fourth Five Year Plan
The Fourth plan when it was introduced after a gap of three years, was an ambitious plan with an aim of 5.5% growth as the previous plans had a growth target / achievement of maximum 3.5%. But the Indo-Pakistan war, liberation of Bangladesh and problem of Bangladesh refugees , successive failures of monsoon, Asian Oil Crisis of 1973 marred the objectives of this plan. The international economic turmoil due to Oil crisis upset the calculations for Fourth Plan. So only 3.4% growth could be achieved.
Sixth Five Year Plan (1983-88)
Before the end of Fifth Five Year Plan preparation for Sixth Five Year Plan was made. NEC approved the Plan well in time and implemented according to its schedule.
Size of the Plan:
The plan aimed at a financial outlay of Rs. 495 billion which was more than double the amount of Fifth Five Year Plan. Rs. 295 billion were decided to spend in the public sector and Rs. 200 billion were decided to spend in private sector. As regard to the proposed resources to finance the Plan two points were important:
(a) The share of net external resources in the gross investment would fall from 24% to 16% in the Sixth Five Year Plan.
(b) The compensating efforts in the domestic front were expected in the private sector, almost quadrupling the total private savings with little change in the size of the public savings.
Objectives:
(a) To make production sector of the economy powerful and stable.
(b) To accelerate the rate of economic development so that the standard of living of the people may be raised.
(c) To increase the agriculture production by using more fertilizers, better seeds and modern technology.
(d) To make the country self-sufficient in oil.
(e) To develop steel based engineering goods, modernisation of textiles, expansion of agro-based industries, etc.
(f) To provide maximum social services to increase the rate of literacy and to provide drinking water facilities, draining water facilities, etc.
(g) To create harmony among different sectors of the economy.
Targets:
(a) To increase GDP by 6.5% p.a.
(b) To increase family income by Rs. 900 p.a.
(c) To increase agriculture production by 5% p.a.
(d) To increase industrial production by 9% p.a.
(e) To provide jobs to 4 million people during the Plan period.
(f) To provide facilities of electricity to 88% of the village population.
(g) To increase exports from $ 2.43 billion to $ 4.91 billion by the end of the Plan.
(h) To construct 15000 km new roads from villages to cities.
(i) To lower dependence on foreign aid from 20 to 19% by the end of the Plan.
(j) To increase the efficiency of private sector, certain effective measures would be taken so that private sector may play its role effectively in the development of the economy.
(k) To enable 3 million acres of land for cultivation which had been destroyed by water logging and salinity.
It was decided to allocate 18.1% of the total expenditure to agriculture and water sector, 20% to power, 18.1% to transportation, 15.6% to industry 12.2% to minerals and 11.5% to social institutions. See the table below:
Sector-wise Division of Expenditure
(Rupees in billions)
| Sectors | Total
Expenditure |
Percentage of
Total |
| Agriculture and Water | 89.72 | 18.1 |
| Sources of Power | 100.00 | 20.0 |
| Transportation | 89.62 | 18.1 |
| Industry | 76.91 | 15.6 |
| Minerals | 6.05 | 1.2 |
| Social Institutions
(health, education, etc.) |
59.91 | 11.5 |
| Other Sectors | 75.79 | 15.3 |
| Total | 498.00 | 100.0 |
Strategy:
(a) High Growth Momentum: High rates of growth of GDP and other related macro economic variables are to be maintained:
(i) Emphasis on increased efficiency in agriculture, particularly self sufficiency in oil seeds, expanding the exports of rice, cotton and fruits, etc.
(ii) Balanced development of service industries, especially public services for basic human needs.
(iii) Balanced development of service industries, especially of private services for government servants and private people.
(b) Rural Transformation: Increased opportunities for small farmers and provision of infrastructure.
(c) Employment and Income Policies: Creation of about 4 million new jobs for emphasis on small scale production in agriculture and industry, rural works programme, vocational training with combination, income policy which related wages to productivity, indicated salaries from fixed income growth.
(d) Decentralisation: To increase share of provincial governments in development programme of public sector and also encouraging to local bodies to participate in investment plans.
(e) Backward Regions: Recognition of the tribal and Balochistan as economically backward regions and provision of special funds for specific development programmes in these regions.
(f) Self Reliance: Continuing import substitution and export promotion policies and reducing dependence on foreign aid.
Performance of the Plan (Failure and Achievements):
During the Plan period, GDP was expected to increase by 6.5% p.a. It was based on the performance of agriculture and manufacturing sectors. Because these sectors could not play their role effectively so the plan seemed helpless in achieving the targets and objectives.
Further aggregate growth rate of GNP and GDP were related to expected increase in the rate of savings and investment during the Plan period. The savings were expected to increase from 13% to 25% in Plan period and investment rate from 6.5% to 7.5% p.a. But unfortunately these targets could not be achieved in the Sixth Five Year Plan.
Rate of net borrowing and net real foreign saving was expected to decline (because of the decline in foreign remittances). It was decided to increase domestic savings because the Plan did not present any argument or evidence how the saving rate would increase and how much to be saved by the private sector. Basic problem with the plea was shortfall in remittances. Minor crops grew by only 3.6% p.a. as against a growth rate of 7% p.a. envisaged in the Plan.
The Sixth Five Year Plan was a mixed success. It was described as a qualified success by Planning and Development Division. It fulfilled most of the targets, though there were some failures. On the whole, it was a good plan.