(1947-1958)

Economic Development
Economic development pertains to achievement of a number of socioeconomic goals: 1. Economic growth 2. Macroeconomic stability 3. Industrial development 4. Employment generation 5. Standard of living 6. Literacy 7. Health 8. Education 9. Sanitation 10. Clean drinking water

Initial Problems Faced by Pakistan

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Survival Influx of 7 million refugees Lack of industrial base Lack of investment capital Lack of entrepreneurial expertise Pakistan started off with a paltry sum of Rs. 200 million No banking system No Central Bank No currency Lack of availability of food, shelter and clothing

State of Pakistans Economy on the Eve of Independence

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Marked contrast between its vast natural resources and its extreme industrial backwardness. A country providing 75 % of worlds jute production and not a single jute mill to process it. Annual production of 1.5 million bales of good quality cotton and jut a few textile mills. Abundant production of hide and skins, wool, sugar cane and tobacco and not processing unit. Untapped resources of minerals, petroleum and power.

Objectives of the First Industrial Policy Statement

To manufacture in its own territories, products using its own available raw materials. 2. To develop consumer goods industries to meet domestic requirements for which Pakistan was dependent on outside sources. 3. Import substitution based industrialization under high tariff walls.
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Tools and Mechanisms which Influenced Investment and Economic Development

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The Impact of Exchange Rate: The areas that became Pakistan were net importer of industrial goods from India and produced agricultural commodities like cotton, wheat and jute. In September 1949, the pound sterling was devalued as were the currencies of other countries which were part of the sterling area. However Pakistan did not devalue its currency, which led India to suspend trade with Pakistan. The Pakistan Government imposed some controls on imports and exports in order to manage trade with other countries.

Tools and Mechanisms which Influenced Investment and Economic Development

The Korean War broke out in June 1950, which increased

the demand for Pakistans jute and cotton resulting in spectacular profits by our exporters. Later, India also recognized our new exchange rate. The Korean boon lasted from 1950 to 1952 and resulted in traders and merchants amassing considerable amount of wealth, which provided the much needed capital investment for initiating industrialization. Initially, the process of industrialization was started by the PIDC in 1952 but the later on the traders and merchants also started investing in various industries.

Tools and Mechanisms which Influenced Investment and Economic Development

2. The Trade Policy Regime: From 1953-1964, virtually all imports into Pakistan were regulated by some form of quantitative controls. The trade policy adopted by Pakistan hd three major aspects: i. Overvaluation of rupee relative to other countries ii. Use of quantitative controls on imports to regulate the level and composition of imported goods. iii. Highly differentiated structure of tariffs on imports, and export taxes on jute and cotton.

Tools and Mechanisms which Influenced Investment and Economic Development

The government began to favour tariff protection as a

means to promote industrialization. Licensing was used explicitly as a protective or exchange rate-saving device. Import substitution progressed easily and very rapidly in those industries that had the highest protection, i.e. consumption goods. The patterns of investment and import substitution influenced the decisions of the licensing authorities about what sorts of imports, and hence, what sort of industrial development should take place.

The End Result

Since almost all capital goods and most non-

agricultural industrial goods were imported, the state played a major role in determining the nature and structure of industry through the licensing system and the tariff structure, and through the incentives it provided. The significant increase in exports was from the newly established manufacturing industries mainly jute and cotton textiles, which replaced competing imports by the mid-1950s. The growth that took place in manufacturing between 1951 and 1955 was due to import substitution.

The End Result

In united Pakistan, large scale manufacturing grew at a

phenomenal growth rate of 23.6 percent between 1949 and 1954, and afterwards by still impressive 9.3 percent up to 1960. The investment rate doubled during the 1950s. GNP per capita grew on average by only 0.2 percent between 1949 1nd 1954. In West Pakistan, the growth rates were even more impressive, with large-scale manufacturing growing at 19.1 percent between 1949 and 1958 and per capita income increasing by .97 per cent.

The End Result

The main feature of the 1950s was the establishment and

expansion of the large scale manufacturing sector, which ranged from a high annual growth rate of 28.7 percent in 1953-54 to a (still high) low of 4.9 percent in 1957-58. With industry growing at high rates, there was a reverse picture in the agriculture sector. Agriculture stagnated to an extent that its growth was less than the growth rate of population. Despite some negative consequences of the economic policies pursued during the first decade, it initiated and era industrial growth and development and laid the foundation the Decade of Development.

Pakistan: Basic Indicators

Structural Change in Pakistan

Growth Rates in Pakistan

Pakistan: Indicators of Failure

Annual Growth Rate(1950-58)

Average Rate of Duty on Imported Goods (1955-64)