The Process of Industrialization (1947-58)

7/30/2019 The Process of Industrialization (1947-58)

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(1947-1958)


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Economic DevelopmentEconomic development pertains to achievement of a number of socio-

economic goals:

1. Economic growth

2. Macroeconomic stability3. Industrial development

4. Employment generation

5. Standard of living

6. Literacy7. Health

8. Education

9. Sanitation

10. Clean drinking water


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Initial Problems Faced

by Pakistan1. Survival

2. Influx of 7 million refugees

3. Lack of industrial base4. Lack of investment capital

5. Lack of entrepreneurial expertise

6. Pakistan started off with a paltry sum of Rs. 200 million

7. No banking system8. No Central Bank

9. No currency

10. Lack of availability of food, shelter and clothing


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State of Pakistans Economy

on the Eve of Independence1. Marked contrast between its vast natural resources

and its extreme industrial backwardness.

2. A country providing 75 % of worlds jute productionand not a single jute mill to process it.

3. Annual production of 1.5 million bales of goodquality cotton and jut a few textile mills.

4. Abundant production of hide and skins, wool, sugarcane and tobacco and not processing unit.

5. Untapped resources of minerals, petroleum andpower.


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Objectives of the First

Industrial Policy Statement

1. 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 wasdependent on outside sources.

3. Import substitution based industrialization underhigh tariff walls.


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Tools and Mechanisms which Influenced

Investment and Economic Development1. The Impact of Exchange Rate:

The areas that became Pakistan were net importer ofindustrial goods from India and produced agriculturalcommodities like cotton, wheat and jute.

In September 1949, the pound sterling was devalued aswere the currencies of other countries which were part ofthe 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 othercountries.


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Investment and Economic Development The Korean War broke out in June 1950, which increased

the demand for Pakistans jute and cotton resulting inspectacular profits by our exporters.

Later, India also recognized our new exchange rate.

The Korean boon lasted from 1950 to 1952 and resulted intraders 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 merchantsalso started investing in various industries.


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Investment and Economic Development2. 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 regulatethe level and composition of imported goods.

iii. Highly differentiated structure of tariffs on imports,and export taxes on jute and cotton.


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Investment and Economic Development

The government began to favour tariff protection as ameans 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 substitutioninfluenced the decisions of the licensing authoritiesabout what sorts of imports, and hence, what sort ofindustrial development should take place.


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The End Result Since almost all capital goods and most non-

agricultural industrial goods were imported, the stateplayed a major role in determining the nature andstructure of industry through the licensing system andthe tariff structure, and through the incentives itprovided.

The significant increase in exports was from the newly

established manufacturing industries mainly jute andcotton textiles, which replaced competing imports bythe mid-1950s.

The growth that took place in manufacturing between

1951 and 1955 was due to import substitution.


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The End Result

In united Pakistan, large scale manufacturing grew at aphenomenal growth rate of 23.6 percent between 1949and 1954, and afterwards by still impressive 9.3 percentup to 1960.

The investment rate doubled during the 1950s.

GNP per capita grew on average by only 0.2 percentbetween 1949 1nd 1954.

In West Pakistan, the growth rates were even moreimpressive, with large-scale manufacturing growing at19.1 percent between 1949 and 1958 and per capitaincome increasing by .97 per cent.


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The End Result The main feature of the 1950s was the establishment and

expansion of the large scale manufacturing sector, whichranged from a high annual growth rate of 28.7 percent in1953-54 to a (still high) low of 4.9 percent in 1957-58.

With industry growing at high rates, there was a reversepicture in the agriculture sector. Agriculture stagnated toan extent that its growth was less than the growth rate ofpopulation.

Despite some negative consequences of the economicpolicies pursued during the first decade, it initiated and eraindustrial growth and development and laid thefoundation the Decade of Development.


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Pakistan: Basic Indicators


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Structural Change in Pakistan


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Growth Rates in Pakistan


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Pakistan: Indicators of Failure


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Annual Growth Rate(1950-58)


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Average Rate of Duty on Imported

Goods (1955-64)

Documents

The Process of Industrialization (1947-58)