SADAF AURANGZAIB, Senior Correspondent
Aug 21 - Aug 27, 2006

GDP is the total value of goods and services produced by a nation. Gross domestic product may be considered as a combination of three processes - long-run trend, business cycles and short-run shocks.

Such a decomposition of real GDP of Pakistan reveals that the Pakistan's economy has a declining growth in long-run trend since early 1980s. GDP shows the potency of the country to face inflation, poverty and deficit etc. Pakistan's GDP growth has shown a non-standardized trend in meeting the real challenges that are persistent in our economy from a long time.

GDP growth had averaged to around 3.5 per cent till FY 2003. Although GDP growth picked up in FY 2004 and reached the 8.4 per cent mark in FY 05, so did inflation. Agriculture is the backbone of Pakistan's economy. Almost 22% of total output (GDP) and 44.8% of total employment is generated through agriculture. It also 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. Not only that 44.8 percent of country's workforce is employed in agriculture but also 65.9 percent of country's population living in rural areas is directly or indirectly linked with agriculture for their livelihood. Agriculture can affect both the country's growth performance and the lives of a large segment of the country's population as well.

President Musharraf, in one of his speeches, had dwelt on the GDP growth and role of agriculture:

"Let me with full confidence and very proudly say that Pakistan's economy is on an upsurge today with the GDP growing at 8.4% this year which is the second highest GDP growth in Asia after China. Last year we managed 6.5% and the next year we are very confident that irrespective of the earthquake or all other activities, even the increase in oil prices internationally, we will manage 7 or over 7% GDP of growth.

"If you see all the macro economic indicators of Pakistan they are all positive as I have already told you about the GDP growth and if you relate this GDP to debt or debt to GDP ratio, it is very healthy, it stands at 59% if you see the debt service liability which was exhausted in the past it has reduced from 64% to under 30% so therefore it is a very viable economy that we are running, all other indicators whether it is exports which has risen by about 110% in the last ten years to revenue collection which has increased about 130% in the last five years or if you look at the funding for major development that we are doing in Pakistan and they have increased by 300% in the last 5 years, therefore Pakistan as I said is on an upsurge."

We are an agrarian society with 60 to 70 percent population living in the villages depending on agriculture. The importance of agriculture sector cannot be denied. Dr. Shamshad Akhtar, Governor State Bank, while pointing out the current trend of growth and agriculture input, said: "High growth rates can be sustained. Pakistan being at the crossroads of one of the ancient trade routes of the world and being richly endowed with natural resources has enormous potential and has shown increased resilience to withstand economic shocks both at domestic and external fronts. The economy is set to grow at around 7% in FY07. In FY06, despite set backs to agriculture and the industrial sector, the buoyancy in the services sector helped real GDP to grow by 6.6%. In agriculture, it is worth mentioning that Pakistan attained self-sufficiency in major crops a long time back."

Notwithstanding, disruptions in production are inevitable given the uncertain weather conditions as well as low yields which require far reaching efforts in research and extension and appropriate use of inputs that have benefited from the rise in agriculture credit and fertilizer input use.

More exploitation of water resources is critical to ensure timely supplies of water. In agriculture, significance of livestock, poultry and dairy products are visible and encouraging. The former accounts for 46.8 % (FY05) of value added agricultural products and about 10.7 % of the GDP, while providing livelihood to one-third of the population, and the latter produces 28 billion liters of milk a year, whose value is more than that of the combined value of wheat and cotton.

However on the close look one could see that this sector is being neglected and industrial boost has taken agriculture on the back seat as reported by Statistics Department, State Bank of Pakistan. The World Bank report 'Doing Business in 2006' has placed Pakistan amongst the leading economic reformers of the world and the top one in South Asia. For foreign businesses, investing in Pakistan not only facilitates production but also provides opportunities to export to the Middle East and Central and South Asian markets.

To attract investment, Pakistan has fully liberalized its incentive framework. All economic sectors are open to foreign investment, foreign investors are allowed to hold 100% foreign equity in all economic sectors, barring very few exceptions, and there is equal treatment given to local and foreign investors with flexibility to easily remit royalty, technical & franchise fee, capital, profits, dividends etc.

No government sanction is required for setting up any industry, in terms of field of activity, location, and size. Tourism, housing and construction sector, computer software and information technology (IT) have been declared as industries and provided a set of tax incentives. Agriculture till now has not gained that favor of the government where the foreign investors can invest in the lands and crops, however, the government is planning to give incentives to the investors who are interested in taking agriculture towards value added production.

Let us now look at the overall development of the agriculture sector as pointed out in the recent economic survey of Pakistan. Over the last five years agriculture growth has witnessed mixed trends. During the first two years (2000-01 and 2001-02), the country experienced the crippling drought, which badly affected its agriculture and eventually overall growth in agriculture turned negative for these two years. In the preceding years (2002-03 to 2004-05), relatively better availability of irrigation water had positive impact on overall agricultural growth and this sector exhibited modest to strong recovery.

2000-01 -2.2 -9.9 -3.2
2001-02 -0.1 -2.5 -3.7
2002-03 4.1 6.9 0.4
2003-04 2.3 1.9 4.0
2004-05 6.7 17.8 3.0
2005-06 (P) 2.5 -3.6 1.6
P= Provisional.
Source: Federal Bureau of Statistics

The performance of Agriculture during the fiscal year 2005-06 has been weak. Against the target of 4.2 percent and last year's achievement of 6.7 percent, overall agriculture grew by 2.5 percent in 2005-06 on the back of poor showing of major crops and forestry, and weaker performance of minor crops and fishery. Livestock has been the sole saving grace. Major corps, accounting for 35.2 percent of value added in agriculture, registered a decline of 3.6 percent as production of two of the four major crops, namely cotton and sugarcane has been significantly less than last year 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.

The production of third major crop, wheat, remained more or less at last year's level at 21.7 million tons thereby registering a meager growth of 0.4 percent. The production of rice the fourth major crop has been the sole major crop, which registered an impressive growth of 10.4 percent but failed to turn the negative growth in major crops to a positive one.

Minor crops, accounting for 12.3 percent of value added agriculture barely managed to register a positive growth of 1.6 percent in 2005-06 as against a growth of 3.0 percent last year. The performance of livestock, the single largest sector accounting for almost one-half of value added agriculture, has been impressive as this sector grew by 8.0 percent on the back of substantial increase in the population of species, milk etc. The performance of fisheries has been poor as it grew by 1.9 percent only in 2005-06. Forestry has been registering negative growth for three consecutive years registering a negative growth of 9.7 percent in 2005-06 as against a negative growth of 30.4 percent.

Out of the major crops, cotton accounts for 8.6 percent of the value added in agriculture and about 1.9 percent to GDP. Rice accounts for 6.1 percent of the total value added in agriculture and 1.3 percent to GDP. Sugarcane share in value added agriculture and GDP are 3.4 percent and 0.7 percent, respectively. Wheat contributes 13.7 percent to the value added in agriculture and 3.0 percent to GDP.

The reasons for the declining trend are many but the solutions that can resolve them are few. Fertilizer is one of the basic input of agriculture and its timely availability is very crucial for agricultural production. Certified seed plays a pivotal role in boosting agricultural production both in market oriented and subsistence farming. Intensive use of agriculture machinery needs to be popularized among farmers with a view to improving the average yield. A transition from subsistence farming to commercial farming can only be achieved through the transfer of the latest, most efficient and cost effective technology to the farming system. Plant protection measures help in increasing per hectare yield by protecting crops from damages due to attack of pests and diseases.

An efficient irrigation system is a pre-requisite for increasing agricultural production since water is a basic input for agriculture. It provides food security against the vagaries of nature and enables the cropping intensity to be increased. Despite the existence of good irrigation canal network in the world, Pakistan still suffers from wastage of a large amount of water in the irrigation process. Agricultural credit provides financial resources to the farming community, particularly, for purchasing primary inputs like fertilizer, seed, pesticides, machinery, equipment, etc. The overall performance of the agriculture needs to be improved and other than major and minor crops, the government should look into the areas of livestock, poultry, forestry and fisheries and set future guidelines and contingent plans to tackle drought or any such problems in the future.