A HIGHER GDP WITH A PERFORMING AGRICULTURE SECTOR

SHAMSUL GHANI (shams_ghani@hotmail.com)
July 21 - 27, 2008

Our Gross Domestic Product, GDP has shown sustained growth during the last five years maintaining an average of 7 per cent. The major contributor to our GDP has been our services sector. Much has been said about the economic imbalances with services sector being the target of such criticism. It is not the high growth of services sector but the slide in agriculture sector that should actually be counted. The downward revision of 2006-07 GDP from 7.02 to 6.8 per cent and the comparatively low GDP of 5.8 per cent achieved for the year 2007-08 show that the economy has entered recessionary phase. The soaring inflation coupled with economic recession has created a situation of stagflation. Higher cost of doing business resulting from interest rate hike and energy crisis are threatening closure of industries. The largest manufacturing sector, textile, faced with declining export and international market shrinkage, is fighting a loosing battle of survival. Besides announcing necessary relief measures for the industry, perhaps these are the times for the economic managers to focus on agriculture sector.

The following table shows the contributory pattern of our GDP.

GDP- SECTORAL SHARE

SECTOR

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

I. Agriculture %

24.9

24.1

24.0

22.8

22.4

21.3

20.9

II. Industrial %

23.8

23.7

23.4

25.5

26.3

25.9

25.8

III. Commodity Producing % (I+II)

48.7

47.8

47.4

48.3

48.7

47.2

46.7

IV. Services %

51.3

52.1

52.4

51.6

51.3

52.8

53.3

V. GDP (III+IV)

100

100

100

100

100

100

100

It will be observed that the shares of all three sectors have almost remained constant with minor variations, during the seven year period under study. The next table shows vide fluctuations in the growth pattern of three sectors. This raises serious doubts about the reliability of accounting methods used to quantify economic indicators. One possible discrepancy in this case could be the difference between the actual inflation rate and the officially declared inflation rate used as deflator.

GDP- SECTORAL GROWTH

SECTOR

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Agriculture

(2.18)

0.10

4.15

2.43

6.66

1.58

3.70

1.50

Industrial

9.28

4.50

6.90

14.01

12.56

9.97

8.20

5.40

Services

3.09

4.46

5.22

5.84

7.98

6.27

7.60

8.20

GDP

1.96

3.11

4.73

7.48

8.50

6.61

6.80

5.80

MUCH AWAITED AGRICULTURE SECTOR REFORMS

We are a nation that consumes more than what it produces. We are governed by people who claim lot more than what they actually deliver. The budgetary measures recently announced for the agriculture sector are basically short term measures aimed at silencing some of the harsh critics. The subsidy and withdrawal of GST on DAP and fertilizers, abolition of duty on crop insurance coupled with the scaled-up allocation for agriculture credit - good measures in essence - would benefit the large-size holders most and contribute little to the up-gradation of agriculture sector.

The failure of the democratic setup to address the issue of land reforms pending since long is quite surprising. The relief measures for the agriculture sector cannot have a trickle down effect in the absence of meaningful land reforms. We won't get a more opportune time to free the landless and small-size holders from the decades-old stranglehold of the traditional feudal lords. Small farmers with no or minimal land holding are the ones who mainly contribute to whatever output this sector has to offer year after year. This segment having no access to the means of production is languishing since long. A major portion of the farm credit drawn by the high-ups of this sector is squandered on luxury spending. The 70 per cent have-nots of this sector hardly benefit from the credit allocations with the result that cheap substandard inputs are used to produce low quality small-size outputs. The poor and thus ineligible non-borrowing farmers have been left high and dry by our banking sector. They need to be taken on board to make them a bona fide agricultural borrower.

First of all we need to introduce radical land reforms to ensure a much wider farmer base by doing away with the land concentration in few hands. These reforms are due since the very inception of this country. The land holding size should be standardized without creating classes among the farmer fraternity. The question of farm subsidy should be resolved in line with the successful policies of our close neighbors living under similar economic conditions instead of following the dogmas of our overseas advisers.

The cost of input to the farmer should be reasonably minimized to provide him a sustenance level to begin with and then to help him grow with the growing economy. All unfair subsidies and fiscal benefits allowed to the multi nationals responsible for providing inputs like seeds, pesticides, DAP, chemicals etc. should be withdrawn. Local farm input producers should be encouraged to increase their capacity and production to offer lower prices to the farmers. The government should provide free of cost water and electricity to the farmers.

The government in league with the private sector should invest in farm R&D to increase soil fertility and the respective per hectare yields. The cultivable area should also be increased in line with the growing demand for production. Conversion of agriculture land for commercial use should be banned forthwith. The growth of industrial and service sectors should not be at the cost of agriculture sector or vice versa. The three sectors should grow in unison and unobtrusively. Heavy investment in modern farm technology should be made and the primitive or not-so-modern farming methods should be gradually phased out.

The farmer fraternity should not be treated as a backward segment of the society. They should be provided with all social amenities especially health and education facilities to develop them into a modern family of entrepreneurs. This is the only way to stop their exodus from this all important sector. This in turn will lessen the population pressure on urban areas.

Proper wastage control measures should be taken to eliminate the reported 25 to 30 per cent produce wastage caused by sub-standard storage facilities. This will require construction of a sufficient number of grain silos on modern lines. Building of proper infrastructure to afford the farmers an easy access to the market will diminish the role of extortionist middlemen.

Pakistan is strategically positioned to take advantage of the situation through a policy shift that decrees a sustained focus on its agro economy. The agricultural base of this country holds great promise even in the current bleak scenario. What we need is a corporate approach towards our economic issues. We can fast change into a food exporting economy brushing aside the current status of a food-deficient economy.