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Fairer economic growth

By: Shahid Kardar

ACHIEVING growth rates of 7pc plus to absorb the net annual additions to the labour force will require:

a) higher rates of domestic savings to finance the investments needed to attain and then maintain such growth rates;

b) better quality entrepreneurial and managerial skills. The deficiency in skills is a product of our weak educational systems, poor work ethics and SROs that protect different sub-sectors of industry, rendering irrelevant the need for quality skills to improve industrial competitiveness;

c) continued improvement in the productivity of resources-capital and labour through induction of technology, improved skills and industrial, financial and other complementary policy reforms.

Moreover, we have not been terribly successful in improving ‘inclusiveness’ in ‘economic growth’. Much of the recent growth has been in the relatively capital- and skill-intensive sectors of finance, telecommunications, IT, oil and gas and motor vehicle assembly in which the bulk of our population with their limited education and skills has been unable to participate meaningfully. In fact, because of inequalities in access to quality education, it is practically impossible for the poor to participate effectively in the development process.

It is practically impossible for the poor to participate effectively in the development process.
The less skill-intensive agricultural sector (from where 44pc of the workforce earns its livelihood) benefited from good weather, higher procurement prices for wheat and sugar announced by the government and higher commodity prices internationally.

However, it was Punjab, with its less skewed ownership of land holdings, which saw a wider distribution of this prosperity. Punjab also profited from the growth in the sectors referred to, because of a sounder educational and skills base, a more competent bureaucracy, greater ethnic and linguistic homogeneity, better access to Islamabad, better governance etc. This resulted in the widening of regional disparities.

With a reduced public-sector role in financing/providing services or infrastructure because of resource constraints regional disparity is likely to widen more sharply — unless, for example, the residents of Balochistan are given total control over their oil, gas and mineral resources on which to base their development.

‘Poverty’ measured in terms of access to basic social and economic services (we lag behind most developing countries) has become more severe than a poverty estimate based on nutritional intake. The foremost issue is not just poor enrolment and retention levels but the quality of schooling available to the less affluent segments of society, which is the biggest hurdle to social mobility.

For creating employment opportunities focus on relatively labour-intensive sectors like housing and construction, information technology and communications, wholesale and retail, our range of merchandise exports and SMEs.

Even sub-sectors of industries like consumer appliances, auto assemblers, engineering, and communications which are relatively capital-intensive, can generate large employment opportunities.

They can do so through backward and forward linkages, say, through the vendor industry and the related service sector for sale and after-sale maintenance of these products. Making investments attractive in these sectors will require policy and procedural reforms.

Future economic growth will face a slowing down of demand in our traditional export markets of Europe and the US. To overcome this demand insufficiency for our products we will have to look east, especially towards our neighbours, with young consumers and growing markets, as opposed to aging populations and contracting markets in the West. Growth in exports has become critical for financing our import bill, especially with doubts about the continuing robustness of remittances from slowly growing Europe and US, and now the Middle East following the collapse in oil prices.

Furthermore, with international capital flows destined to become more volatile — with the poor country image making it more difficult to access such funds at affordable rates — the financing of investments will require domestic resources to productively employ the one million annual entrants to a workforce with limited skills.

These domestic resources will come from ‘public’ and private savings. The former would be through a credible time path to bring the fiscal deficit under control (more tax revenues and less unproductive expenditures as a percentage of GDP) to find space for financing social sector expenditures and physical infrastructure. This would require more than just higher rates of economic growth. It will need to be supported by efforts to create greater austerity in the lifestyle of officialdom financed by the public purse, and — within the population at large — fewer dependent household members to feed.

Two economic sectors will require special attention, agriculture and commercial activity in urban areas. Inclusive, robust and sustainable pro-poor growth may well have to be anchored in the latter and agriculture and livestock. By providing earning opportunities for those with limited skills this targeted approach will facilitate poverty reduction and more equitable development of regions as well as bring more stability in growth, in a manner that ensures that gains accruing from this process are safeguarded.

Today it is possible to double yields per acre employing modern agronomic practices using technology, without aimless subsidisation of crops (eg wheat) and inputs such as fertiliser and irrigation services.

Furthermore, there is a need to shift from food crop to horticulture, dairy farming and crop varieties less dependent on water.

Increases in productivity will require a package of initiatives, the most important being better management of a key input ie water. For the efficient use of water, greater focus is needed on land levelling, zero-till cultivation, drip irrigation, greenhouse and tunnel technology (for horticulture, fruit and vegetables), policies to facilitate development of private cold-storage chains, logistics and infrastructure connecting farms to markets to check wastage, etc.

Modifications in building and zoning regulations, rationalisation of government levies related to development, commercialisation and property taxes and the disposal of prime commercial land tied up in unproductive state functions (eg elaborate housing for officials) in urban areas can set into motion a virtuous circle of high and more ‘inclusive’ growth.

Finally, because of underemployment in agriculture, a significant increase in labour productivity will have to come from the shifting of labour out of this sector — though not through forced, distress migration as presently — to more remunerative non-agricultural employment both in rural and urban areas, the latter being more productive.

Daily Dawn