111 510 510 libonline@riphah.edu.pk Contact

Emerging economies

Since long, Pakistan is locked up in a situation of economic volatility, infrastructural deficit, financial disaster in public sector entities and growing poverty. Reformatory policies undertaken by different sectors of economy from time to time have failed to bring desired results due to bad governance and corruption at all levels.

In the wake of this constrained situation, for an effective turnaround, country’s economic managers need to follow growth strategies of fast emerging economy of China, which also basically being an agrarian economy started with reformatory policy for their agriculture sector.

Unlike the thinking of our economic managers and legislators to introduce collective farming in Pakistan, Chinese government despite 80 percent of farmers’ reliance on collective farming for their living thought of land reforms allowing communal land to be leased out to individual households with total freedom of growing crops of their choice and to sell surplus of their produce (above state quota) in the open market. These reforms gave a tremendous boost to agriculture production. Further, fast growth of agriculture sector led to growth of agro-based industries not only in rural, but also in urban outskirts. This also motivated rural workforce to move to industrial areas which gave a fillip to overall fast growth of Chinese economy.

For a faster move towards globalisation, China started setting up economic zones along its eastern border during the 1980s, which not only gave boost to its exports, but also attracted heavy foreign investment due to a sizeable relaxation introduced for taxation and business rules for potential investors.

In Pakistan’s scenario, landless cultivators and haris have to be allowed small farms and provided low cost inputs under strict monitoring of Ministry of Agriculture. For ensuring sustainable irrigation system, a close watch should be on source of water that is on entire canal network in order to curb menace of diversion of irrigation water to the big farms illegally as is the practice in all the four provinces. Further, unlike China stress should be on setting up agro-based manufacturing units in rural areas to check the flow of population to already over crowded urban industrial centers. This is essential to curtail unemployment and growing poverty in rural sector.

For the growth of urban economy, the Chinese government felt the need of giving a simultaneous boost to domestic demand and enhancing household disposable income. Along with maintaining an external surplus position investment both indigenous and foreign were diverted for reorienting the economy towards the domestic demand. Twelfth five-year plan devised in 2010 has main focus on enhancing household consumption. For that wage levels were raised sizeably to induce workers to consume more. Apart from raising wage levels, strong social safety nets and incentives to contribute towards pension funds relieved workers, particularly semi-skilled and unskilled particularly women from precautionary savings, thus prompted them to consume their earnings freely, resultantly, by 2011, China attained the position of the largest contributor to global consumption growth. In Pakistan’s scenario, no doubt it is not possible in view of an already low-level of savings (below 11 percent of GDP) and investment but good governance to check unjustified increase in prices and unbridled corruption at all tiers of government offices and state-owned corporation and ensuring unhampered access to various schemes floated for the poor under social safety nets, can give fillip to domestic demand of all goods and services which is essential for enhancing economic activity in the country, through consumers-driven growth pattern.

Reformatory steps to promote consumption-driven growth is also the need of the hour as adjoining South Asian countries are continuously increasing their market share in exports to economically rich countries and also to the countries within the region. Increased economic activity, based on consumption-driven growth would attract private foreign investment also.

India proceeded with regulatory steps, particularly in the manufacturing sector by lifting licensing requirements in 1991, which were mandatory for entering into manufacturing and trade activity and as such foreign competition was totally barred from certain industries, particularly heavy machinery and automobile industry. Thus, removal of licensing requirement and reduction in tariffs attracted heavy foreign investment, particularly in heavy engineering and pharmaceutical and IT industry, which gave impetus not only to capital goods export but also India captured wide global market of IT software and services export, as by 2011 India’s export of goods and services stood at 24.5% of its GDP. While looking towards India’s growth pattern, Pakistan needs to create a congenial business doing environment despite its liberalised trade and business doing policies at work since last one decade. Lack of sustainable infrastructure particularly relating to energy and water supply and most importantly growing terrorism both within and on borders of the country are to be addressed vigorously and earnestly to promote economic activity both in urban and rural areas.

Further, attention is to be paid towards human capital development with a sharp focus on development of workforce expertise in new technologies in vogue relating to all trades and industry. Emerging economies’ growth model needs to be followed modestly as recessionary pressure is now gradually moving towards emerging and developing economies.

Due to a fall in demand of its exports, China is faced with a peculiar position of over burdened investments and low productivity, which apart from global recession is being caused due to growing aging population and shrinking workforce due to a restricted population growth policy.

Pakistan on the other hand, is faced with high population growth rate particularly of age group of 5 to 35 years, which continue to add to labour force thus aggravating unemployment situation in a scenario of stagnant or rather very low growth rate of the economy. To remedy this situation apart from addressing education and healthcare issues, labour laws pertaining to manufacturing industries will have to be reviewed so as to provide a congenial working environment to workforce to enhance their working efficiency.

Further financial system will have to boost up its access to potential entrepreneurs living in far-flung and unbanked areas enabling them to get self-employed by setting up small businesses. State Bank’s efforts to bring down discount rate to give a boost to private sector borrowings particularly to manufacturing sector is no doubt the need of the hour, but at the same time there is a need to improve savings and investment ratio to GDP.

Apart from these reformatory steps to enhance commercial activity and job creation, country’s economic managers will have to pay special attention for lowering inflation and budgetary deficit, which is enhancing both internal and external borrowings, preventing the country from attaining a sustained growth rate.

India, despite being a fast emerging economy, is also caught in the turmoil of fast increase in working age population and lack of jobs, rising inflation and in equitation. This scenario has made it difficult for India to achieve MDGs relating to poverty reduction.

Apart from Other reformatory steps China gave preference to heavy investments in energy sector. Initially China relied on coal as energy source, but gradually harnessed all renewable energy sources and resultantly is now the largest energy producing country from diverse sources. Pakistan also needs to replicate the energy producing pattern of China. Instead of relying on conventional sources, it must harness alternate available sources of energy to combat growing crisis in this area.

India’s focus on development of invisible human infrastructure through support for vocational education and export oriented technological parks has tremendously contributed towards development of their service industry and enhancing its share in total exports of the country. No doubt Pakistan has made quite a headway in this regard, but there is need to develop more technological parks not only for application of latest technology in all sectors of economy, but also to boost the share of services in total exports of the country.

Akram Khatoon, "Emerging economies," Business recorder. 2013-01-20.