Agriculture and an intrusive state
This poor performance has pulled down with it the rest of the economy
The writer is a former caretaker finance minister and served as vice-president at the World Bank
Pakistan has one of the world’s most impressive agricultural systems but it has not used it well. Agriculture could become the main driver of economic growth and poverty alleviation but for that to happen policymakers at the federal level as well as in the provinces will have to appreciate the sector’s potential as well devise public policies to realise it. From about the late nineteenth century to the present, the state has had a heavy hand in guiding agriculture to produce for the market. The main point I will make in the article today is that the government should ease its hold over the sector and let the private sector have a freer hand.
To understand the state’s role, we should look at the influence on policymaking of what economists call “path dependence.” This is the impact history has on the decisions governments take. It was during the time of the long British rule of India that the state got heavily involved in all aspects of agriculture in the areas that now make up Pakistan. Then this part of British India was lightly populated even though it was traversed by the Indus River system that carried an enormous amount of water and dumped it mostly unused into the Arabian Sea. In the second half of the 19th century, the eastern provinces of British India faced a number of famines that took hundreds of thousands of lives.
Having been hit by the 1857 Mutiny, the British were concerned that these repeated famines could cause a serious problem for their rule. Seriously hurt by the famines, people of eastern India could turn their anger at the Raj. The British administration in New Delhi was anxious to find a durable solution. This it did in the mostly empty lands of west Punjab and upper Sindh. The government decided to invest heavily in tapping the waters of the Indus system for cultivating the virgin land in these areas, produce large quantities of food grains and transport these to the food-deficit region.
A vast system of surface irrigation supported by an equally large road and railway network was developed by the state. Within a decade, surplus food grains had begun to arrive from Punjab and Sindh to the United Provinces (today’s Uttar Pradesh), Bihar, Bengal and Orissa. The government’s involvement did not end there. It also built dozens of “mandi” towns in the area to which the farming community brought its surplus to be sold. Those who purchased the farmers’ output were designated middlemen who then sold what they had bought to the government. Since the farmers needed money at the start of the growing season they went to the local moneylenders to obtain credit by pledging the land they owned as collateral. Since agriculture is subjected to the vagaries of nature, some of the loans went bad. Some land thus passed to the moneylenders who were mostly Hindus operating from the mandi towns.
This transfer of land from the Muslim peasantry to the Hindu moneylenders worried the British; it could lead to political and social instability. The government responded with the Punjab Land Alienation Act of 1901 that classified the provinces population into two categories: agriculturalists and non-agriculturalists. Land could not be transferred from one class to the other. Agriculturalists were mostly Muslims and Sikhs; non-agriculturalists were Hindus. Thus excluded from owning land, the Hindu community became resentful. Once again the British adopted a legal solution. By promulgating the Punjab Marketing Act, the government regulated the entry and exit of the middlemen operating in the mandi towns. Those protected were mostly Hindus.
It was this intrusive state that Pakistan inherited from the British when it became an independent state in 1947. However, from a couple of decades after independence the government’s attention was turned away from agriculture. The sector was neglected and consequently suffered. From the age of plenty in the first of half of the 20th century, the area that was now Punjab went though the age of food scarcity. Production of wheat at the end of 1950s was lower than a decade earlier. By 1956, large-scale food imports became a permanent feature of the Pakistani economic landscape. Most imports came from the United States for which Pakistan paid in rupees rather than in dollars. The rupee payments went into a fund from which the United States financed a number of development programmes. These included the highly successful Rural Works Programmes that provided the Pakistani countryside with some of the needed infrastructure.
The state came to the rescue of agriculture in the late 1960s and the 1970s. With the completion of the Mangla and Tarbela Dams, there was a sharp increase in the availability of irrigation water. The area under major crops went from 10.5 million hectares to 15.4 million acres. At the same time, with encouragement by the government the farming community adopted new technologies that ushered in what came to be called the “green revolution.” In the four decades that followed the 1950s, growth in agricultural output averaged four per cent a year, a record matched by few countries over such a long period of time. However, since the year 2007-08, the rate of growth in agricultural output has averaged only two per cent a year. This poor performance has pulled down with it the rest of the economy. Why this sudden transition from four to two per cent in less than a decade and what can be done about it? I will answer these questions next week.
Published in The Express Tribune, April 3rd, 2017.
To understand the state’s role, we should look at the influence on policymaking of what economists call “path dependence.” This is the impact history has on the decisions governments take. It was during the time of the long British rule of India that the state got heavily involved in all aspects of agriculture in the areas that now make up Pakistan. Then this part of British India was lightly populated even though it was traversed by the Indus River system that carried an enormous amount of water and dumped it mostly unused into the Arabian Sea. In the second half of the 19th century, the eastern provinces of British India faced a number of famines that took hundreds of thousands of lives.
Having been hit by the 1857 Mutiny, the British were concerned that these repeated famines could cause a serious problem for their rule. Seriously hurt by the famines, people of eastern India could turn their anger at the Raj. The British administration in New Delhi was anxious to find a durable solution. This it did in the mostly empty lands of west Punjab and upper Sindh. The government decided to invest heavily in tapping the waters of the Indus system for cultivating the virgin land in these areas, produce large quantities of food grains and transport these to the food-deficit region.
A vast system of surface irrigation supported by an equally large road and railway network was developed by the state. Within a decade, surplus food grains had begun to arrive from Punjab and Sindh to the United Provinces (today’s Uttar Pradesh), Bihar, Bengal and Orissa. The government’s involvement did not end there. It also built dozens of “mandi” towns in the area to which the farming community brought its surplus to be sold. Those who purchased the farmers’ output were designated middlemen who then sold what they had bought to the government. Since the farmers needed money at the start of the growing season they went to the local moneylenders to obtain credit by pledging the land they owned as collateral. Since agriculture is subjected to the vagaries of nature, some of the loans went bad. Some land thus passed to the moneylenders who were mostly Hindus operating from the mandi towns.
This transfer of land from the Muslim peasantry to the Hindu moneylenders worried the British; it could lead to political and social instability. The government responded with the Punjab Land Alienation Act of 1901 that classified the provinces population into two categories: agriculturalists and non-agriculturalists. Land could not be transferred from one class to the other. Agriculturalists were mostly Muslims and Sikhs; non-agriculturalists were Hindus. Thus excluded from owning land, the Hindu community became resentful. Once again the British adopted a legal solution. By promulgating the Punjab Marketing Act, the government regulated the entry and exit of the middlemen operating in the mandi towns. Those protected were mostly Hindus.
It was this intrusive state that Pakistan inherited from the British when it became an independent state in 1947. However, from a couple of decades after independence the government’s attention was turned away from agriculture. The sector was neglected and consequently suffered. From the age of plenty in the first of half of the 20th century, the area that was now Punjab went though the age of food scarcity. Production of wheat at the end of 1950s was lower than a decade earlier. By 1956, large-scale food imports became a permanent feature of the Pakistani economic landscape. Most imports came from the United States for which Pakistan paid in rupees rather than in dollars. The rupee payments went into a fund from which the United States financed a number of development programmes. These included the highly successful Rural Works Programmes that provided the Pakistani countryside with some of the needed infrastructure.
The state came to the rescue of agriculture in the late 1960s and the 1970s. With the completion of the Mangla and Tarbela Dams, there was a sharp increase in the availability of irrigation water. The area under major crops went from 10.5 million hectares to 15.4 million acres. At the same time, with encouragement by the government the farming community adopted new technologies that ushered in what came to be called the “green revolution.” In the four decades that followed the 1950s, growth in agricultural output averaged four per cent a year, a record matched by few countries over such a long period of time. However, since the year 2007-08, the rate of growth in agricultural output has averaged only two per cent a year. This poor performance has pulled down with it the rest of the economy. Why this sudden transition from four to two per cent in less than a decade and what can be done about it? I will answer these questions next week.
Published in The Express Tribune, April 3rd, 2017.