Stagflation and agriculture in outgoing fiscal year

There is need to remove institutional bottleneck related to agriculture to tackle stagflation

LAHORE:

The outgoing fiscal year ended with stagnant output growth and inflation rate of around 30%.

In the absence of reliable unemployment statistics, some analysts are of the view that the unemployment rate is around 12% at the moment. There is news that the government has reached a standby arrangement with the International Monetary Fund (IMF).

The accelerated prices of food items depict a situation which does not bode well for the masses. People are impacted a great deal owing to a high share of food items in their consumption basket. Adding salt to the injury, the prices of food items have been in double digits since August 2019. This implies that the agriculture sector is not playing its dynamic role.

The growth of the industrial sector also requires growth in agriculture in order to sustain economic expansion. Whenever successive governments tried to energise the economy by pumping up the industrial sector through subsidies, concessions and grants, they faced a complex economic situation called stagflation.

The agriculture sector has not got the attention which is specifically required to sustain economic growth.

The issue of land concentration has been brushed under the carpet since long. Neither successive governments paid attention to the issue nor political parties made it part of their manifesto. The issue has not been part of any political, social and economic discourse.

Big landlords did not pay attention to the productivity of their soil owing to a large cultivable area. In addition, they could not increase the productivity due to the existing land tenure relations. There is hardly any improvement in the institution of land tenure.

The landlords and labourers are in a combination of arrangements. For instance, the labourers act as tenants where they permanently tie up with the landlords.

A landlord delegates most of the affairs to a tenant. However, the landlord cannot monitor the tenant, which results in slackness on the part of the tenant. This is called moral hazard where the landlord has limited information about the actions of the tenant.

Similarly, the labourers may act as sharecroppers where they normally share half of the produce with the landlord. In this arrangement, there is a lack of incentive for the sharecroppers to improve the fertility of soil and pay attention to productivity.

This shows that the productivity of crops could not be increased to the extent required under the existing arrangements.

Successive governments have scaled back subsidies for small and marginal farmers. In the absence of any meaningful improvement in their economic situation, they sold their parcel of land to real estate developers.

Unfortunately, green land is being converted to brown one to declare it useful for real estate development purposes. Parcels of green land along main roads are being converted to small-sized housing societies. This is inimical to the agriculture sector.

Though remittances contribute to bridging the trade deficit, yet they end up in real estate projects. Many governments have kept the real estate sector untaxed for a long period of time which, in turn, attracted a lot of capital to this sector.

Although multilateral institutions have highlighted this untaxed area time and again, yet the situation remains unchanged.

In a nutshell, the agriculture sector is still backward and manifests semi-feudal characteristics. It is unable to provide sufficient amount of foodgrains to the workers of the industrial sector. As a result, Pakistan has to import foodgrains and other essential commodities with each passing year.

There is a need to remove the institutional bottleneck related to the agriculture sector to come out of the current stagflation. This complex situation requires a holistic approach.

The writer has worked at SDSB, Lahore University of Management Sciences (LUMS)

 

Published in The Express Tribune, July 17^th, 2023.

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