Seeds of economic disparity and political discontent
By TARUN GANGULY, Within one year of his coming to power, President Yahya Khan appointed in February 1970 a panel of 12 economists six Bengalis and the rest from the Western wing to comment on the draft fourth five-year plan of Pakistan.
The Bengali economists grabbed the chance to closely analyze the Pakistani economy right from 1947 to the present day. In fact they held the successive Pakistani Governments and the planners appointed by them for the tremendous disparity in the economic growth of the two wings. The Bengalis also differed with the West Pakistanis on the issue of allotment and general structure of the 4th plan.
The Bengali economists led by Mr. Mazharul Haq, Chairman of the panel, held. “the future of the nation, indeed its very survival, hinges on whether the benefits and burdens of economic development can be shared equally by the people of all the regions, provinces and by all classes of income groups”.
The directives before the panel were to decide whether “greater emphasis should be given on social justice” and attempts be made for “substantial reduction in the economic disparity between the various regions.” This indicates a general awareness about discrimination in economic development in the two wings of the country. But then the centers of power and different groups of interest were not yet prepared to part with the extra benefits and privileges.
The Bengali economists, who submitted their joint report to the then Pakistan Government, were of the opinion that “an attempt should be made to rectify the imbalance in the sharing of the benefits of development between the two wings of the country by reversing the past ratios of regional allocation of total expenditures in favor of East Pakistan in the 4th and subsequent plans”. The economists were apprehensive that west Pakistan would be reluctant towards any such attempt and had accordingly suggested “early reversal of the process”, as “greater will be the extent of inflexth, created in the more developed regions and greater would be the pressures for maintaining the status quo.”
Taking all this into consideration the Bengali economists had suggested a “path of moderation”. They had suggested allocation of resources on the basis of population between the two wings. Mr. Mazharul Haq wrote in his report to the Government, “our colleagues from West Pakistan, however, could not be persuaded to agree to our moderate proposal”.
The economists held that disproportionate Government spending and various Government policies relating to planning and development were at the root of the disparity in economic development in the two regions. For analytical convenience, they made distinctions between the pre-plan period (1948-49 to 1954-55) and the plan period (1955-56 to 1969-70).
During the 7 years from 1948. i.e. the pre-plan period the Pakistan Government spent 80 per cent of its non-development expenditure in West Pakistan. Of the development expenditure made by the Government during the period, Rs. 200 crores were spent in West Pakistan while only Rs. 70 crores were allocated to East Pakistan. At the same time against a Rs. 200 crore investment in the private sector in West Pakistan a meager Rs. 30 crores were put into the eastern wing.
This disparity in Government expenditure coupled with the trade fiscal and monetary policies adopted by the Government before and after the Korean boom, facilitated the growth of the private sector in West Pakistan at a rate much faster than that in the East.
Right from the beginning the Pakistan Government adopted a policy of industrialisation through private investment. The policy of open general licensing facilitated more growth of industrial investment in West Pakistan.
The non-devaluation of the Pakistani rupee in 1949 became a boon for industrialists in the West. When following the Korean depression import of consumer goods was instituted in mid-1952, keeping the import of capital goods with low tariff virtually liberal a favourable growth of private investment was created in Pakistan. During this period sizable investments especially in cotton textiles took place in West Pakistan. The simultaneous development of Infra-structure facilities resulting from heavy public sector development expenditure coupled with the commercial policy of the growth of an entrepreneurial class (mainly from immigrants from India) in West Pakistan.
And now the Government came in a big way to help the private sector in the West. First of all the setting up of the Pakistan Industrial Development Corporation (PIDC) with its head office at Karachi came to help the industrialists. By 1954 PIDC initiated diversification in the investment pattern in the West. Woolens sugar, fruit canning, chemicals, telephones, cement, fertilizers and such other industries in the West owed their origin to the PIDC. In the East the PIDC did nothing except investing in jute.
During this period the infra-structure such as transport, communications, water and power were relatively less developed in East Pakistan. “Inadequate institutional support and the lack of financial capacity prevented the East Pakistani Muslims to effectively participate in the trade and industry” commented the Bengali economist. By 1952 category-wise licensing was introduced. The nearness of the sanctioning authority at Karachi helped the West Pakistanis to get the lion’s share of the licenses including those for conducting trade for and in East Pakistan. And since investment breeds investment foundation for the cumulative growth of private investment over the subsequent years was laid in West Pakistan during the pre-plan period.
The initial advantage of the West over East Pakistan built in the first seven years manifested itself when planning was introduced in 1955. This not only substantially changed the initial economic environment in West Pakistan, “but also influenced the size; strategy, regional and inter-sectoral allocations of development resources in the First, Second and the Third plans”, the Bengali economists maintained.
The First plan, which was initiated in 1955-56, was based mainly on the “economic happenings” in West Pakistan and accordingly took on notice of the problems of economic development of East Pakistan.
The first five year plan (the initiative for which could be laid on the next door neighbor of Pakistan, India) envisaged a total investment of Rs. 1,160 crores- Rs. 800 crores in the public and Rs. 360 crores in the private sector. East Pakistan was allotted 36.3% in the public sector (with a population far in excess of that in the West). No regional distribution of the allocation for the private sector was indicated in the plan.
The Bengali economists held in their report that “the planned development programme was totally inadequate”. They maintained that the planners “totally ignored the comments of the East Pakistani economists in the economist’s conferences on the draft first plan.”
The six economists pointed out that “the allocation of public investment for East Pakistan showed the ignorance of the planners about the basic problems of economic development of that region.” The economists said that building up of a requisite infra-structure was a precondition for economic development in East Pakistan. But the planners in Karachi did not even give priority to the development of transport, communication and water and power sectors. Relatively lower priority was given to industries and “no attention was given to the question of flood control in the Eastern wing.” Was it premeditated?
Although 36% of the development expenditure was allotted for the esatern wing not more than 30 per cent were invested. In the private sector – East Pakistan’s share did not exceed 20%. In fact against a total revenue expenditure of Rs. 808 crores in West Pakistan, expenditure in the eastern wing was not more than Rs. 254 crores.
The Pakistan Government officially blamed the East Pakistan economy and administration for its incapacity to absorb the development expenditure. “It was not realized that the conditions which created the so-called absorption capacity in the West did not exist in East Pakistan, nor were adequate efforts made through appropriate plan allocations and changes in trade, fiscal and monetary policies to create such capacities”.
Another factor which the Pakistan Government blissfully ignored was the absence of Bengalis in the top executive positions in East Pakistan as well as in the Central Government. It was the reason why the administration was not motivated towards gearing up the developmental machinery, maintained the economists.
Despite devaluation in 1955 the Pakistani rupee remained overvalued. This had important consequences. Higher imports of development goods, largely financed out of East Pakistan’s trade surplus, directly facilitated increased investment both in public and private sectors of West Pakistan. Then the high rate of profit earned by the importers resulted in private capital formation through reinvestment of importer’s profits. Moreover, West Pakistan got the larger share of import duties which were spent in investments in the West. On the other hand it restricted the growth of the private sector in East Pakistan mainly due to the “limited opportunity for capital accumulation through profits from trade and transfer of its savings of West Pakistan through its trade surplus.”
In the second plan East Pakistan’s share in the public and private sectors were 47% and 30% respectively, definite increases from the first plan. But then the plan allocations did not include the Rs. 291 crores earmarked for the Indus basin project in the West. In effect the inclusion of the project in total allocations would show that East Pakistan’s share in the public sector investments in the second plan was not more than 39%. In actual implementation the share of East Pakistan never exceeded 32% of the total of private and public sector investments during the second plan.
The picture was not very different during the third plan either. If public sector apportionments were as high as 54% of the total plan allocations, the total development expenditure in both the public and private sectors in terms of actual implementation was about 36%. Again private investment in East Pakistan during the third plan never execeded 24% of the total expenditure.
The disparity between the two wings will look more glaring in regard to development and non-developmental expenditure if it is considered in per-capita terms. In the pre-plan (1948-55) period the average per capita development and revenue expenditures in East Pakistan were Rs. 22.08 and Rs. 37.75 respectively. During the same period the figures in West Pakistan were Rs. 108.03 and Rs. 201.94 respectively. At the end of the third plan in 1969-70 the per capita figures for East Pakistan were Rs. 240 and Rs. 70.29 respectively, whereas those for West Pakistan were Rs. 521.09 and Rs. 390.35.
Despite Government commitments for reducing the disparity in per capita income and investment between the two wings-it has only widened over the years. The Bengali economists held that “disproportionately higher levels of development and non-development expenditure in the public sector in West Pakistan supported by fiscal and commercial policy throughout the last two decades led to the creation of a thriving private enterprise in West Pakistan while that in East Pakistan was deliberately left to lag behind.”
And no doubt the economic disparities practiced by the Government boomeranged in the shape of political differences. The plans only made the Bengali peasant poorer, while the West Pakistan economy “almost reached the self generating stage”. And in the continuance of the disparity the seeds for the destruction of Pakistan were sown.
Reference: Hindustan Standard, 07.01.1972