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 Economic Issues Of Pakistan

(Mid-Term Notes)

 Professor: Mam Aqsa Hussain

 Written by: Ammar Haider
 Roll No: BUSC51F20R021
 Class: Bcom (Hons) 3rd Regular

“ Today is the your opportunity to build the

Tommorow you want ”

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 Economy:
“ Entire network production consumption and distribution of goods
and services within the country.”
It is is derived from Greek letters “Oiknomos”
Oiknomos means house hold management.
 Difference between Economic Growth and Economic
Development:
Earlier Economic Growth cosidered as Economic Development
But Now, Economic development is some more than Economic
Growth.
“ When Quantitative Variables increase(change) then it is
Economic growth, i.e National income, GDP,GNP.
“ When Quantitative Variables as well as Qualitative Variable
increase(change) then it is Economic Development.
i. e. Physical Quality of Life, Living Standard, Education,Well
being,Prosperity,Life Expactancy.
 Economic Development Evaluation:
After 2nd world war economists started devoting their attention
towards analyzing the problem of developing countries.
In 1939 ILO (International Labour Organization) started 1939
Oldest Organization of UN It was created by united Leage of
Nation. At that time Poverty Started, and a statement from ILO
“The Poverty anywhere is a Threat to Prosperity Everywhere.”
It created further interest in the subject. So, a separate branch of
economic theory has emerged, whicvh is called Economic
Development.
 Economic Development: (Renowned Definations)

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1) Professor H.F Williamson :

(Best Possible Situation) Optimum utilization of available
resources in the economy average quality of goods increase.
2) Professor Benjamin Higgins:
“Continiuosly Increase in aggregate Income(National Income) and
per capita income of the economy.”
 PCI is Per Person Income, Per consumer income.
 PCI= Y/P y=National Income , p=total population
 In Pakistan PCI is $1543 (Average, Lowest)
3) Arther Lewis:
Increase in PCI Output
Y= P1Q1+P2Q2 P=Price, Q= Output
4) Watson:
More increase in goods and services as increase in population.
Production and consumption increases when population increases
5) Professor Snider:
Increase in output of a Country over a long run time (15 to 25
years).
Longrun time (15 to 25 years).
6) Meier and Baldwin:
A Process whereby economies Real national income increase over
a long period of time.
 Process: Interaction of market forces (Demand and Suppy)
 Real Ni: It is the nominal or money national income (Output)
adjusted for inflation. Or Count of NI on the base year is Real
national income
 Long period of Time: More than 10 years 15 to 25 years)

Measurement Of Economic Development:

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Generally There are Four methods to calculate Economic

Development.
1) Increase in Real National Income
2) Increase in Real per capita Income
3) Increase in Economic Welfare
4) Increase in Physical Quality of Life Index

1) Increase in Real National Income:

Real National Income refers to the country’s total output of final
goods and services in real terms rather than in money terms.
Thus, the economic development is regarded as an increase in
gross national product of a country over a long period of time.

2) RPCI (Real per Capita Income ): Meirs Defination.

A process economies real per capita increase over the long period
of time.

RPCI= Real Y/P

P= Population, Y=NI
Three Possibilties:
i. dY/dt > dP/dt (Economic Development)
ii. dY/dt = dP/dt (Stagnation) No economic
activities.
iii. dY/dt < dP/dt (Retardation/Deterioration)
Economic Activities less than
Population
 Pakistan’s Economy is V shaped.

3) Increase in Economic Welfare:

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Economic Development + Equitable Distribution of Income

(according to Abilities)

4) Increase in Physical Quality of Life Index:

There are three Indicators:
i. Life Expectancy (100 years)
If over than 53 years then economy is development in
country. In Pakistan 67.5 average.
ii. Litracy Rate (100%)
If litracy Rate is 50% then economy is going to development
in country. Pakistan’s Litracy Rate is 60%
iii. Infant Mortality rate (1000)
If Infant mortality rate is 119 then economy is moving to
development or better. In Pakistan Infant mortality rate is 58.

What id HDI (Human Development Index):

 Lanched First in 1990.
 Released ever since, except 2012.
 It is one of the best tool to
 keep track The level of a development of a country
 It s a Statistic Composite index for life expectancy, education
and per capita income .
 It was created to emphasize that people and their capabilities
should be ultimale criteria for assesing the development of
 country.
 It only part what human development involve.It doesn’t
reflect inequalities, poverty ,human
security,empowerment,etc.

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 Obstacles To Economic Development:

Vicious Circle Of Poverty (VCP):Nurkse 1953

“Circular flow of action and reaction of such forces which keep

country in state of perpetual poverty.”
Statement: A country is poor because it is poor.
There are two sides of VCP:
1) Demand Side 2) Supply Side
1) Demand Side:
In a poor country, the level of income is very low which means a
low purchasing power. Since the purchasing power of the people is
low and the scope of investment is practically limited. As a result,
the productivity is low and the incomes are small.
The underdeveloped countries face the vicious circle of poverty on
the demand side of capital formation because the level of real
income is low in these countries and the level of demand is low.

2) Supply Side:

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Poverty in undeveloped countries means that the per capita

income is low and capacity to save is limited. The rate of savings
being low, the rate of investment in turn is bound to be low and the
rate of capital formation is low. The level of productivity per worker
is extremely low due to great shortage of capital in
underdeveloped countries. As a result a of the above process, the
real income per capita is low and there is poverty. The circular flow
of poverty diagrammatically is shown as.

 Poverty:

 What is Poverty.
 How World describes Poverty.
 Types Of Poverty.
 Measurement Of Poverty.
 Causes Of Poverty.

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 What is Poverty :
“Poverty is a condition where basic needs for food, clothes and
shelter are not being met.” These are acute basic needs.
It is a scaracity or lack of Money or lack of certain (minimum
requirement) amount of possesion of money.
 How World bank describes Poverty?
Poverty is pronounced deprivation in well-being and comprises
many dimensions.
It includes low income and inability to acquire the basic needs,
goods and services necessary for survival with dignity (Self
esteem).
 Types Of Poverty:
 1) Absolute Poverty:
Acute/sphere deprivation of Human basic needs wich includes
Food, Safe drinking water, cloth, Sanitation facility
Health, Shelter, education and information.
It depend not only on income but also acces of Services .
In, Short Acute deprivation of basic goods and services.

 2) Poverty Line : (For Pakistan)

A minimun certain amount in which a Human fulfil his needs.
It is $19 per person per day or $19/person/day.
In Pakistan Poverty rate is 39.3
 3) Relative Poverty:
It is a relative deprivation.
It Occurs when People do not enjoy a same living Standard
 4) Primary Poverty:
It is defined as where income is insuffica to meet basic needs even
if every peny( rupee) is spent by wisely.

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 5) Secondary Poverty:
It is a situation where money is misspent (wastefully) or use
irrationally on luxurious. Leaving insufficient disposable income to
buy necessities.
 6) Multidimensional Poverty Index:
Acute deprivation in essential aspects of Life.
It measures three key elements:
1) Standard Living
2) Education
3) Health Care
 Measurement Of Poverty:
1) Head count Index
2) Poverty Gap Index
3) Total Poverty Gap
4) Wat Poverty Gap
5) Wear and Tear Poverty Gap

1) Head Count Index:

How many portion of population is poor.
Hp= q/N N=total population, q= no.of poor people
2) Poverty Gap Index:
Z-Y/Z Z= Income of poor people, Y= average income

 Causes of Poverty:
These are the causes of poverty especially in Pakistan:
1) Under Development:
Due to under development a large portion of the population has to
go without even the most essential needs of daily life.
2. Inequality:

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There is the extreme inequality of income and wealth in Pakistan.

Actually, under development and inequality are the twin causes of
poverty.
3. Low Per Capita Income:
Poverty is also reflected by the low per capita income. It is an
important measure of economic development and also represents
the living standard of the people of a country.
4. Inadequate Growth Rate:
One reason for the failure of planning to make a major dent on
poverty has been the inadequate growth rate of agricultural sector.
5. Higher Growth Rate of Population:
The growth rate of population in Pakistan is very high. Such a high
growth rate of population accompanied by the low growth rate of
the economy brings down the per capita income and per capita
consumption expenditure and thus increases poverty.
6. Unemployment:
Poverty is also on the increase with the rise in the number of the
unemployed. Then number of unemployed persons in Pakistan
has been increasing with every year. Therefore, unemployment
rate is quite high.
7. Inflation:
Continuously rising prices are another cause of poverty. When
prices rise, the purchasing power of the money falls and they lead
to the impoverishment of the lower middle and poorer sections of
the society.Thus inflationary pressures have further increased the
number of poor.
8. Low Technology:
Low level technology is also responsible for the poverty of the
country. Not only manufacturing process and agricultural

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techniques are far below the standards of developed countries, but

even marketing skills, capacity to organize production units and
financial markets are at a low level.
9. Capital Deficiency:
Another cause of poverty has been the deficiency of capital in the
country. In real terms, capital is much below the level required for
the rapid growth of the economy.
10. Defence Expenditure:
Due to strategic position of Pakistan, the defence expenditures are
rising every year. Therefore, the Government is bound to spend
lesser amounts on other sectors of the economy and the poverty is
rising.
11. Political Instability:
Political instability is commonly cited as an obstacle to economic
development of the country. The rapid changes in Governments
are proved to cause of low investment in the country. Then, the
low rate of investment leads to poverty.
 Determinants Of Economic Development:
The Process of economic development is determined by two
factors economic and non economic factors.
 Economic Factors:
1. Natural Resources:
The Principal factors affecting the development of an economy are
the natural resources or land. Natural resources are such as
fertility of land, its situation, forest wealth, minerals, climate, water
resources, sea resources etc. A country which is deficient in
natural resources will not be in a position to develop rapidly.
In LDCs (least developed countries), natural resources are either
un-utilized, under utilized or misutilized.

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Un utilized: Not Ability to use the resources.

Under Utilized: Resources capacity is more than use.
Mis Utilized: Mis use of resources by the managment.
This is one of the reasons for their backwardness. The natural
resources can be developed through improved technology and
increase in knowledge. For economic growth the existence of
abundant natural resources is not enough but their proper
exploitation is essential so that there is little wastage and they
could be utilized for a longer time.
2. Capital Accumulation (Formation):
 It is the factor of production (Input).
 It produced further goods and services.
 It increase further capital and also output generates.
 Increase in the physical stock of capital.
 In old economics it was ‘Kapital’.
 It is denoted by ‘K’.
 Pakistan is labour intensive country (Ratio of labour is more
than Capital).
 Income level is high of capital intensive country.
 According To Singer:
Capital Formation is both tangible goods like plants, tools
and machinary and Intangible goods like
education,health,scientific tradition and reaserch
3. Human Capital (Labour):
Labour is a human resource of production and human resources
refer to the population of a country.
The population has its dual effect on the economic growth i.e. its
rapid growth rate is a main obstacle to economic development and

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on the other hand more human capital increases the productivity of

the economy.
The productive qualities of human capital are education, training,
health, skill and efficiency of the labour.
The qualities can be increased due to providing health facilities,
training, increase expenditure on education and vocational
institutions etc.
4. Organization:
Organization is an important part of the growth process. It relates
to the optimum use of factors of production in economic activities.
The entrepreneur has been performing the task of an organizer
and under taking risks and uncertainties. The shortage of skilled
personnel of various kinds such as workers, scientists, technicians,
managers, administrators etc possess a serious problem in the
success of entrepreneurship in under developed countries. Water
and Power Resources
5. Water and Power Resources:
Water and power resources play an important role in shaping the
economy of a country. The execution of policies in Pakistan is
assigned to an autonomous body called Water and Power
Development Authority (WAPDA in 1958) and Karachi Electric
Supply Corporation. The terms power refers to energy which
makes a machine to cperate, machines are used in agriculture,
manufacturing and other industries such as transport, construction
etc. The machines improve the quality, reduce the cost and speed
up the operation.
6. Transport and Communication:
One of the important factors in economic growth is the means of
transport and communications. The transport means are railways,

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roads, air, sea while the means of communications are radio, T.V.,
newspapers, telephone, telegraph, or internet etc. The growth
process in LDCs can be accelerated by widening of the
Market through the adoption of modern means of transport and
Communication
7. Technology:
The technological changes are related to changes in the methods
of production which are the result of some new techniques of
research or innovation.
Changes in technology lead to increase in the productivity of
labour, capital and other factors of production.
The LDCs must import modern technology to accelerate their
productive capacity. However, scientific and industrial technology
to be useful in an under developed country needs careful
processing and adoption in accordance with its social, economic
and technical absorption capacities and requirements.
8. Fiscal and Monetary Policy:
Fiscal policy in developed countries is to stabilize the rate of
growth expenditure by government for purposes of development.
The role of which in under developed countries, is to accelerate
the rate capital of formation. The monetary policy refers to the
control and regulation of cost, availability of money and credit. It
adjusts the money supply according to economic requirements
which changes with the growth and expansion of the economy.
Thus the fiscal and monetary policies are complimentary in nature
for the economic development of a country.
9. Structural Changes:
The structural changes imply the transition from traditional
agricultural society to a modern a modern industrial economy

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involving a radical transformation of existing institutions, social

attitudes and motivations. Such structural changes lead to
increasing employment opportunities, higher labour productivity,
stock of capital, exploitation of new resources and improvement
in the technology. Those structural changes which affect
technical skills, administrative and entrepreneurial activities and
the supply of capital are more important.
 Non Economic Factors:
10. Social Factors :
Social attitudes, values and institutions also influence economic
growth. These inculcate the spirit of adventure which leads to
new discoveries and innovations. The people cultivate the
habits of saving, investment and under take risks to earn profits.
But in LDCs there are such social attitudes, values and
institutions which are not conducive to economic development.
Therefore, these should be changed or modified for economic
development to take place. Social organizations like the joint
family, caste system, kinship, nepotism, regionalism etc should
be modified so that they may be more favourable to economic
development.
11. Political Factors:
The political factors also help in economic growth.
The weak political structure is a big obstacle to economic
development of LDCs.The behaviour of government plays an
important role in stimulating of discouraging economic activity,
peace, stability, legal protection and encouragement of
entrepreneurship to investment. This can only be taken under
clean and stable political conditions. A stable government can
develop means of transport and communications, successful plans,

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approved monetary and fiscal policies, for accelerating economic

development. In LDCs there is political instability, the governments
are being changed frequently by the imposition of There are
frequent political changes in Pakistan since partition so the
planning work done by the previous governments cannot help the
developmental projects to be successful. Therefore, the political
instability is a main cause of slow economic growth.
12. Administrative Factors
The administrative factors can help the economic growth
effectively. The weak administrative structure is a big hindrance
to the economic development of developing countries.
Therefore, a strong, efficient and incorrupt administration is
essential for economic growth. Technical progress, factor
mobility and large size of markets can take placé under clean
administration.The administrative evils i.e. red-tapism,
corruption, bribery, nepotism, dacoity, theft, embezzlement etc,
are also obstacles to economic development to eradicate the
above evils, the members of administration must be given a
handsome pay and given due promotion. The officials must be
held responsible for their negligence.
They must not to be allowed to misuse of their power and
authority.
 Source Of Capital Formation:
There are two types of sources of capital formation.
1) Domestic Sources 2) Foriegn Sources
 Domestic Sources:
1. Individual Savings:
It is that part of income of individual which is not consumed on
consumers goods. The saving is directly proportional function of

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income i.e. S = f(Y). The level of savings in a country depends

upon the power to save and the will to save. The higher the
level of income, the greater will be the amount of savings.
2. Business Savings:
Business enterprises save when they do not distribute whole of
their profits but retain a part of them in the form of undistributed
profits which are used for investment in real capital.
3. Government Savings:
The government savings constitute the money collected as taxes
and the profits of public sector. The greater will be the government
savings. These can be used by the government for holding up new
capital goods like factories, machines, roads etc or it can lend
them to private enterprise to invest in capital goods.
4. Public Borrowing:
It is an important source of capital formation. It acts as an
antiinflationary measure by mobilizing surplus resources to
productive channel.
5. Defict Financing:
It is newly created money and is an important source of capital
formation in a developing country. It is the method on which the
government can fall back to obtain funds but it may lead to the
inflanationary pressures in the economy.
6. Disguised Unemployment:
The surplus agricultural workers can be transferred from the
agricultural sector to the non agricultural sectors with out
diminishing agricultural output. These un-productive workers can
be employed in various capital creating projects such as roads,
buildings canals, health centres etc.
 Foreign Sources:

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If the internal sources are insufficient for the economic

development of a developing country, then the capital formation
can take place with the help of foreign capital which have the
following forms.
1. Direct Private Investment
Private foreign companies have important role in capital formation
by investing in private sector directly.
2. Foreign Loans:
Developing countries are receiving a good amount of foreign
capital in the shape of loans or grants from other developed
countries e.gthe Government of Pakistan gets foreign loans from
U.K., U.S.A. and Canada etc.

3. Loans From International Agencies:

Some international agencies or institutions provide loans to a
country, which is also a source of capital formation e.g. World
Bank, Islamic Bank, etc.
4. Restriction on Imports:
All luxury imports should be restricted and the foreign exchange sc
saved should be utilized in importing capital goods. This measure
can be successful only if the domestic income saved on importec
consumer goods is not utilized on luxury or semi luxury goods but
it should be utilized in importing capital goods which are necessary
fom economic development of the economy.
5. Foreign Remittances:
The population growth rate is high in developing countries.
The increasing rate of labour force leads to unemployment. This
surplus labour force can be utilized in developed countries and
returns foreign remittances to his homeland. These remittances

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will increase capital accumulation therefore; it is also a source of

capital formation.

 Demand Management Policies:

We have a economy wich is run or regulate by government
and control by bank.
1) Monetary Policy 2) Fiscal Policy
1) Monetary Policy:
It is control by Government.
It is a tool used by central bank (SBP) to control the economy
(objective) by controlling money supply (How) and banking
system.
Discount Rate: Loan to Commercial bank by central bank
Interest Rate: Commercial banks loan to Consumer
Tools Of Monetary Policy:
1. Open Market Operations
2. Reserve Requirement
3. Discount Rate (Interest Rate)

1. Open Market Operations:

OMO refer to central bank purchases or sales of government
bonds and securities.
To increase the money supply central bank buys government
bonds and securities.
To decrease the money supply central bank sells government
bonds and securities to the public.
2. Reserve Requirement:
Reserves are the deposits that banks have received but not
loaned out.

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To increase the money Supply Reserve Ratio decrease.

i.e 20% - 15%
To decrease the Money Supply Increase Reserve Ratio Increase.
i.e 5% - 6%
Pakisan’s Reserve Ratio 5% - 6%

 What is Money Multiplier:

How many times money supply changes.
It is the amount of the money the banking system generates
with each dollar or rupee of reserve.
It is the resiprocal of reserve ratio. 1/RR
3. Discount Rate (Interest Rate):
To increase the Money Supply Discount rate Decrease.
To decrease the Money Supply Discount rate Increase.
Discount Rate and Interest Rate both change at Same Pattern.

2) Fiscal Policy:
It is a tool used by government to regulate the economy
through expenditures and raising of revenue through taxation.
Taxation is the largest source of Govt income.
Fiscal Tools: Government Expenditures, Taxation, and
Transfer payments.
Heads of Govt Expenditures:
Government want to increase economy so government start
to Invest/Expenditure to increase in economic development.
Susidized to Agriculture.
Education, Health, Infrastructure, National Development,
Trade and industry, Transportation, Financial Transfer and
so many things.

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 Inflation
1. Ackley Defination: (Best and Comprehensive Defination)
 According to Ackley Inflation is a persistant and appreciable
rise in general price level or average of price.
Persistant: Continual/ Economic meaning: doesn’t respond to
anti-inflanationary policies.
Appreciable: Large in amount but do not know, how much
change.
General Price Level: Change in economic level (at macro level)
Average Price: Average Change
2. Harry G.Johnson: A sustained rise in Prices
Sustained: maintenance to increase ( Perpetual increase)
3. Coulborn: Inflation is a situation when “too much
money,chasing too few goods then there is Inflation in economy.

 How to Measure Inflation :

Inflation is measured by CPI (Consumer price index), WPI
(Wholesale price index), PPI (Producer price Index) and GDP
Deflator.

1. CONSUMER PRICE INDEX:

A measure of the overall cost of the goods and services bought
by a typical consumer.
When the CPI rises, the typical family has to spend more to
money to maintain the same standard of living.
How the CPI is Calculated ?
Fix the Basket: Determine what prices are most
important to the typical consumer.

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Find the Prices: Find the prices of each of the goods and services
in the basket for each point in time.
Compute the Basket’s Cost: Use the data on prices to calculate
the cost of the basket of goods and services at different times.
Designate one year as the base year, making it the
benchmark against which other years are compared.
Choose a base year and compute the Index:
Compute the index by dividing the price of the basket in one year
by the price in the base year and multiplying by 100.
Consumer price index = Price of basket of goods and services in
current year / Price of basket in base
year*100
Compute the inflation rate: The inflation rate
is the percentage change in the (CPI) from the preceding period.
The Inflation Rate
The inflation rate is calculated as follows:
Inflation Rate in Year 2 =
CPI in Year 2 - CPI in Year 1 / CPI in Year 1 *100
Problems in measuring the cost of living.
1. Substitution bias
2. Introduction of new goods
3. Unmeasured quality changes

2. GDP DEFLATOR:
The GDP deflator is a measure of the price Level.
It measures the changes in the price level.The GDP deflator is
calculated as follows:
GDP deflator = Nominal GDP / Real GDP * 100
 Is GNP Deflator Exist?

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It is measure of the price level.

It accounts for the effects of inflation in the currnent year’s.
GNP Deflator = Nominal GNP / Real GNP * 100

GDP DEFLATOR Vs CONSUMER PRICE INDEX:

 The GDP deflator reflects the prices of all goods and services
produced domestically.
 GDP deflator compares the price of currently produced goods
and services to the price of the same goods and services in the
base year.
 It measures the changing basket commodities.
whereas..
 Consumer price index reflects the prices of all goods and
services bought by consumers.
 The consumer price index compares the price of a fixed basket
of goods and services to the price of the basket in the base
year.
 It measures the price of a fixed representative basket.
What is the best measure of Inflation:
 The GDP Deflator is the best measure of Inflation.
 This is because CPI measures only ‘basket of comodities’
bought by a consumer.
 GDP deflator is not based on a fixed basket of goods.
 GDP is a broader measure that includes all kinds of goods and
services produced in economy.
 Causes Of Inflation:
1. Monetary Expansion:
The expansion of quantity of money is an important factor of
creating Inflation.

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2.Deficit Financing:
When government spends more than its National Income,
the government acts upon the policy of deficit financing.
3. Foreign Remittances:
The supply of money increases due to foreign remittances
and it leads to higher demand for goods and services and
the level of prices increases.
4. Foreign Aid:
The foreign aid and grants increase the money supply of
receiving country and it leads to high inflation.
5. Rise In Consumption:
The demand of goods and services increases due to this
factor and causes inflation.
6.Hoarding
Some businessmen create artificial shortage of goods in the
market by hoarding and it causes a rising trend of prices in
the economy.
7. Increase in Wages:
Increase in wages, dearness allowances, bonus etc leads to
increase the purchasing power of the people.
8. Increase In Population:
The aggregate demand supply fails to respond to increasing
aggregate demand and the level of prices rises.
9. Devaluation:
Devaluation is lowering of the value of home currency in
terms of foreign currencies and it leads to inflation.
10. Rise In Oil Prices:

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The world market price of oil affects the price level of those
countries which have to import huge amount of oil every year
like Pakistan.
The cost of production increases due to increase in the oil
prices and it leads to inflation.
 Measures to Control Inflation:
A) Monetry Measures B) Fiscal Measures
A) Monetray Measures:
1. Bank Rate (Discount Rate):
To control Inflation Central bank increases the bank rate increase
to decrese the money supply.
In Pakistan discount rate changes from 7.25% - 8.75
1.5 & change for 2 months October and November.
2. Open Market Operations (OMO):
To control Inflation central bank sells bonds and securities to
public to decrease money supply and Inflation is control.
3.Reaserve Ratio:
To Control Inflation Central Bank increase reserve ratio to
decrease the money supply and Inflation is control.
B) Fiscal Measures:
1. Government Expenditures:
Government expenditures should be within the budget
constraints (available resources should be optimum
utilized) in the economy.
Government expenditures should be decreased when
there is misutilization.
2. Taxes:
To control the Inflation tax increases to decrease the
money supply.

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3. Savings:
To control Inflation saving increase.
Saving is good at individual level but Saving is not good at
Economic level because investment level decrease and
national income decrease and it is not good for economy.
Comparatively Investment should be increase but in some
cases saving is good to control Inflation.
4. Borrrowing:
To control Inflation Borrrowing should be decrease.

 What is import substiturion?

It is economic theory adhered to by developing countries that
wish to decrease their dependence on developmed countries.
It is idea that blocking import of manufactured goods can help an
economy by increasing the demand for domestically produced
goods.
 Agricultural Sector
“ It derived from Latin, Agri mean soil and culture mean cultivation.
So it is cultivation of soil or production of goods and services from
soil.”
It is a primary sector also called Traditional sector.
Labour intensive economy relates to agriculture.
 Allied Fields of Agriculture:
1) Crops:
Food Crops:
Wheat, Rice, Vegetables, Friuts, Grains, Corn, Potatoes,
Soybeans.
Non-Food Crops:

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Tea, Cotton, Rubber, Leather, Silk, Tobacco, Oil seeds, Wool,

Coconut.
2) Live Stock:
Live Stock includes meat, milk, eggs, manure, fibre, hides and
horns.
3) Fisheries:
The science of producing fish and other aquatic resources for
the purpose of providing human food. I.e Fish
4) Forestry:
Forestry is the science and craft of creating, managing, planting,
using, conserving and repairing forests, woodlands, and
associated resources for human and environmental benefits.
Forestry is practiced in plantations and natural stands.
25% forestry in a country is good.
5) Horticulture:
Vegetables, fruits, flowers, ornamentals, and lawn grasses are
examples of horticultural crops and are typically produced on a
smaller scale with more intensive management than agronomic
crops. Some horticultural crops are grown for aesthetic enjoyment
and recreation.
Techniques Of Production:
1) Extensive Technique of Production (Traditional Technique)
2) Intensive Technique of Production (Modern Technique)
1) Extensive Technique:
Land cultivate in large amount,More land is used for cultivable
purposes.
System of crop cultivation using small amounts of labour and
capital in relation to area of land being farmed. The crop yield in

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extensive agriculture depends primarily on the natural fertility of

the soil, the terrain, the climate, and the availability of water.
2) Intensive Technique:
When products are mainly produced by human workers. Machines
and special tools may be used too, but overall it requires human
creativity and effort to produce the product. A busy kitchen is one
example of labour intensive production.
i. High yield seeds
ii. Technology capital
Price Policies:
Sometime Govt Protect Producer and some time consumer.
Price policy means a policy to determine, regulate and control the
prices of agricultural products.
1. Support Price Policy (Price Floor):
It is the minimum price set by the govt for the protection of
producer.
2. Control Price Policy (Price ceiling):
It is the maximum price set by the government for the protection of
consumers.

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 Why Support price policy is kept above the Equilibrium?

When a price floor is set above the equilibrium price, quantity
supplied will exceed quantity demanded, and excess supply or
surpluses will result.
 Why Control price policy is kept below the Equilibrium?
When a price ceiling is set below the equilibrium price, quantity
demanded will exceed quantity supplied, and excess demand or
shortages will result.
 Excees Supply? Or How Equilibrium Restored in Excess or
Surplus?
Economic surplus market surplus or briefly surply is a situation in
which the quantity of a good or service supplied is more than the
quantity demanded, and the price is above the equilibrium level
determined by supply and demand.

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 Excess Demand? Or How Equilibrium Restored in shortage?

Excess demand occurs when the price of a good is lower than the
Equilibrium Price,meaning more consumers will want to buy the
good than suppliers are willing to sell. The difference between the
Quantity Demanded (QD) and the Quantity Supplied (QS) is the
Excess Demand.

 What are Agriculture Inputs?

Seeds, Fertilizers,Water,Pesticides,Land,Capital,Labour
Machinery.
 What is Subsistence Farming?
It is also called Traditional Farming.
It is a self contained and traditional farming where major portion of
the production is consumed by farmers themselves.
 What is Commercial Farming?
It is also modern farming.

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It is a type of farming in which major portion of the production is

sold in market as cash crop by the farmers.
 Agricultural Farm Mechanization:
 It is the use of up-to-date mechanical technology in the various
farming operations for the improvement in production and yield
per acre.
 These farming operations are sowing, harvesting, threshing,
leveling, water etc.
 The farm mechanical technology includes tractors, threshers,
harvesters, bulldozers, tube wells, trollies and plant protection
measures etc.
 It is one of the packages of green revolution technology in
Pakistan.
 Due to mechanization of agriculture in Pakistan, the growth rate
of agriculture sector is increasing.
 Types of Agricultural Mechanization.
1) Chemical Mechanization:
This type of technology includes plant protection measures by the
use of fertilizers, pesticides etc.
2) Mechanical Mechanization:
This type of technology includes the use of tools and machinery for
the improvement in productivity i.e. tractors, threshers, harvesters,
bulldozers, means of transport and communications etc.
3) Hydrological Mechanization:
This type of technology fulfils the shortage of water. i.e. tube wells.

 Agricultural Finance
The act of acquisition and use of capital in agriculture.

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It deals with the supply of and demand for funds in the agricultural
sector of the economy.
 Agricultural Credit:
 It is the Component of agricultural finance.
 Agricultural credit provides Provision of financial resources for
farming activities to farming community for the purchase of
primary inputs like fertilizer, seeds, pesticides, machinery,
equipments etc.
Types Of Agricultural Credit:
1. Short Term:
The short term loans are generally upto one year.
These loans are required for financing seasonal agricultural
operations and movement of crops such as preparation of land,
purchase of seeds, fertilizers, and feeds for livestock marketing,
payment of rent, interest on loans and wages of labourers.
2. Medium Term:
These loans are generally upto five years.
These loans are required for purchasing bullocks, cattles,
implements, repair work etc.
3. Long Term:
These loans are upto ten or more than ten years. These loans are
needed for purchase or acquisition of lands, liquidation of old debts,
for construction of embankments, drainage, irrigation channels,
ware houses, godowns, reclamation of land, purchase of tractors,
sinking of tube-wells etc.
Sources Of Agricultural Credit:
Agriculturalists of Pakistan generally depend on the following two
types of agricultural credit to meet their credit requirement.
(A) NON INSTITUTIONAL SOURCES:

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The major non institutional sources of rural credit are.

I) Relatives (ii) Friends (iii) Landlords (iv) Money lenders
(v) Shopkeepers (vi) Commission agents.
Individuals general, include well-to-do relatives, friends and other
farmers who provide a certain amount of credit. Landlords also
furnish some loans to their tenants in cash and kind. The money
lenders supply the bulk of non-institutional credit in the rural areas
which are not served by commercial banks. Their rates of interest
are high.The money lenders are in the shape of sheikhs, khojas
and landlords. However, merchant and commission agents play an
important role in financing agriculture, particularly in the course of
marketing operations. They also advance short-terms agricultural
loans a few months before harvest on the condition that the
produce is sold to, or through them.
B) INSTITUTIONAL SOURCES:
The sources of institutional credit in Pakistan may be classified as
under :
i) Zarai Tarqiati Bank Limited (ZTBL):
It was formerly known as Agricultural Development Bank of
Pakistan (ADBP) and was established in 1961 as a result of the
merger of Agriculture Finance Corporation and the Agriculture
Development Bank. It has provided over 5.92% of the total
institutional credit in 2020-21. The ZTBL advances loans for all
agriculture purposes including fisheries, forestry and cottage
industries. Its loans are classified as short-term, medium term and
long-term loans. In order to secure its loans, it accepts pledges
mortgages, hypothecation or assignment of any kind of movable
and immovable property. The supply of agricultural credit by ZTBL
was Rs.56.5 billion during July-March 2020-21.

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(ii) Commercial Banks:

The commercial banks in Pakistan did not show any keen interest
in financing agricultural sector upto 1972. After nationalization of
the commercial banks, the situation has changed a large extent.
The commercial banks provide loans for the purchase of inputs,
cattle tractors, daily farming, and installation of tubewells. These
loans are disbursed for short and medium terms basis. The loans
are provided to the farmers against the security of land, crops, and
fixed assets or on personal security. Commercial banks provided
Rs.554.2 billion loans to farmers in 2020-21.The role of National
Bank of Pakistan in this regard is remarkable.However, the share
of commercial banks has surpassed the share of ZTBL, it is
58.11% of the total agri-credit disbursed during July-March 2020-
21.
iii) Cooperatives:
The term cooperative finance refers to the credit facility extended
by the cooperative institutions like banks and credit societies. The
cooperative banks grant loans to the agriculturalists on the security
of land, golden and silver ornaments, title of ownership and the
land produce. The credit cooperative societies provide short and
medium term loans to a number of peasant proprietors who are
poor and have no working capital. The credit societies are
organized, managed and supervised by the villagers but registered
by cooperative department. The share of cooperative is 0.54% and
the supply of agricultural credit is Rs.5.2 billion during 2020-21:
v) Domestic Private Banks:
The domestic private banks in Pakistan are showing keen interest
in financing agricultural credit. These financial institutions also
provide loans for the purchase of cattle, fertilizers, seeds,

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pesticides, machinery etc. The share of domestic private banks

has increased i.e. 20.18%. The supply of agricultural credit is Rs.
192.5 billion during 2020-21.
vi) Micro Finance Banks:
Micro Finance Banks are also actively working in the country. The
share of agricultural credit from 11 Micro Finance Banks is Rs.92.8
billion. It is 9.33% of the total agricultural credit disbursed during
July-March 2020-21.
vii) Islamic Banks:
There are newly inducted 5 Islamic Banks. The share of Islamic
Banks is 3.76% and the supply of agricultural credit is Rs.35.9
billion during JulyMarch 2020-21.
(viii) Micro Finance Institutions/ Rural Support Programmes:
The share of MFI/RSPs is 1.74% and supply of agricultural credit
is Rs. 16.6 billion during July-March 2020-21.
(viii) Taccavi Loans:
These loans are provided by the Provincial Revenue Department
directly to the farmers in cash. Oftenly; these loans are distributed
at the time of natural calamities like draught, flood, earthquake,
famine etc. and considered as gift or relief to meet the
emergencies. The taccavi loans can also be used for installation of
tube-wells, water courses, and preparation of land, drainage,
protection from floods, erosion, seed, cattle, fertilizers and
agricultural implements.
These loans are also provided to the farmers at low mark up.

 What is ZTBL (ZARAI TARQIATI BANK LIMITED):

Pakistan is basically an agricultural country.
Therefore, an institution was needed to finance this sector.

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For this purpose, the Agricultural Development Finance

Corporation was set up in 1951.
Later on the Agricultural Development Bank of Pakistan was also
established in September, 1957 under the Agricultural
Development Bank Act, as the functions of Agricultural
Development Finance Corporation and ADBP were similar, i.e. to
faster agricultural development and since both were working with
the capital provided by the government. They were merged into
one organization known as Agricultural Development Bank of
Pakistan on February 19,1961.
Now ADBP is known as Zarai Tarqiati Bank Limited (ZTBL).
The ZTBL is the largest source of institutional credit to agriculture
sector in the country.
It provided financial and technical services to the farmers for
modernization of agriculture sector, agro-based and cottage
industries to be set up in rural areas.
Types Of Loans:
The Bank advances loans for all agricultural purposes including
fisheries, forestry and cottage industries. Its loans are classified
into the following:
1. Short Term Loans:
The short term loans are for 18 months.
These loans are also called seasonal loans. These loans are given
for the purchase of seeds, fertilizers, pesticides and other working
capital needs etc.
2. Medium Term Loans:
The medium term loans are to be repaid within 5 years. These are
generally surety and hypothecation loans. These are financed for
the purchase of cattle, bullock cart, power tillers and other medium

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period tools. The period of loan is determined on the basis of the

size and nature of the scheme and the amount of loan required.
These loans are obtained by mortgage of buildings and land.
3. Long Term Loans:
The long-term loans cover a period extending over from 5 to 20
years They are really loans for development purpose which inciude
purchase of tractors harvesters, threshers sinking of tube-wells
and big projects of fisheries, dairy development etc.
Role of ZTBL:
The ZTBL is playing a very important role in increasing the
agricultural productivity.
1. Main Source of Rural Credit:
The ZTBL is the main institutional source of rural credit. Therefore,
all the farmers approach to ZTBL to meet their financial needs.
The share of ZTBL is quite insignificant in the total supply of
institutional credit.
2. Seasonal Loans:
These loans are known as short term loans and are financed to
meet the seasonal needs of the farmers. For example to purchase
seeds, fertilizers, pesticides etc.
4. Development Loans:
These loans fulfill the needs for the farm development i.e. to
purchase farm machinery like tractor, harvester, thresher, tube-
wells and for the improvement of farms, poultry, cattle farming etc.
5. Scheme Of Mobile Credit Officers (M.C.Os)
6. To Increase Exports
7. Revolving Finance Scheme / Sada Bahar
8. Awami Zarai Scheme
9. White Revolution

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10. Sairab Pakistan Scheme

11. Rural Development Scheme
12. Production Loans
 What is Green Revolution:
The introduction of new technology in the agriculture sector or the
increase in the quantity and the quality of the agriculture output
through the institutional and the technological reforms is called
green revolution.
In Pakistan, the green revolution can be divided into two sub
periods with regard to the use of these inputs. During 1960-1964,
water availability was increased due to a great supply of surface
water and an expansion in tube well installations.
But in the second phase i.e. 1964-1969 High Yielding Varieties
(YHVS) of seeds,Fertilizers, pesticides, farm mechanization and
continued increases of supplementary water contributed to the
agricultural break through the liberal subsidization of inputs and
higher price incentives provided the needed motivation for the
adoption of the new technology package by the farmers.

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