Early Problems of Pakistan and Their Impact on Pakistan Economy

On independence, Pakistan was without any infrastructure to set up a new state. It had neither of the two capital cities, Calcutta or New Delhi, developed by the British in India. It established its capital at Karachi, which had become a provincial capital only ten years previously. It has no office buildings, furniture or stationary whereby the administrative machinery for the seat of a government could be setup. People sat under trees, bringing furniture from where they resided, and government started functioning. Even Lord Mountbatten, then the governor general of India, described Karachi as as a “tent” compared to the splendor of New Delhi. Apart from the practical difficulty of setting up government machinery, there was the political difficulty that the provincial government of Sindh represented the separation of Karachi from the province. The Sindh Muslim league began to function as an opposition party. The cash strapped government of Pakistan promised financial compensation, but the provincial did not consider the amount adequate. Riots and refugees The partition of India was accompanied by widespread riots throughout the subcontinent. Since the boundary awards had been delayed, riots were most rampant in the Punjab. The riots were started by Sikhs and Rashtriyaswan Sevak Sangh (RSS), the militant Hindu organization, and were followed by a Muslim reprisal which was also swift and brutal. There was widespread murder, rape and arson on both sides. Partition has resulted in the largest human migration in recorded history. According to Pakistani estimates, approximately, 6500000 Muslim reached Pakistan from India; 5200000 came from the east Punjab, including the princely states where was severe. 500,000 lost their lives or were abducted. From Pakistan there was an exodus of about 5,500,000 Hindus and Sikhs. According to Richard Symonds, writing, writing in 1950, the population of Pakistan increased by about 100,000 people. In the face of unspeakable atrocities, writers from all the three communities, Hindu, Muslims and Sikhs, led by Krishan Chandar, Sa’adat Hasan Manto and Rajinder Singh Bedi rose to the occasion and most impartially showed that the riots were crimes not against bullets, but these writers provided the bridge to mental reconciliation and normalcy. At first, numbers proved deceptive. Inevitably as news of atrocities spread in Karachi, there was rioting against the Hindus. On 9 January 1948, the Quaid-i-Azam warned the Muslim refugees ‘not to abuse hospitality that was been extended to them. Division of Assets Field Marshal Sir Claude Auchinlech, the British commander-in-chief of India has taken the position that regardless of the partition of India, the Armed forces should not be divided. However, when a political decision to divide the Armed Forces was taken, he testified that the Indian Government wanted to prevent the establishment of Pakistan. He did not admit that had delayed the decision of physically dividing the military assets before partition. As far as financial assets were concerned, India was prepared to pay only 5 % of the total capital on the condition that Pakistan accept the liability of 20%of dept. in November 1947, H.M. Patel, Financial secretary of India, the Ch. Muhammad Ali, Secretary General, Government of Pakistan agreed that the disputed portion of Pakistan’s share of the cash balances in the sterling would be 17.5 %. In term of cash, it worked out to Rs 750 million. But even this agreed amount was not transferred to Pakistan. Nehru report to Liaqat Ali Khan that India could not release the money because Pakistan planned to used it against India in the ongoing Kashmir war. When Junagadh, with a Muslim ruler and Hindu majority, had acceded to Pakistan, India had forcibly occupied it, saying that Janagadh’s accession to Pakistan was against the principle of the religious divide. India had occupied Kashmir, which had a 1

a demand supported by the Congress leaders. it would have popularized the demand for Pakhtunistan—an independent Pathan state. forcing the government of India to transfer Pakistan’s share. which recommended that the flow of water to Pakistan should not be stopped. had Pakistan taken action against the tribesmen. India is continuing with its Baglihar project despite Pakistan's protests and this threatens to upset the Indus Basin Treaty of 1960. This long standing dispute was apparently resolved in 1960 when Nehru came to Karachi to sign an agreement with President Ayub and Eugene Black. Gandhi was assassinated on 30 January 1948 by an RSS member. the supply was partially restored. The British had developed the upper Indus basin as an integrated unit having a vast irrigation network. thereby preventing the financial collapse of Pakistan THE KASHMIR WAR Nehru had made a public reversal of the principle of Partition by occupying first Junagadh and then Kashmir. This diplomatic gamble could have only been taken on the expectation that Pakistan would not survive the blow. but since it was based on Indian securities. the award of Ferozpur and Zira to India resulted in the Canal Waters dispute. Then reorganization of the Pakistan Army was still underway then the Kashmir War was thrust on it. All three were Muslim majority districts. Nehru did not allow it to be encashed. The payment of this installment did not end Pakistan’s crises. Immediately after the Tribunal was wound up in April 1948. These Muslims had relatives in the tribal areas of Pakistan who invaded Kashmir hoping to rescue their relatives. An Arbitral Tribunal was set up under Sir Patrick Spens. The Instrument of Accession has never surfaced and Alastair Lamb has proved that it was never signed. THE INDUS WATER DISPUTE The Indus Waters dispute. but by a free and impartial plebiscite of the people of Jammu and Kashmir. The Radcliffe Award gave India the Ferozpur Headworks that controlled the Sutlej River as well as the Madopur Headworks controlling the River Ravi. Vice-President of the World Bank. against the principle it had recently expounded. Within Kashmir. They were unable to control the tribals even when they looted Muslim property in Rawalpindi. Since this was in breach of international law which holds that an upper riparian country cannot interfere with the existing irrigation of the lower riparian country. The Nizam of Hyderabad sent a cheque for a large amount. Pakistan had been denied its share of military and financial assets.4 India has since reneged on this promise and this is one of two issues which still beset Pakistan-India relations. Just as the award of Gurdaspur to India was responsible for giving India access to Kashmir. had its origin in the Radcliffe Awards. Gandhi started a fast undo death. Secondly. Lord Mountbatten and Nehru had sidelined Gandhi therefore they resented his intervention but were forced to pay an instaltment of Pakistan’s share of assets to induce Gandhi to break his fast.Hindu ruler and a Muslim majority. the Indian Government actually cut off the flow of water to Pakistan. At this. The Pakistan Army did not have the resources to halt their advance. like the Kashmir war. Nehru’s linking the division of assets with the Kashmir war was a false argument that deprived India of its moral ground. Nehru promised the people of Kashmir and the whole world that the fate of Kashmir would not be decided by the accession. The Government of India made the plea that it entered Kashmir because the Maharaja had signed an Instrument of Accession to India. 2 . and were given to India for a purpose. the state forces had started a massacare of Muslim in Poonch. the founder of Habib Bank. Sir Adamjee Haji Dawood Arranged for a loan on his Guarantee from Mohammad Ali Habib. Nathuram Godse. Gandhi had rendered ineffective the Cabinet Mission Plan but had now paid with his life for helping Pakistan.

His only reservation then had been that the Hindus being a minority 'could not dictate policy'. Clement Atlee who while speaking on the Independence Bill. Nawab Saeedullah Khan. not as a theocracy. i. He advocated Islamic socialism and Islamic social justice. It was to prevent this outcome that the All-India Muslim League nominated M. the only country to oppose Pakistan's membership of the UN. he reiterated the decision of the AIML Delhi Legislators Convention in March 1946. he warned the people against provincialism. He believed in leaning towards the West without going out of the way to annoy the USSR. However. He chastised Muslim migrants from India on 9 January 1948 for the anti-Hindu riots in Karachi. In his speech on 20 March 1948 at Dhaka. the Governor General let Dr Khan Sahib head the provincial administration. On 3 December 1947. The presence of the Quaid-i-Azam as Governor General had been vital to the survival of Pakistan. Jinnah to be the first Governor General of Pakistan. on 12 April 1948 at Peshawar. Lord Mountbatten had publicly admitted that had he become the common Governor General of India and Pakistan. Jinnah prescribed industrialisation as the key to development. while inaugurating the State Bank he called upon it to undertake 3 . Dhaka. In terms of internal politics. when Dr Khan Sahib refused to salute the Pakistani Flag and persisted in his refusal. no Assembly. In his speech at Curzon Hall. From 30 December 1947 all vital policy decisions would be taken by the Governor General in cabinet. THE JINNAH ERA One of the greatest setbacks to Pakistan in its early days was the death of the Quaid-i-Azam. In the domain of foreign policy he held out friendship to all upholding the Charter of the United Nations. although the Congress ministry in NWFP had lost its representative status in the Referendum.V. On 5 November 1941 he told H. M. barely thirteen months after Independence. that Urdu would be the official language of Pakistan. the Independence Act was amended to make the Governor General and not the Prime Minister the chief executive of Pakistan.Recently the World Bank has been asked to arbitrate between India and Pakistan and has prepared a report which awaits consideration.A. He undertook a personal initiative with regard to Afghanistan.e there was no Governor.A. M. Hodson that minorities would be represented in the cabinet. he hailed the issuance of Pakistan's own currency as an assertion of Pakistan's economic viability and independence. he had the support of his Prime Minister. In these peculiar circumstances. and on 15 June 1948 at Quetta. the Governor General was obliged to dismiss his ministry on 22 August 1947. In this design. On 1 April 1948. On 1 July 1948. There had been no political reforms in Balochistan up until Independence. Jinnah also strongly supported the Palestinian cause and upheld the independence of Indonesia. Partition would have been temporary. He noted later that the USSR was the only country not to congratulate Pakistan on its creation. the Afghan Ambassador presented his credentials to the Governor General of Pakistan as the result of negotiations conducted by the special representative.' His 11 August 1947 speech giving equal rights to minorities was the result of years of deliberation. Jinnah also became the chief executive of the Balochistan province. Jinnah envisaged Pakistan as a modern state.A. had expressed his hope that Pakistan would not last. The Quaid-i-Azam was able to visit East Bengal only once as Governor General. although Pakistan had to depend on its few plutocrats for its solvency.

and Liaquat Ali Khan was able to meet only some of them. Liaquat Ali Khan made rapid strides towards industrialisation. Liaquat Ali Khan's policy of giving precedence to the Muslim League over parliament. the achievement of Pakistan was momentous. he reminded the military of the oath which they were required to take. the Prime Minister of Pakistan. Fewer still modify the map of the world. and the situation did not improve till the end of 1950 when the Muslim League won the elections to the NWFP and West Punjab. calling for an impartial plebiscite. as Sindh Chief Minister. he died the same evening. the Quaid-i-Azam's illness had overtaken him. the Prime Minister had recommended the concentration of power in the future president. The death of the Quaid-i-Azam created a sense of uncertainty. Sensing this. He formed two Pakistan Industrial 4 . At the Chittagong meeting on 25 March 1948. increased the tension between the centre and provinces and resulted in the formation of twenty-one opposition parties. The Interim Report of 28 September 1950 proved so unpopular that it had to be withdrawn in November. By 12 April 1948. Hardly anyone can be credited with creating a nation-state. Liaquat Ali Khan presented the Objectives Resolution on 12 March 1949. In Stanley Wolpert's famous words: Few individuals significantly alter the course of history. In June he had to reside at Quetta and Ziarat in Balochistan. He told the youth to choose a career in commerce over one in the civil or government service. This is a valuable document that has been retained in all subsequent constitutions. In the Interim Report. As far as framing of the constitution was concerned. The Quaid-i-Azam himself complained of rising provincialism and Yusuf Haroon. feeling the weight of history while carrying his coffin. Sir Francis Mudie and the Punjab Assembly.research to make banking compatible with Islamic principles. This success did not extend to East Bengal because of their outstanding demand to declare Bengali one of the national languages of Pakistan. but Liaquat Ali Khan obtained favourable resolutions on 13 August 1948 and 25 July 1951 from the UN. By all standards. the text of which he read out. had been Honorary Secretary of the AIML and leader of its bloc in the Interim Government. opposition elements began forming new parties. He was brought to Karachi without protocol on 11 September 1948. Other major impediments such as differences over the constitutional role of Islam and the quantum of East Bengal's representation were not removed. Addressing the military staff college at Quetta on 14 June 1948. and though his physicians said that the Quaid-i-Azam had not suffered due to the breakdown. Till today these resolutions are the bedrock of Pakistan's stand on Kashmir. His ambulance broke down. Mohammad Ali Jinnah did all three. THE LIAQUAT ERA 1948-1951 Liaquat Ali Khan (1895-1951). Due to his role in the Pakistan Movement. Jinnah had rarely displayed emotion. India attacked Hyderabad the next day. he had the magnetism to pull the country out of its despondency over the Quaid-iAzam's death and the consequent Indian attack on Hyderabad. he told gazetted officers that the country would no longer be ruled by the bureaucracy and that they should have nothing to do with party politics. Since one party was given overwhelming importance. also warned against this trend. but his followers shed uninhibited tears. The challenges of nation building were still immense. Liaquat Ali Khan was popular with the masses but the political forces were aligned against him. Deccan. Liaquat dismissed both the Punjab Governor. The constitution and the Kashmir problem remained unresolved.

Similarly Liaquat’s efforts to achieve economic independence may have taken gone into building a centre. The government gained financial respite because of the Korean War which gave a boost to Pakistani exports. the worst in its history. Since Liaquat Ali Khan was a man of unassailable character.5 per cent of Pakistan's share.” ECONOMIC DEVELOPMENT The first objection to be made to the creation of Pakistan was that the state would not be economically viable. is Rs 50 million in a year. the Government of Pakistan would buy the entire crop. The savings rate was as low as 5 per cent of the Gross Domestic Product (GDP). he de-escalated tension by a show of strength. it would not have the finances to survive.000 a ton. in Rawalpindi on 16 October 1951. Liaqaut Ali Khan accelerated Bengali recruitment in both the armed and civil services. Mahatma Gandhi however saw the injustice of this. which contributed 60 per cent of its income. GDP means the total value of the goods and services produced by the country in one year. As has been mentioned before. Pakistan overcame this financial crisis. After Pakistan was created. Pakistan was seriously short of finances. It was too dependent on agriculture. the income from the domestic product. It had a large cotton crop but only fourteen cotton mills. Liaquat travelled to Dhaka to assure them that if the Indians did not buy jute at the new rate. Liaquat's boldest decision was his refusal to devalue the rupee following the British and then Indian devaluation on 15 September 1949. the Government of India refused to give its share of financial assets. To take an example. bananas. but at the time of Independence it had no jute mill. which is very low. he was assassinated. but Nehru did not allow it to be encashed. Liaquat was demonstrating Pakistan's financial viability with a vengeance. Rs 70 million. `his helps 5 . which helps in determining the buying power of money. Liaqaut Ali Khan constructed the 107 miles long BRB canal on the Punjab border and in July 1951. This caused the greatest stress to the jute growers of East Bengal. The country also offers tourism. but kept provision for their partnership. India refused to buy jute and other commodities at the new rate. He did not wait for private entrepreneurs. Yet. so that it was forced to hand over 17. The financial system was very basic and at Independence. He negotiated the Liaquat-Nehru Pact giving progress when. His last words were: “May God protect Pakistan. A central bank is required to control a country's money supply. Pakistan had no central bank. which fetches Rs 20 million a year. the *Nizam of Hyderabad sent a cheque fora large sum of money.Development Corporations. one of the reasons for whose anger with Gandhi was the fact that he had helped Pakistan. Gandhi was killed by a member of an extremist political group in India. The GDP of this country is then. A Central Bank fixes monetary policy which includes the rate of interest. despite the amount that was received. by handing over the financial resources India would be helping Pakistan to defeat it. that is. one for large and one for small-scale industries. The excuse that Nehru gave for this was that since there was a war over Kashmir. the peasants relied on him and refused to sell at the old price. with the help of its businessmen. Pakistan was the largest jute producer in the world. This may have been a modest and ephemeral respite for Pakistan’s economy but it was a much needed one. He went on hunger strike against the Government of India. suppose a country produces 100 tons of bananas which sell for Rs 50. which was just one installment of the amount due. Pakistan's economy was indeed very weak at the time. Tourism is a service and like bananas it is also a 'product' since it is marketed by the people of the country.

industrialization was seen as the only road to progress.)art of a well-developed irrigation system. The Darra Khel arms factory. GNP increased on an average by 5 per cent a year. The two initial years involved the management of the economy on a daily basis and there was no real development except for the establishment of the State Bank during the Quaid-i-Azam lifetime. but hardly in proportion to the size of the cotton crop in Sindh and Punjab. Devaluation. as Richard Symonds has observed. The economic history of Pakistan can generally be divided into five phases: The initial era of crisis management: this corresponds to the first democratic era of 1947 to 1958. In those early years. and finally Attempting structural reforms. Therefore. All governments gave priority to development. III. V. A central bank is also -squired to regulate other. there have been lapses. the land tenure system and the low level of agricultural technology ere responsible for low productivity. II. and there were sufficient peasants to harvest it. The re-orientation of growth strategy: This covers the first PPP regime 1971-1977. IV. electric fans . under these hostile circumstances it was even more necessary for Pakistan to set up :s own central bank which could issue its own currency notes if its economic independence was -a be upheld. but Pakistan survived not only the partition of the Punjab in 1947 but also the loss of East Pakistan in 1971. rather informal.people in calculating the risks and gains of their ventures. There were a few cotton mills in the western wing. Pakistan survived. travelled from Ziarat to Karachi to open the State Bank of Pakistan on 1 July 1948. In the agriculture sector. once the economy stabilized there was progress. one for heavy and one for light industries. despite his severe illness. mostly private banks. In retaliation. therefore Liaquat Ali Khan set up two corporations in the public sector. ECONOMIC HISTORY I. Industries were inadequate. and at :hat time could not be optimally utilised because of riots and mass-migration.were produced and the machine tool factories had actually started exports in 1942. was considered to be outside the formal sector of the economy. A central bank is subject to political control. may have enhanced exports but would also have increased the domestic price of imported goods on which Pakistan relied much more than India did. Under these corporations the government would provide financing to an extent not forthcoming from the private sector. The only redeeming feature was that Pakistan had inherited . The establishment of the State Bank of Pakistan in 1948 proved to be the first symbol of Pakistan's economic independence and in the following year Pakistan asserted itself by refusing to fall in line with Britain and India when they devalued their currencies by 37 per cent This was not rancour on the part of Pakistan as imagined. This need can be understood when we recall that it had a large crop of jute fibre but no mill at all to process it. There was a small nucleus of industrial units around Lahore. the current phase. However. distancing the economy from state capitalism: the Zia era reaction to Bhutto's policy. The era of determined planning: this characterizes the Ayub era. even during the Kashmir war. diesel engines were being manufactured. As a priority it planned to set up three jute mills in East Bengal. Undeniably there have been setbacks. although efficient. a political decision to decrease the value of one's currency in relation to other currencies. This was the reason why the Quaid-i-Azam. because the harvest in 1947 was good. instead of 6 . The witholding of military assets by India had raised disappointment to a level that even these available resources were not visible.

5 per cent. it would reduce the commitment and efficiency of the workforce. Per capita income means the income of a country divided by the number of its inhabitants.4 per cent. In practical terms it meant that Pakistan must depend on Indian industries to purchase its raw material at prices of their choice. a practice which became entrenched and still persists. It was also able to sell to different countries. diversifying the market. The first involved devaluation coupled with the rationing of imports. planning was needed to deal with the recession that would follow. India suspended all trade links. some segments are neglected. In these circumstances. As an indication of how Pakistan weathered the crisis. If India did not buy jute.paying higher prices to Pakistan for the same goods. at that time. with the expectation that the manufacture of goods that were previously imported. In their scheme of business. When countries set priorities it means that some sectors of the economy perform better than others. But those segments of the economy which were earlier neglected. when the war ended and the demand ceased. which meant that consumer goods would become more costly. Rent seeking means that instead of trying to improve the quality of the goods and services they provide. Thus initially. but when the resources are limited. the Government issued licences to import. a tax on imports and exports. that investment in education and social development had been too low. It was also felt. which meant. it can allow all segments of the economy to develop together. The Korean War created a demand for raw materials at enhanced rates. If a country has the resources. Pakistan's decision not to devalue in 1949 paid off since it was able to sell at a higher exchange rate. The government imposed tariffs. but the Korean War (1950-53) proved to be a factor highly conducive to growth. also need to be developed. were ready to sell industrial units or components to Pakistan. western countries wanted Pakistan's industry to be subordinate to Indian industry. only some East European countries. Along with the Korean War boom. Pakistan needed to avoid this. businessmen approach the government to enact legislation to make their businesses more profitable. Since 7 . strapped for hard cash. Pakistan had two choices. the most important were the jute growers of East Bengal. Since rising costs could reduce profits it was thought that investing in such industries that produced goods already in demand. External factors were responsible for constricting Pakistan's economy. The second was to re-impose trade and foreign exchange controls.6 per cent and the manufacturing sector by as much as 23. For example. This system had the effect of engendering rent seeking. or if health-care facilities were not provided. the per capita income increased by 1. would grow. in other words. The Government decided to make the process of imports a category of reward for the companies which had imported during the crisis period. agriculture lagged behind. Among those who exported raw material to India. Liaquat Ali Khan approached the jute growers and undertook to buy the whole crop to prevent it from being sold at devalued rates. they would have no other means of subsistence. Uneven management skills or confidence in firms induced them to sell their licences to other parties who were more confident of making a larger profit on those licences. Ultimately this step led to a sale of licences. One reason for the concentration on industry was that western countries had been extremely reluctant to sell Pakistan components for those industries which already existed in India. would increase. Rationing meant fixing the amount of a particular item that could be imported. if there were not enough educated people who could perform their functions in a commercial firm. to those firms who placed reliance on the government and had imported goods when the prospects were not bright. and this neglect would have an impact on other sectors of the economy. while industry progressed. In other words. The Government of Pakistan exercised the second option. Agriculture increased by 2.

The Pakistan Planning Board was set up in 1951. p. increase both agricultural and industrial production. Naturally not all of these objectives could be achieved. 3. This brings us to planning. It was hoped that the aggregate savings ratio could be enhanced by incentives for capital formation. no serious planning was undertaken.131. but did not prove to be very active. This was not surprising as agriculture had been allocated only 11 per cent of the total investment. but here we need to outline the initial efforts and the delay in beginning to plan. but not to agriculture or education. The making of Pakistan. Islamabad. p. Karachi. 87. 1976. The Plan had sought to reduce regional disparities. Nevertheless the exercise in planning was essential since it was long overdue. in the long run. and to increase the rate of savings. Mission and Mountbatten. which is covered separately in the next chapter. Before 1955. and also on the premise that the capitalist sector had a greater propensity to save. Akbar Zaidi. Issues in Pakistan’s Economy. Allen Cambell-Johnson. NBF. p. S. This exercise accelerated the process of consolidation and experimentation. to industry.87. The decision to promote import substation industrialization was based on the premise that the terms of trade would. Even when the first Five Year Plan (1955-1960) was made. Robert Hale. Oxford University Press. political exigencies prevented this market from expanding. therefore only a modicum of them could be achieved. London. to increase exports. the objectives were too ambitious. 8 . at least. 2. not at a uniform rate. The exercise had begun a full eight years after the creation of Pakistan. 1972. The plan did provide incentive. This stagnation of agriculture naturally constrained other sectors of the economy. Reference 1. Richard Symonds. 2005.'these countries were also Soviet satellites. prove unattractive to producers of primary commodities.

Ammar Roll No. :32 DVM 6TH Semester FACULTY OF VETERINARY SCIENCES BAHUDDIN ZAKARIYA UNIVERSITY MULTAN 9 . M.Early Problems of Pakistan And Their Impact On Pakistan Economy Subject: Pakistan Studies Submitted to: Madam Asma Submitted by: Hafiz S.

Sign up to vote on this title
UsefulNot useful