AYUB’S ERA

1958-1968
 Introduction
• Military take over by General Ayub Khan in
October 1958

• It brought about a new era for development in

Pakistan

• There had been considerable deterioration in the

economic and political situation in the country
 Introduction
• Economic and social reforms were high on
Ayub’s agenda

– These reforms included economic planning and

providing basic needs such as food to the overall
public of Pakistan.
 Introduction
• Large increase in flow of foreign assistance due to:

– Domestic political stability

– Strong political allignment with US through Pakistan’s

membership in CENTO and SEATO

– CENTO: Central Treaty Organization

• Adopted in 1955 by Iraq, Turkey, Pakistan, Iran and Britain
 Introduction
– SEATO: South East Asian Treaty
• Formed in 1954,
• Comprised of Australia, Great Britain, France, New
Zealand, Pakistan, the Philippines, Thailand, and
the United States,
• Objective: Collective defense against aggression in
south eastern Asia and the south western Pacific:
• Abolished in 1977.
 Some positives
• High average annual economic growth rate
• Large increase in Investment
• Inflation remained in check
• Success in tax mobilization
 The Planning Commission

• What sets the 1960’s apart from the other

periods in Pakistan’s economic history is the
central role given to the planning process as a
tool of economic policy making and
coordination.
• The Planning commission was set up in 1958.
 Growth
• Growth Targets
– First Five Year Plan: 3% (2.5)
– Second Five Year Plan: 5% (7.7)
– Third Five Year Plan: 6.5% (6.1)

• GDP growth in Pakistan of nearly 7% per annum during the 1960s

was exceeded among large countries only by Korea, Thailand and
Mexico.

• The transformation in economic performance compared to the

previous decade was the result of,
– massive increases in investment
– technological breakthroughs in agriculture
– better and more coordinate economic policies.
 Growth Rates
Measured by GDP growth, economic performance in Pakistan in the 1960s
clearly exceeded initial expectations.
1950’s 1960’s

East Pakistan

Overall 1.9 4.0

Agriculture 1.9 2.7

Non-agriculture 2.9 5.0

West Pakistan

Overall 3.1 6.7

Agriculture 1.4 5.0

Non-agriculture 5.0 7.9

 Investment

Table 3.2*: Fixed Investment

(As percent of GDP)
  East Pakistan West Pakistan

  Private Public Total Private Public Total

1959-1960 2.0 4.0 6.0 4.3 7.2 11.5

1964-1965 4.5 8.1 12.6 11.6 9.2 20.8

1969-1970 4.0 8.4 12.4 7.0 7.3 14.3

 Investment
During 1960-1965 real investment grew very rapidly,
reaching a peak of 21% of GDP in 1964-1965 before
declining rather sharply to 14% in 1969-1970.

Private investment growth in West Pakistan during 1960-

1965 was explosive as it increased over three folds in short
period of just five years.

It declined by 20% in next five years but still during the
1960s, real private fixed investment more than doubled,
grew faster than public investment, and accounted for
nearly half of the total fixed investment by 1969-1970.
 Investment
Reasons for increased investment:

1. Political stability
2. Liberalization of investment controls
3. Availability of foreign exchange

The increase in investment contributed to an

increase in economic growth naturally.
 Defence vs Development
• The squeeze on West Pakistan’s investment came
from two resources:
– Sharp increase in defence spending
– Conscious effort to increase development outlays

• Following the war with India in 1965, defence

allocations were given high priority and phasing
out of US military assistance after 1965 put
additional burden on domestic resources.  
 Defence vs Development
Table 3.3: Defence vs. Development
(Rs. Billion)
  1960-1965 1965-1970 1965-1970

  Actual Planned Actual

Development Spending 13.95 30.00 21.75

Defence Spending 5.50 6.89 12.38

Thus development spending was lower than plan

while defense spending was twice more than
planned.
 Inflation

• Inflation remained in check - the average annual

rate of growth of prices was only 3.3%

• As a part of the package of measures to fight

inflation, government borrowing from the
banking system for financing fiscal deficits was
reduced sharply.
 Tax mobilization
• Significant amount of tax mobilization
• The 1960s were the only period in Pakistan’s fiscal history
when significant public savings i.e. the excess of government
revenues receipt over revenue expenditures materialized.

• Emphasis on direct taxation – Efforts to broaden the direct

taxation system kept the indirect taxation to minimum and
hence prices of goods remained stable.

• Needs of additional defence spending were met by additional

taxation.
– Substantial additional taxation, undertaken especially during the
Third Plan, helped to increase the ratio of taxes from 6.1 % of GDP
in 1959-60 to 7.6% in 1969-70.
 Problems and Failures

Negligence of Social sector – particularly after

1965

• Pre occupation with increasing long term

investment in water and power and raising food
grain production after 1966 led to major neglect
of Social sector investments.

• Ignored education and health.

 Problems and Failures
Widening Regional Disparities:

• The sharp acceleration of growth in West Pakistan

during the 60s meant that even though the growth
rate in East Pakistan also increased significantly,
the regional disparity in incomes widened.

• In 1970, West Pakistan’s per capita GDP was at

least 60 % higher than that of East Pakistan
 Problems and Failures
• Foreign Aid and Domestic Savings

– Too much concentration on foreign aid

mobilization led to a relative neglect of domestic
saving effort.

– Led to problems of debt – an issue which the

economy faces even today.
 Problems and Failures
Concentration of Economic Power
• Public frustration within the perception of unequal sharing of
growth benefits began to emerge after 1965 as investment and
industrial growth slowed down in West Pakistan. 

• The concentration of wealth and economic power was transformed

into a major political issue in 1968 as a result of Mahbub ul Haq’s
now famous speech of 22 families 

• The speech had an electrifying effect on public attitude as it said

that the economy of Pakistan had become dominated by 22 families
who controlled 66% of total industrial assets, 70% of insurance and
80% of banking. 
 Water and Power Investments
Massive investments including the Indus Basin
Replacement Works spending
Total water and power investments in West
Pakistan during the 1960s accounted for more than
50% of total public sector spending

 Tarbela Dam: Reluctant donors were persuaded to

include Tarbela dam in Indus Works.
Completed in 1971, just in time when there was oil price hike
(1973-OPEC) which made thermal power extremely
expensive
 Foreign Aid
Political alignment with the US through Pakistan’s
membership in:

– Central Treaty Organization (CENTO) -1954

– South East Asian Treaty Organization (SEATO) - 1955

• By the mid 60s net foreign aid flows were financing

over one third of total investment spending, over
45% of imports and meeting much of the gap in
food grain supply for Pakistan as a whole.
 Trade policy
Like many developing countries, Pakistan did not give importance to its
exports during initial period.

Performance > Expectations

 Between 1960 and 1970, West Pakistan exports increased by around 7 % annually,
more or less in line with the growth of output

Turnaround in 1960s:
 Due to expansion in the export of manufactured goods which registered real
annual growth of over 20% in the 1960s.
 However, exports were narrowly focused on cotton textiles and required large
export subsidies through Export Bonus Scheme
 There was no significant improvement in the structure of exports over the period.
 Ayub Khan’s Policies – An Assessment

• Quickening the tempo for growth

• Dramatic turnaround in investment and growth in both East and West Pakistan.

• This development momentum was seriously disrupted by the 1965 war with India.
– Reduction in foreign aid availability and increased defence spending squeezed
investment.
 
• Growth of GDP remained high both in East and West Pakistan in the second half of
1960s but this was concentrated mostly in agriculture in West Pakistan.
 
 
• In economic policy terms, major failures were the perpetuation of the industrial and
trade policies of 1950s and an excessive reliance on external assistance.
GREEN REVOLUTION
& land reforms
 Background
• Objective:
– To study two important events; Green Revolution and
Land Reforms which resulted in the transformation of
the agricultural sector

• Green Revolution:
– Refers to the phenomenon of the spectacular rise in
agricultural production (particularly the production of
wheat and rice in the late 60’s and early 70’s) as a
result of the introduction of HYV’s
 Green Revolution
Agricultural Growth Rates; 1949-69
20
11.7%
15

10

0
-50 -51 -52 -53 -54 -56 -57 -58 -59 -60 -61 -62 -63 -64 -65 -66 -67 -68 -69
-5949 950 951 952 953 955 956 957 958 959 960 961 962 963 964 965 966 967 968
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
-10

-15
 Green Revolution
Dismal performance of agriculture in the
formative years; 1949-58

 Average annual growth rate was 1.43%, less than

half of the population growth rate.

Marked change in performance during 60s.

 Green Revolution
Decade of 60s: Spectacular growth in
agriculture took place in two phases:

 FY60-FY64: Average annual grow rate: 3.7%

Main cause: Increase in irrigation facilities, mainly
tube-wells
B/w FY61 and FY65; 25000 new tube-wells were
installed.
Farm area serviced by tube-wells doubled
 Green Revolution
– FY1965 to FY 70: Average annual growth rate was
6.3%
• Main cause: irrigation was supplemented with:
1. HYV seeds for wheat and rice
2. Chemical fertilizers
3. Pesticides
– Green revolution was at its peak between FY67-FY68.

– Overall: Most important ingredient of the Green

Revolution’s technology package was availability of
water, as and when required.
 The Green Revolution in Pakistan
• The First Plan: accorded low priority to
agriculture
• 2nd Plan: agricultural development accorded a
higher priority
• 1960 – 65: all important food and cash crops
(wheat, rice, cotton, sugarcane) recorded
meaningful productivity gains
• 1965 – 70 shows phenomenal growth rates:
– food grains: 18% p.a.
– Cotton: 6%
– Sugarcane: 8%
 Factors behind the Revolution
Prime vehicles of change:
1.Tube-wells
2.the massive switch over to HYV’s
3.Consumption of fertilizers: three fold increase from
111.8 thousand tonnes to 381.9 thousand tonnes
(1967 – 72)
4.Area covered by plant protection: 1.7 million spray
acres to 4.14 million (1967 – 72)
5.Tractors
 Factors behind the Revolution:
Tubewells

• Most important ingredient in the technology

package was water since the HYV seeds and
fertilizer package were critically dependant on it

• Tubewells increased from few hundred in 1960

to 75,000 in 1968 and 156,000 in 1975.
 Factors behind the Revolution: Tubewells

Issues:
• High concentration in rich districts with 91% in
1968 in Punjab
– Caused interregional disparities to grow

• Given size and cost, mainly installed by

landowners with over 25 acrs of land

• Depended on ability to borrow money

 Green Revolution
• HYV Seeds for Wheat:
 International Wheat and Maize Improvement Center
established in Mexico in 1943
 Developed the dwarf high yielding variety of wheat,
which tripled Mexican wheat production between 1944
and 1967
 Wheat acreage under HYV’s, in UDC’s, increased from
10,000 hectares in 1965 to over 17 million in 1973.
 Provided impetus for adoption of HYV’s in food deficit
countries (e.g. India, Pakistan, Turkey etc.)
 Mexi-Pak wheat seed experimented and reproduced
across large areas.
 Green Revolution
• HYV Seeds for Rice:
– International Rice Research Institute (IRRI)
founded in Philippines in 1962.
– Lester Brown discovered the high yielding miracle
dwarf variety of rice, known as IRRI-6
– Rice acreage under the HYV, increased from
49,000 hectares in 1965 to 16 million in 1973
 Factors behind the Revolution:
Tractorization
Encouraged by:
• The provision of cheap credit (though ADBP)
• Overvalued exchange rate made tractors cheap

• As a result tractors increased from 2,000 in 1959

to 18,909 in 1968 to 27,329 in 1975.
• 58% in Lahore, Multan and Bhawalpur districts
• Close link between tubewell and tractor
ownership – 75%
 Impact of the Green Revolution

1. Increase in productivity

2. Employment displacing impact

3. Impact on Income distribution

4. Impact on Regional Disparities

 1. Increase in productivity
• Green revolution a resounding success as far as
production, growth and output are concerned;
• Wheat production increased by 91% b/w 1960-70
• Rice production increased by 141% over the same
period.
• Production of other crops- not related to HYV
seeds also increased because of non-seed factors
(irrigation, pesticides, fertilizers) in the
technology package.
 1. Increase in productivity
• 1960 – 65: all important food and cash crops
(wheat, rice, cotton, sugarcane) recorded
meaningful productivity gains
• 1965 – 70 shows phenomenal growth rates:
– food grains: 18% p.a.
– Cotton: 6%
– Sugarcane: 8%
 2. Employment Displacing Effect

• Greater mechanization of the agricultural

process => employment displacing

• Partly neutralized the employment generating

effect

• WB-ADB report: the introduction of a new

tractor on average displaced 10 manual workers
=> 60,000 job lost during 1968 – 72.
 3. Impact on Income distribution
• Negative influence on income distribution
– The success of HYV’s depended on optimal and
simultaneous use of fertilizers, water and pesticides
– Small farmers did not have resources to purchase these
inputs.
– 1968: only about 4% of the total tube wells were installed
by small farmers (13 acres of land), while 70% were
owned by farmers possessing more than 25 acres.
4. Impact on Regional Disparities
• The areas selected for experimentation were the most
fertile, most optimally irrigated and most prosperous.

• Since new technologies were concentrated in affluent

areas, regional disparities were aggravated

• Pakistan: Baluchistan and NWFP failed to reap the

benefits of modern inputs

• Burki: ‘it was the farmers who owned b/w 50 and 100
acres of land, almost all of them in the Punjab, who
produced ‘Pakistan’s’ Green Revolution
 Background
• Land Reforms:
– Important mechanism for changing ownership and
wealth patterns.
– Implies a redistribution of land away from large
landholders to those who are often landless.
– land reforms have occurred in Pakistan – 1959
 Land Reforms
• A long history of land reform attempts.
• Reason for failure:
– Landlords was the most significant class in the
Muslim League
• 50% of councilmen in Punjab were large landlords
• 60% of councilmen in Sind were large landlords.
 Land Reforms - 1959
• Put ceilings on landholdings -500 acres
• Small amount of land handed over; Moreover
most was uncultivated land

• Important feature: assumed land to be sold to

landless tenants
• Loopholes: intra-family and intra-households
transfers allowed.
 Land Reforms
• Highly skewed land ownership is the single most retarding factor in
agriculture

• Land ownership structure has not changed despite land reforms of ’59
and ’72

• Land reforms largely neutralized due to transfer of land in favor of

relatives, b/c ceilings were fixed per person rather than per family

• Land surrendered was largely fallow and barren

• Additional land reforms do not seem politically possible at the moment