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Chapter 06

Industrialization 1947 to 1977

Syed Karim Bux Shah

Background
Pakistan inherited the least industrialized parts of the subcontinent. Despite inherited industrial backwardness, Pakistan progress in industrialization was impressive during the early years. With 6% average industrial growth rate during infancy, Pakistan stunned the world and emerged as a model developing country. Many compared Pakistan with US.

Syed Karim Bux Shah

Background
Main Features:
o

1947-1958 Period.
Frequent Govt. Changes Influx of Indian Muhajireen (about 7 million 20% of then population) No industrial Base. No skilled industrial labor Avg growth rate 3% Classical economic policies, Import Substitution.

1958-1968 Period:
Established industrial base. Political stability. Authoritarianism. Paradox- Decade of Development followed by loss of East Pakistan (Now Bangladesh). Growing Income and regional disparities, Economic injustice.
Syed Karim Bux Shah

6.1: 1947-58: Exchange rate, Trade policies, & ISI


Industrial policy April 1948 realized:
The availability of vast natural resources. Extreme industrial backwardness. For example: 75% of worlds jute roduction but no jute mill. 1.5 m bales of cotton production but few cotton mills. o To develop the manufacturing sector and consumer goods industries in these sectors. o To save Foreign exchange and foreign reliance.
o o o

Table 6.1: Annual growth rate 1950 to 58 (next page)


Syed Karim Bux Shah

Table 6.1: Annual growth rate 1950 to 58

Syed Karim Bux Shah

Negative/ falling growth in agri-sector hampered the further growth of industrial growth. 65% of the labor force and 75% of the total population lived on agri-sector. (recession in agri-sector contracted the aggregate demand for the industrial production). Dr. Stehen R. Lewis identifies the main objective of the economic policy of that era as to transfer income from the agri-sector to industrial sector. Table 6.2: Domestic terms for trade (next page)
Syed Karim Bux Shah

Table 6.2: Domestic terms for trade

Syed Karim Bux Shah

6.1.1: Impact of exchange rate:


The post independence india- pakistan trade until 1949 was dominated by industrial goods form India and agriculture goods from Pakistan through the custom union with common currency. In September 1949, British sterling, Indian rupee other major currencies devalued. Against expectation, Pakistan resisted devaluing rupee.
Syed Karim Bux Shah

6.1.1: Impact of exchange rate: conti.


The decision against rupee devaluation was aimed at:
o o o
o

Demonstrating the independence to the world. Protecting Pakistans exportable raw materials. Sell raw jute to India at higher Indian Rupee price (since Pakistan had no jute mill). Use the proceeds to buy Indian imports at lower costs.

In retaliation, India ended the trade with Pakistan.


Syed Karim Bux Shah