1. TOWARDS BETTER
EMPLOYMENT - GENERATION
MUHAMMAD JAVAID
PLANNING DATA BASE
MINISTRY OF PLANNING & DVELOPMENT DIVISION
GOVERNMENT OF PAKISTAN, ISLAMABAD.

2. TOWARDS BETTER
EMPLOYMENT – GENERATION
A CRITICAL ANALYSIS OF PAST
DEVELOPMENT & STRATEGY FOR FUTURE
Muhammad Javaid
PLANNING DATA BASE
MINISTRY OF PLANNING & DVELOPMENT DIVISION
GOVERNMENT OF PAKISTAN, ISLAMABAD.

3. PREFACE
Human resources development and utilization is vital to the overall
socio-economy of Pakistan. The worsening employment situation in the
country demands that the various dimensions of the problem be studied
thoroughly by researchers and policy planners. In additional, the causes of
unemployment must be examined and past performance of the economy
evaluated so that future programmes can be made more effective.
The present research report by Mr. Muhammad Javaid, Chief of the
Planning Data Base, is a good attempt to critically evaluate the past
development plans of Pakistan, particularly the 7th
and 8th
Plans, in the
context of human resource development and creating employment
opportunities in the country. The evaluation of the causes of their failures or
successes would be useful for the policy planners in formulating future plans
of the country. I hope that that the report will provide new insights to
researchers, stimulate interest in this field and further the cause of research
and analysis in this critical area of national importance.
Islamabad March, 2004
Secretary

4. Table of Contents
PREFACE i
Table of Contents iii
List of Table vii
CHAPTER 1 1
INTRODUCTION 1
1.1 The Problem 1
1.2 Methodology 2
CHAPTER 2 3
MAGNITUDE OF THE PROBLEM 3
2.1 Population 3
2.2 Labour Force 4
2.3 Employment and Unemployment 4
CHAPTER 3
REVIEW OF PLANNING EXPERIENCE 7
3.1 Employment Generation 8
3.2 Gross Domestic Product 11
3.3 Investment Framework 13

5. CHAPTER 4 17
DEVELOPMENT STRATEGIES AND EMPLOYMENT PROMOTIO
4.1 Past Strategies 17
4.1.1 Green Revolution 17
4.1.2 Rural Works Programme 19
4.1.3 Industrialization 20
4.2 Seventh Plan Strategies 23
4.2.1 Ten Point Strategy 24
4.2.2 Fiscal Policy 26
4.2.3 Monetary Policy 27
4.3 Eight Plan Strategies 27
4.3.1 Agricultural Policy 28
4.3.2 Industrial Strategy 29
4.3.3 Fiscal And Monetary dimensions 31
4.3.4 Commercial Policy 33
CHAPTER 5 35
LESSONS FROM PAST FAILURES 35
5.1 Basic Economic Environment 35
5.2 Macro-Economic Balance And
And Public Resources 37

6. 5.3 Agriculture Sector 38
5.4 Industrial Sector 40
5.5 Trade Policy 42
CHAPTER 6 45
POLICY GUIDELINES FOR EMPLOYMENT GENERATION
6.1 General approach 45
6.2 Taxation 46
6.3 Investment And Capital Intensity 48
6.4 Agricultural Employment 49
6.5 Industrial Employment 51
CHAPTER 7 55
CONCLUSIONS 55
REFERENCES 57

7. LIST OF TABLE
Table 1: UNEMPLOYMENT RATES BY SEX AND AREA 5
Table 2: PERCENTAGE DISTRIBUTION OF UNEMPLOYED
BY SEX, AREA AND LEVEL OF
EDUCATION 1993-94 6
Table 3: TARGET AND ACHIEVED GROWTH RATE OF
GDP DURING DIFFERENT PLAN PERIODS 12
Table 4: FIXED INVESTMENT UNDER VARIOUS PLANS
(AT 1987-88 PRICES) 16
Table 5: GROWTH OF THE MANUFACTURING SECTOR
DURING DIFFERENT PERIODS 23

8. CHAPTER 1
INTRODUCTION
The Problem
Pakistan is categorized among those countries which have the highest
rate of population growth (i.e. 2.1 percent per annum with other similar
characteristics, e.g. high fertility rate; low per capita income; inadequate
capital formation and low rate of savings, etc. All these factors combinedly
create a situation of abundance of labour force, which cannot be adequately
absorbed by the economy. Under these circumstances, the unemployment
problem is becoming a source of rising concern for policy makers and others
responsible quarters. The problem affects the economy of the country not
only directly but also creates social disturbances in the society. The
seriousness of the problem can be visualized from the fact that about one
million people are entering into the labour market each year and thus
increasing the size of the backlog of unemployment in Pakistan.
Pakistan has already experienced planned economic development
extending over a period of four and a half decades, in the past and completed
8 five years development plans. In each plan, targets were fixed to create
new job opportunities and to reduce the backlog of the unemployed.
However, by the end of each plan the backlog of unemployed had in fact
increased rather than declining and has attained critical point recently. This
situation demands a through review and analysis of the broad features of the
economic development strategies adopted in the context of employment
generation so as to identify causes of their failures, and which is the main
focus of this study. The structure of the study is as follows:-
The magnitude of problem is discussed in Chapter 2. A review of the
planning experience is made in Chapter 3. The implications of development
strategies and employment promotion are discussed in Chapter 4. Lessons
from past failures are explained in Chapter 5. Policy guidelines for
employment generation are discussed in chapter 6. Conclusions are
summarized in Chapter 7.

9. Methodology
The magnitude and complexity of the problem is reviewed by using
the concepts and data of Labour force surveys (LFS) conducted by the
Federal Bureau of Statistics and the objective realities obtaining in the socio-
economic conditions of Pakistan. The development strategies and targets set
out in various Five-Year Development Plans have been reviewed and
analyzed more particularly the main thrust remained on the 7th
and 8th
Development plans.
A critical evaluation of the seventh Five-Year Plan (1988-93) is done
in terms of the achievements and causes of failures in achieving these
targets. In the light of the outcome, the required investment rates in
comparison with domestic savings and productivity are reviewed to suggest
policy measures for the achievement of employment targets in future.
The Eight Plan covers the five financial years from 1993-94 to 1997-
98. Economic surveys for the years 1993-94, 1994-95 and 1995-96 have
been made use of review the performance of three years of the Plan. The
review of the first three years of Eight Plan is thus made to identify the gaps
and remedial measures to overcome these in achieving the desired results,
Basic methodology in arriving at employment creation is based on the
employment elasticity. Elasticity factor is worked out on the basis of past
GDP growth and estimated employment creation in economy. The
assumptions used by the plans have not been changed. The labour force
surveys reveal results in percentage terms only while the employment
elasticities/GDP results are used in consonance with labour force surveys to
arrive at numerical estimates of employment, unemployment, etc.as
bifurcated from the population estimates/projections made for various years
of the analysis period. The last decennial census in Pakistan was carried out
in 1981.

10. CHAPTER 2
MAGNITUDE OF THE PROBLEM
Population
The population of Pakistan was estimated at 131.635 million as on
first January, 1996. Another 1.86 million persons were estimated to have
added to the total by June 1996. It is estimated that population in Pakistan
has increased some five-fold since its independence in 1947 and may reach
150 million mark by the turn of the current century. The current growth rate
of 2.8 per cent is still one of the highest among the most populous countries
of the world. Higher growth rate of population has two reasons:- Control of
diseases like malaria, cholera, tuberculosis, small pox and improved living
conditions have caused a considerable fall in the crude death rate whereas
crude birth rate shows only a marginal decline due to ineffectiveness of
population welfare program during the last three decades. Since 1989, every
government is giving priority to this programme. The impact of this
programme seems to have brought down the population growth rate from 3.1
per cent to 2.8 per cent, as is evident from the Pakistan Economic survey,
1995-96 although, in the absence of population census which was due in
March 1991, it is not possible to conclude with certainly as to which rate the
population is growing.
Pakistan has to reformulate its priorities of development planning on
two fronts. First, the whole society must give priorities to bring down the
rate of population growth. Second, the country needs to start a perspective
plan for human resource development including employment generation
programme for the new entrants into labour market and existing backlog of
unemployed.

11. Labour Force
The Labour Force Survey (LFS) annually conducted by the Federal
Bureau of Statistics is the main source of information about labour force and
its characteristics. An estimate of the current labour force is built from the
data of the latest LFS for the year 1993-94. The total labour force estimated
on the basis of total population (about 131.63 million) and participation rate
about 28 percent comes to 36.70 million as on Ist January 1996. Of this
25.91 million is in rural areas while 10.79 million is in urban areas. The
average increase of the labour force is 2.5 per cent during the last few years.
Most of the labour force is illiterate with relatively low skills and is self-
employed in the informal sectors.
The participation rate was 28.11 percent in 1991-92 but has declined
marginally in 1992-39 and remained unchanged during the period 1993-94.
The participation rate has been declining marginally since 1978-79 when it
reached peak level of 31.02 per cent except in 1991-92 when it indicates
slight increase of 0.14 per cent over 1990-91 period.
Employment and Unemployment
Using the latest LFS (1993-94) data, the total number of employed
labour force was 34.92 million as on Ist January, 1996 as against 33.96
million in the proceeding year. The total number of employed persons in
urban areas is 10.10 million whereas the rural employment was estimated at
24.82 million. The self-employed and unpaid family helpers dominated the
employment scene. Wage employment constituted about one third of the
total employment and was mainly urban based.
The rate of unemployment has been ranging between 4.74 to 5.85 per
cent since the concepts and definitions used in LFS were revised. It was 5.85
percent in 1991-92 as compared to 4.74 per cent in 1992-93 and 4.8 percent
in 1993-94. In absolute numbers, about 1.78 million of the labour force was
estimated as unemployed as on Ist January, 1996 against 1.73 million in
1995. The unemployment rate was higher in urban areas as compared to
rural areas. It was estimated as 6.51 per cent in urban areas and 4.22 per cent

12. in rural areas. The unemployment rate was relatively higher among the
younger age groups.
Comparing the present unemployment with some of the developed
countries, it seems to be rather low. Mostly the level of unemployment
depended on how the concept was defined. Effective employment is difficult
to measure or even to define in a country like Pakistan where less than one-
third of the labour force comprises of employees or employers. Thus, the
rate unemployment is hardly a relevant concept where self-employed and
unpaid family workers account for about 70 per cent of the labour force. In
the absence of any sort of unemployment insurance/security, every one
included in the labour force has to do some activity for his living. According
to LFS definition of employed, such persons will be considered as
employed. The new definition of LFS adopted in 1990-91 labour force
survey defines a person employed as “who worked at least one hour during
the reference week”. This situation gave reason for evolving the concept of
underemployment. There is a lot of underemployment in the country. The
main reasons for the un/underemployment are attributed to be the decline in
the absorptive capacity of agriculture and large scale manufacturing,
inflexibility in the rural market and rural to urban migration. Apart from the
growing unemployment, other structural problems such as low productivity
and poor skills of the labour due to poor education and training, particularly
of the youth need to be noted. The educated youth are the main victims of
unemployment; because of rural-urban migration due to declining
employment opportunities in rural areas, most of the educated unemployed
youth are concentrated in urban areas.
The unemployment rate at present is 6.51 per cent. Its distribution by
gender and area specific may be seen in Table 1 and Table 2.
Table: UNEMPLOYMENT RATES BY SEX AND AREA
Area 1993-94
Both Sexes Male Female
Pakistan 4.84 3.89 10.03
Rural 4.22 3.30 8.50
Urban 6.51 5.34 17.
Source: Labour Force Survey 1993-94.

13. TARGET AND ACHIEVED GROWTH RATE OF GDP DURING
DIFFERENCT PLAN PERIODS
Plan Period Target Fixed in Plan Achieved Growth
Rate
1st
1955-60 3.0 2.2
2rd
1960-65
3rd
1965-70
Non-Plan
Period
1970-78
5th
6th

14. Table 2: PERCENTAGE DISTRIBUTION OF UNEMPLOYED BY SEX, AREA
AND LEVEL OF EDUCATION 1993-94
Level of Education Total Rural Urban
Male Female Male Female Male Female
Total 68.08 31.92 41.15 22.67 26.93 09.25
Illiterate 27.06 24.15 19.06 19.54 08.00 04.61
Literate 41.01 07.78 22.09 03.13 18.93 04.64
-No formal
Education
00.97 00.63 00.26 00.51 00.70 00.13
-With formal
Education Pre-
Matric
Intermediate
Degree Post
Graduate
40.06
21.34
11.50
03.48
03.01
00.73
07.14
02.74
02.69
01.13
00.42
00.16
21.82
11.91
06.90
01.69
01.15
00.19
02.63
01.01
01.10
00.45
00.60
-
18.23
09.44
04.60
01.79
01.85
00.54
04.52
01.72
01.59
00.68
00.37
00.16
Source: Labour Force Survey 1993-94, Table 20 (Pages 382-384).

15. CHAPTER 3
REVIEW OF PLANNING EXPERIENCE
Manpower planning has not received adequate attention in the overall
economic planning of Pakistan. A manpower plan for the country cannot be
formulated in isolation. It has to be based on the manpower requirements of
the development programmes of various sectors of the economy, which
should be worked out by planning organizations at various stages of the
formulation of the sectoral development programs. These requirements
should have a detailed skill break down and should be based on estimates of
current availability of manpower of various levels of skills, the current and
future output of the existing training institutions, the rate of depletion of the
existing manpower stock due to retirement, death and export, and the
manpower requirements for the maintenance of the current levels of the
sectoral activity, to arrive at estimates of manpower shortages which are
likely to emerge.
In actual practice, however, manpower planning in Pakistan has been
generally restricted to an estimation of employment of the available labour
force and the projection of future employment in the various sectors of the
economy, at a highly aggregated level, on the basis of projected sectoral
growth rates.
Growth of GDP is the focal point in all the development plans. Hence
Pakistan’s development strategy may be called as “growth-oriented”. The
growth targets are fixed on the basis of expected investment in the plan
period. On the basis of these targets, it is simply estimated how much
employment will be generated during the plan period. In fact targets of
employment are never fixed keeping in view the desired investment levels.
The employment generation program therefore must be given priority in the

16. economic planning. N this section targets and achievements of employment
and factors affecting it in various
Development Plans are discussed.
Employment Generation
The experience of employment generation has been a mixed one in
various plans. The First Plan (1955-60) did not get enough political support.
One of the fundamental objectives of the First Plan was to increase the
opportunities for gainful employment in the country. According to the Plan
document itself it was not possible to estimate precisely how much
employment opportunities would be created by the development
programmes. It was very roughly estimated that the total number of
employment opportunities created during the plan period would be about as
large as the number of extra people seeking work. The plan did not succeed
in generating employment to the desired level and unemployment situation
thus became worse.
The Second Five Year Plan (1960-65) was an apparent success in
terms of the traditional growth rate criterion. An important target of the
Second Plan was to generate employment opportunities for the new entrants
to the labour force and to reduce the backlog of unemployed. Again, the full
effect of development strategies on employment was not possible to be
estimated in quantitative terms According to plan document, the largest
increase in employment was expected in construction activities. Enhanced
job creation was also expected in education, health and other public services.
It was however, given in the Third Plan document that about 3.6 million jobs
were generated (including East Pakistan) during the Second Plan. The
Second Plan also covered, to some extent, the backlog of unemployment
which was created during the previous plan period. This achievement was
mainly due to rapid growth in agriculture sector and also due to satisfactory
growth of industrial sector. The rural works programme also played an
important role during this period in providing more employment by creating
work opportunities in the rural areas.
The Third Five Year Plan (1965-70) attached a significant place to
employment generation as one of its major objective was also to reduce the
backlog of unemployment by 17 percent. The plan aimed at creating new job
opportunities of about 5.5 million against a project increase of 4.2 million in
the labour force during the plan period. It was envisaged by the plan that

17. nearly one million jobs would be generated in manufacturing sector, 2.5
million jobs the newly irrigated and improved agricultural lands, about 0.4
million through the rural works programme and another 1.6 million in other
service and ancillary industries. But in fact during the plan period labour
force increased by 5.5 million, so the plan was hardly successful to provide
jobs to the increased labour force during the period. The plan was, therefore,
not successful in reducing the back-log of unemployment. The Third Plan
was affected due to interruption in the flow of aid and the war of 1965.
The Fourth Plan (1970-75) was not implemented due to the separation
of East Pakistan (now Bangladesh). The plan was recasted in terms of
Annual Development Plans (ADPs) and this process continued till 1978. The
Fourth Plan which was abandoned in its original form had a target of
employment generation to the extent of 7.5 million jobs against an increase
of 6.5 million in the labour force. However, it was witnessed that ADPs for
the period 1972-78 could not successfully tackle the problem of un-
employment. Despite a large number of migration, mainly to the Middle
East countries, the country was still faced with the problem of massive
unemployment especially amongst certain groups of people. Although
reliable data regarding unemployment was not available for this period but
different studies indicate that a further back-log of unemployed was added to
the labour force. It is estimated that 4.36 million jobs were created during
the period 1970-78.
The Fifth Five Year Plan was launched for the period 1978-83. During
the same period, there was a new move of preparing a Manpower Plan,
covering the same period as part of the plan which indicated the
Government’s priority to the concept of human resource planning and its
integration with overall national economic development plan. During the
Fifth Plan, manpower situation was ameliorated by a large outflow of
workers to the Middle East. From 1978-79 to 1982-83, according to official
estimates, about 0.7 million workers found jobs outside Pakistan. This was
around 20% of the addition to the labour force in the country during the
same period. The Fifth Plan projected an increase of 3.84million in the
labour force during the plan period. The plan estimated to provide 3.38
million jobs within the country. It was also estimated that 0.4 million
persons would also be able to get employment outside the country. With all
these facts in view, it was estimated that the plan would leave a further
backlog of 0.06 million people as unemployed during the plan period. It was
the first time that First Manpower Plan was formulated. Unfortunately, the

18. performance of the plan’s policies reflected increase of 2.23 million jobs
during the plan period against the target of 3.38 million, thus enhancing the
already backlog of the unemployed labour force.
The Sixth Plan (1983-88) had a target of 3.3 million job opportunities
by raising the employment levels from 26.5 million in 1983 to 29.8 million
in 1988, or at an annual compound rate of 2.4 per cent. The Plan realistically
envisaged the prospect of decline in the out migration of the workers. But
the tempo of reducing the development expenditure in Middle East
economies was more drastic and sudden. That is why Pakistan faced with
net reverse migration by the middle of the plan period.
The Sixth Plan witnessed considerable improvement in the demand
for labour in the domestic market. The growth rate of gross domestic product
of the Sixth Plan was equal to that projected in the plan which was rooted in
sustained growth in the agricultural sector. This proved to be a critical factor
for the economy to provide employment at a sufficiently high rate to absorb
a large part of the addition to the labour force. According to Labour Force
survey 1986-87 employment growth proceeded at an annual rate of 2.6 per
cent and crossed the plan target. This was, however, offset by a higher
increase (3.1 %) in population than plan estimates (2.9 %) and reverse
migration. The LFS for 1986-87 indicates that despite these developments
open unemployment remained unchanged at around one million in absolute
numbers and declined from 3.9 per cent to 3.1 per cent of the labour force.
But the main reason for this apparent improvement in the unemployment
scene was the decline of the participation rate from 30 per cent in 1983 to 29
per cent in 1987. This implied that an increasing proportion of potential
workers were not seeking jobs. During this period reverse migration of
nearly 100,000 persons upto June, 1987 also took place whereas the plan had
estimated a net out-migration of 0.6 million during the plan period, it could
be concluded that unemployment levels increased during the Sixth Plan
because of an offset by development on the supply side. During the plan
period, it was estimated that 2.59 million jobs were created. Economic
surveys released after the plan period indicated that employment level was
26.4 million at the start of plan and 28.99 million at the end of plan.
The Seventh Five Year Plan (1988-93) was prepared within a broad-
based socio-economic framework of a fifteen years perspective plan (1988-
2003). It was expected to generate 6.1 million jobs during the plan period. In
terms of absolute numbers, 0.94 million were unemployed in the beginning

19. of the seventh plan. It was estimated that with GDP growth rate in the range
of 6.5 per cent and employment elasticity in the rang of 0.37 to 0.4,
employment would increase at the rate of 2.22 to 2.41 percent. The economy
was expected to generate additional employment of 3.26 million jobs in
absolute numbers. Employment statistics of the Labour Force survey (LFS)
indicate that 2.08 million job opportunities were generated during the plan
period against 3.10 million new entrants into the labour force. The target of
the plan (6.1 million jobs) could not be achieved and thus left the backlog of
2.00 million unemployed by the end of Seventh Plan.
The Eight Five Year Plan (1993-98) was again prepared within the
framework of a fifteen years Perspective Plan. The main objective of the
plan was on generating additional employment opportunities by expanding
productive avenues through more contribution of the private sectors as well
as Government policies and programmes. It was estimated that for attaining
full employment there would be a need of about 7.38 million jobs during the
plan period. The backlog of unemployment at the beginning of the Eighth
Plan was estimated at 1.93 million. In line with growth of population and
labour force, it was estimated that labour force would increase by about 5.45
million during the Plan period. The economic growth as planned was likely
to generate 5.72 million jobs and .0.5 million was expected from net
overseas migration, thus leaving 1.16 million unemployed by the end of
Plan.
The Plan envisaged to generate about 1.88 million or 32.9 per cent of
the employment opportunities in the agriculture sector. The manufacturing
sector was estimated to generate 0.68 million including 0.55 millions in the
small scale sector. For construction sector, it was expected to absorb 15.2
per cent (i.e 0.87 million) of Plan target whereas about 0.25 million jobs
were planned to be generated in the Transport sector. It was also estimated
that one million jobs opportunities would be generated through Social
Action Programme (SAP).
The problem of unemployment was planned to be tackled through a
high rate of overall economic growth and through encouraging the use of
labour intensive production. The GDP growth target fixed for eighth Plan
was 7 per cent per annum. The eighth Plan w2as to complete its four years in
June, 97. The review of Eight Plan at that stage was possible for only three
years. The GDP growth was recorded at 3.8, 4.7 and 6.1 per cent
respectively for 1993-94, 1994-95 and 1995-96, which was quite low in

20. relation to the targets which gave an indication that the targets fixed in the
plan were in fact difficult to be achieved.
Gross Domestic Product
Ever since development planning started in Pakistan rapid economic
growth is being considered as solution of the emp0loyment problem.
Through necessary, it is not a sufficient condition for a solution to the
employment problem. In each plan, the growth targets of the Gross
Domestic Product (GDP) were fixed to improve the economic condition of
the country but growth performance indicated that targets had never been
achieved except for Second and Sixth Plan. To achieve the target of growth
in GDP, a certain level of investment is required. In the early plans, heavy
reliance was placed on private investment is required. In the early plans,
heavy reliance was placed on private investment, which received a number
of incentives but investment couldn’t reach the required level. Resultantly
the low rates of GDP growth as compared to the targets did not permit a
significant improvement in the employment situation. The compound
growth rate of GDP for the last 14 years (1981/82 – 1994/95) was 5.3 per
cent, which indicated that fixing the higher growth rate than was needed
much more effort to mobilize the resources and restructure the economy.
The GDP growth during the first three years was shown as 3.8 per
cent, 4.7 per cent and 6.1 percent per annum for the years 1993-94, 1994-95
and 1995-96 respectively. As GDP growth rate is below the target fixed for
the Plan, therefore, in order to meet the target of employment the GDP
should grow at the average rate of about 9 per cent a year during the
remaining two years of the Plan, which remained an impossible target.
Investment Framework
Investment plays a key role in the economic growth which ultimately
leads to employment generation. The availability of funds for investment
depends on many factors like domestic and foreign savings, foreign
assistance, bank and non-bank borrowing etc. A number of incentives
including tax holidays, tax credits, low interest rate, over valued exchange
rates, protection against competing imports and low import duty on capital
goods, were offered to encourage the private investors, but there was no
substantial increase in the employment level. In fact, the private sector
didn’t help to generate jobs as it was expected. The low price of capital

21. encouraged investors to use the capital intensive technology. The Second
Plan statistics indicated a reasonable investment because of a larger inflow
of foreign assistance and the increase in domestic savings.
In the third Plan, investment was affected due to the 1965 war with
India. The private investors were reluctant to invest and foreign financial
institutions imposed certain restrictions on granting the loans.
The Fifth Plan consolidated investment and growth, brought down the
rate of inflation, and restored domestic and external financial stability.
Although the position of net foreign assets of the banking system in 1981-82
was not satisfactory due to adverse balance of payments. Investment rate
was 17.4 per cent of the GDP, while the rise in consumer prices was slowed
down to 4.2 per cent. During the Fifth Plan, excessive reliance was made on
non-bank domestic borrowings to meet the budget deficit without caring for
rapid increase in growth of current expenditure. Non-bank borrowing was
targeted at Rs. 19.4 billion, whereas it reached Rs 40 billion.
During the Sixth Plan, a major effort was made to mobilize foreign
assistance in the light of Fifth Plan experience. The target of external
resources (net) was set at Rs 61.7 billion, but unfortunately it would not be
achieved. The external resources (net) contributed Rs 47.3 billion during the
plan period. The target of non-bank borrowing crossed the limit fixed in the
plan. It was planned to contribute about Rs. 51.4 billion from this source, but
non-bank borrowing reached to Rs 127.1 billion by the end of plan. In the
beginning of the plan it was assumed that a surplus of Rs 50 billion would
emerge by the end of the plan period but a deficit emerged at around Rs 36
billion. Government investments, as a percentage of GDP was 7.2 against
the target of 8.3 per cent. However, private investment activities had
witnessed a major boom in the plan. The overall investment rate was 15.8
per cent of GNP against the 7 per cent rate of domestic saving and 6 per cent
consumer price inflation.
The weakness of the Plan was the absence of any concrete policy for
expenditure control or domestic resource mobilization. The Sixth Plan laid
the blame for the non-achievement of targets to financial difficulties which
emerged over the Fifth Plan period, largely on external pressures due to
higher prices of imports and low prices of cotton and rice. The expectation
of a substantial strengthening of external finances did not materialize due to
substantial shortfall in remittances.

22. The investment framework of the Seventh Plan was formulated in the
light of experience gained in the Sixth Plan. To maintain investment level at
16 per cent of GNP with 7 per cent domestic saving, it was required to
mobilize the foreign resources including foreign remittances at about 9 per
cent. In fact on the average domestic savings were financing 44 per cent of
the total investment and 84 per cent of these saving originated in private
sector. The performance of investment side was satisfactory in the private
sector and a little bit disappointing in the public sector. The actual fixed
investment amounted to Rs. 682 billion against the target of Rs 660.2
billion. The private investment exceeded the target by 19.6 per cent while
the public investment was below the target by 9.6 per cent. It was due to a
fiscal deficit and to an unsatisfactory performance of external front that the
level of fiscal deficit was 7.9 per cent of GDP by the end of plan (1992-93).
Thus, a rapid increase of domestic debts from Rs. 290 billion in 1987-88 to
Rs 605 billion in 1992-93 indicated that deficit was growing. The 7th
plan
allocated Rs 2056 billion for the development programs in the manpower
sector, against which Rs 1.074 billion or 41.8 per cent was actually spent.
The size of Eight five Year Plan at 1992-93 indicated that deficit was
proposed at Rs 17000.5 billion which implied 48 per cent increase over the
outlays of the Seventh Plan. The public sector development outlay was
estimated at Rs 749.4 billion, 36.1 per cent higher, while private fixed
investment was proposed at Rs 948.4 billion i.e 59.1 per cent higher than the
Seventh Plan. Expectations were made that the share of private investment
would increase to 55.8 per cent as against 51.9 per cent and 48.3 per cent in
the 7th
and 6th
Plans, respectively.
The performance of the Eight Plan in the first year 1993-94 indicated
that total investment outlay was made at Rs. 311.9 billion, 12.3 per cent
higher than the previous year. Fixed investment reflected the increase of
11.9 per cent. Although total investment had increased but was still below
the average of the five year target i.e Rs 340.1 billion. Accordingly, the
possibility of creating 5.72 million jobs over the five years, as envisaged in
the plan, seemed rather difficult. Moreover, too much was being expected
from the public sector. It seemed that the target in the public sector might
not be achieved kin the light of experience of Seventh Plan and due to the
success of privatization policy. The compound growth rate of actual fixed
investment was 13.68 per cent from 1981/82 to 1994/95, it gave the image

23. of difference between actual and required investment. A comparative picture
of fixed investment under the different plans is given in the Table 4.
CHAPTER 4
DEVELOPMENT STRATEGIES AND EMPLOYMENT
PROMOTION
Past Strategies
In the history of economic planning Pakistan’s main emphasis
remained on the growth of Gross Domestic Product (GDP). Capital was
taken as a sole or major factor of production and hence emphasis was on
investment. Human resource development was not recognized as a equal
importance with capital investment and it was considered to be of a
secondary position in national development planning. This growth oriented
strategy did not help much to reduce poverty and in-equality or provide
sufficient productive employment.
In this section an attempt has been made to analyze more deeply the
past economic strategies toward employment and to identify some major
issues and initiatives for employment generation.
Green Revolution
In 1960s the Government for the first time adopted serious measures
for the development of agriculture sector popularly known as “Green
Revolution” and motivated the farmers to use modern techniques of
cultivation. The green Revolution and the development of tubewell irrigation
not only resulted in growth in output to keep up with food requirements but
the employment situation in the agriculture sector also improved.
The Government also introduced land reforms and land consolidation
for the protection of tenant cultivators. The Land Reforms of 1959, 1972,
and 1977 were not effective. A total of 10 per cent of the cultivated area was
resumed through these reforms. Of this, approximately half was distributed

24. to tenants, small land owners and landless tenants. The rest was either
retained by the government of allocated for other purposes like livestock and
diary industry, mostly to original owners.
The growth in agriculture sector was recorded at 3.5 per cent during
the Second Plan as compared to 1.3 per cent annual average of the pre 1960
decade. The major factors behind this development were the extension of the
cultivated area and an increase in intensity of cultivation. A rapid increase in
water supply and consequent extension in cultivated area offered prospects
of improved employment. By the end of 1960s, there were indications of
considerable increase in labour inputs in agriculture. The successful new
technologies including increased irrigation through use of tubewells and low
lift pumps, combined with biological chemical inputs and new seed varieties
proved rather labour intensive.
In early 1970s, the Green Revolution lost its impetus and irregular
rainfall resulted in agricultural stagnation. Slow growth in agricultural
production combined with increasing population added to pressure on the
land. Rural incomes and employment deteriorated and the Government had
to rely on heavy imports of wheat, which affected the balance of payments.
Mechanization of agriculture in the country also affected the
employment situation adversely. During this period heavy tractors were
imported in the country. This import of tractors also displaced quite a good
number of workers in the agricultural field. The small and medium size
tractors could have been more suitable for our agriculture sector due to small
holdings. Further the use of big tractors in case of our situation did not prove
economical, Mechanization was started without proper planning. Small
training centers could be established prior to import of tractors and other
agricultural machinery, where people could learn about its maintenance.
Development efforts of the government of Pakistan mainly were
concentrated for the development of the urban areas and the rural areas were
neglected. This resulted in heavy migration from the rural to urban areas and
the people who were underemployed in the rural sector became evident in
the from of open unemployment in the urban sector of the economy.
However, during the Fifth Plan (1978-83) major emphasis was given to the
development of the rural areas and this somehow helped in checking this
migration and also provided employment opportunities in the rural sector.

25. The Sixth Plan growth strategy was based on a major breakthrough in
agricultural production. The objective of the Plan was to move from self-
sufficiency to export. The strategy proposed to achieve this objective of the
Plan was to move from self-sufficiency to export. The strategy proposed to
achieve this objective was to encourage the modern technology and timely
application of balanced inputs besides provision of agricultural credit for the
purchase of these inputs besides provision of agricultural credit for the
purchase of these inputs. A strategy was adopted to grow minor crops at a
faster rate than the major crops. The growth in minor crops was higher than
the major crops and there was an impressive improvement in the production
of cotton and wheat due to the use of improved inputs and development of
appropriate technology including new varieties, but the growth rate of both
was less than the target fixed in plan. Consequently instead of 4.9 per cent
growth targeted for agriculture, the achievement in the sector was 3.8 per
cent. There were impressive increases in poultry and its products and an
important development in private sector was packaging and marketing of
milk and other dairy products which helped to generate the jobs.
Unfortunately the plans documents didn’t provide any information about
how much employment will be generated by different components of the
agriculture policy due to which evaluation becomes somewhat an
hypothetical exercise. The targets of seed distribution, mechanization,
tractors and plant protection coverage could also not be achieved; neither
were small tractors introduced on the small and medium forms where the
preference instead was to hire large size tractors, nor was their suitability
established.
Some other policy decisions were taken with far-reaching impact.
Wheat and flour were derationed to encourage market forces to determine
prices and the support prices were enhanced. It encouraged the farmers to
increase the production. At the same time, however, subsidies of fertilizers
were also reduced. It increased the cost of cultivation and reduced the
margin of profit. Resultantly, these policies had little impact on employment
in agriculture sector.
Rural Works Programme
Another strategy known as Rural Works Programme was adopted to
generate employment in the rural areas. It was initiated for the first time in
the Second Plan in the fiscal year 1961-62. Its allocation was increased from
Rs 100million in the 1961-62 to Rs 400 million in 1964-65. It had so grown

26. in strength and scope in the early plans that it contributed significantly in
employment generation. Its actual impact was to provide significant amount
of employment to the rural labour force during that part of the year in which
no crops are grown. The Rural Works Programme was not merely meant for
“make-work” schemes. It was a programme to create rural capital by labour
intensive methods. This improved and enlarged stock of capital and
provided a basis for permanently increased employment. On the success of
this programme during the Second Plan, Third Plan placed great emphasis
on its role by increasing its allocation to Rs 2,500 million. This programme
is being used as one on of the most effective short medium term policy tool
for increasing employment. If is highly labour intensive and thus not only
reflects the relative availabilities of capital and labour in the economy but
also provides a higher level of employment than similar expenditure on
other programmes.
The Rural Development Programme has continued from second Plan
until today in one shape or the other, although it has been implemented
under various nomenclatures by different Governments. In 1970’s this
programme was renamed as People’s Works Programme. During the Sixth
Plan, the rural development activities formed one of the components of
Prime Minister’s Five-Point programme. However, the major emphasis of
this programme was on the economic uplift and development of rural areas
and rural communities. With the dissolution of Government in 1988, the
projects and programmes under Five Points programme were merged in the
Seventh Plan. Presently the social Action Programme (SAP) is being
implemented to uplift the primary education, basic health, nutrition and
availability of water and sanitation facilities in rural areas. Beside this
physical infrastructural facilities are being extended in the rural areas.
Empirical data on employment relating to Rural Development Programme
are not available so it cannot be evaluated quantitatively. However, the said
programme gave additional boost to rural development efforts and had a
significant effect on rural infrastructure and rural employment.
Industrialization
Since independence, Pakistan pursued a policy of industrialization
which succeeded in the 1950s and 1960d, when the growth rate of
production remained well over 10 per cent per annum and much faster for
large-scale manufacturing. In its early stages, growth was based essentially
on import substitution for consumer goods, a process that was later carried

27. into intermediate and capital goods. In the late 1960s, expansion of textile
and other exports tended to reverse the trend. The progress in that direction
was stopped in 1974-75 by international recession.
Industrial Progress, based on heavily encouraged private initiative was
rapid but did little directly to solve the employment problem. An important
factor contributing to the low absorption was distortions in the relevant
factor prices of labour and capital due to the subsidies and protection
afforded to this sector. Later on, a number of these distortions were removed
through deregulation and opening up the economy through import
liberalization etc. the impact of removal and reduction of these distortions on
employment was low. New investments continually increased towards
capital intensive industries and trend of employment generation was some
what stagnant.
Early 1970s experienced a major slow-down and the growth of large-
scale industries suffered severe set-backs. Nationalization of a number of
firms affected private investment, while public investment was not sufficient
to absorb the unemployed labour force alone. The sector suffered from the
separation of East Pakistan, then from the international recession, with its
attendant deterioration of the terms of trade. Drastic devaluation of rupee
raised the price of imported equipment and the inflation abroad increased it
further. Then Government’s policies about labour legislation, protecting
workers rights and providing effective role to the Trade Unions had
contributed to keeping down the level of investment. Nationalization process
brought down the momentum of investment in the country due to which
effective employment possibilities grew less rapidly than increase in the
potential labour force.
Financing of development plans mostly depended on foreign aid and
this aid was of tied nature. Under this aid and also under other programmes
the plants imported from foreign countries for different development
schemes were capital intensive in nature. It was due to the fact that those
plants were manufactured according to the requirements of the developed
countrie4s. The manpower problem in Pakistan was quite reverse to that and
import of capital intensive machinery did not help much in tackling the
problem of unemployment faced by the country. Again the choice for the
selection of machinery was not with us, and this affected employment
adversely. The concept of appropriate technology in the country also did not
prove helpful in meeting the problem of unemployment.

28. The capacity in different plants was not utilized to its full extent by
the enterpreneuring class in order to avail the opportunities of tax evasion of
the irrational taxation system. In some of the cased where there was shortage
of raw materials and other things, under utilization of the capacity may be
justified but in most of the cases it was not the case. Consequently enough
jobs have not been provided to the people during different plans.
The organized industry didn’t provide any substantial contribution to
solving the employment problem in its period of rapid expansion. This was
partly the result of promotion policies, indirect effect of which was to favour
high capital intensities and partly resulted from its narrow employment
basis. In 1971, due to change in policies and slowing down of private
investments, growth depended on a higher rate of capacity utilization,
productivity increased less and employment had grown more in line with
output. The incentives provided by different governments favored mainly
the large scale manufacturing sector and ignored the role of small scale in
employment generation. Intending small-scale investors could not avail the
incentives due to ignorance and complication of loaning system as they were
not having the assets required for mortgaging. Small-scale industries and
self-employment schemes are highly labour intensive and efficient users of
capital. In terms of employment, small scale and cottage industry remains of
far greater significance. Higher efficiency is the result of different factors,
viz. higher technical/market efficiency because the production processes are
highly divisible; avoidance or evasion of regulations the impose higher costs
on larger scale units; and people’s willingness to exploit themselves by
working long hours in cottage industries and other household activities. The
sector had been growing at a respectable rate and provided hugh
employment opportunities for the fast growing labour force. Small-scale
industry and the development of ancillary services provided the main basis
for the growth of urban employment. In non plan period, a number of
measures were taken to encourage the small scale manufacturing sector.
Since then the growth structure of manufacturing sector changed.

29. The Table 5 indicates the change in growth structure of small-scale
and large-scale manufacturing sector during the different periods.
Table 5:
GROWTH OF MANUFACTURING
SECTOR DURING DIFFERENT PERIODS
(% per annum)
Period Small Scale
Manufacturing
Sector
Large Scale
Manufacturing
Sector
Total
Manufacturing
Sector
1950-60 2.3 15.4 7.7
1960-70 2.9 13.3 9.9
1970-80 7.9 3.9 4.8
1980-89 8.4 8.3 8.4
1989-94 8.4 5.3 6.2
1950-94 5.9 9.2 7.4
Source: Pakistan Economic Surveys.
While concluding, it is made clear that the economic strategies
followed during various Plan periods did not help much in generating
employment. In most of the plans the targets set for employment were never
achieved. All the plans, except the Second Five Year Plan, were not in a
position to provide job opportunities even to the labour force that joined into
labour market during those specific plan periods. These plans did not at all
give relief to the already existing back-log of unemployment but in some
cases added to the already existing back-log of unemployment. It was only
the second Plan which successfully crossed employment targets due to
sufficient growth in agriculture and industries sectors. The rural work
program also helped in generating employment during that period.
Seventh Plan Strategies
The Seventh Plan emphasized efficient growth in out put as one of the
elements of employment strategy. The GDP growth target was set at 6.5 per

30. cent, but GDP grew only by 5.0 per cent. The growth of each sector of
economy was less than the target fixed in the plan. Many policy reforms
were launched during the plan and tried to build a new economic structure
based on free enterprise, open market, privatization, deregulation and
liberalization. It was estimated that 6.1 million jobs opportunities would be
generated during the plan period. Out of which the increase of 4.2 million
jobs were associated with 6.5 per cent growth in GDP and rest of 1.9 million
increase was estimated through 10-point employment strategy and
rehabilitation of return migrants. On the basis of Labour Force Survey, about
3.1 million additional job were generated compared to the planned figure of
6.1 million during the Seventh Plan.
Prior to discussion of the strategies it is necessary to have a look on
the basis of the targets fixed in the plan. Employment-output elasticities
were used to work out the employment generation during the plan period.
With the GDP target of 6.5 per cent and overall employment elasticity of
0.4, it was estimated that employment will generate at 2.6 per cent per
annum. The growth performance indicates that GDP grew by 5 per cent and
with actual employment elasticity of 0.18, implies employment growth of
0.9 per cent per annum rather than the target of 2.6 per cent. It is evident that
either the targets of Seventh Plan were not realistic or the strategies adopted
to achieve were not in line. Apart from the investment, other structural
problems such as production structure, poor skills of the labour due to sub-
standard education and training need to be given due consideration while
working out the employment estimates.
In the following paragraphs a critical appraisal of economic policy
measures for generating employment during the seventh Plan are discussed
in details.
Ten Point Strategy
According to the Seventh Plan a grim picture of employment was
presented for the plan period implying substantial increase in unemployment
at the end of the plan. In view of low employment elasticity and likelihood
of modest GDP growth, the Plan emphasized promotion of relatively more
labour intensive sectors to reduce the expected unemployment pressures.
The Seventh Plan outlined a ten-point employment strategy which focused
on the creation of jobs in the small-scale industries and services sectors;
encouraging labour-intensive activities in the agricultural and construction

31. sectors; providing for greater industrial opportunities; and initiating schemes
for the employment of women and youth. It was also planned to provide
incentives for generating job opportunities in the industrial and social sectors
for the educated unemployed including doctors, engineers and other
technicians. The Plan also emphasized on self-employment and skill
development by providing credit and other incentives to set up small
businesses both in rural and urban areas. The private sector was also invited
to expand investment and play its role in generating employment. An
industrial policy was also proposed which should aim at removing
restrictions on the establishment of industries in and around the cities
alongwith directing the financial institutions to finance projects with
considerable potential for job creation. The strategy was expected to
generate 6.1 million jobs. The policy shift towards employment intensive
sectors was to be achieved through emphasis on provision of more
infrastructure, financial and training facilities.
The plan document, however, didn’t provide a methodology for
working out employment estimates of the components of this strategy. It is
therefore not possible to evaluate the impact of the Ten Point Strategy on
employment generation in detail and even the Eight Plan document does not
contain any information about this.
Most of the provisions of the 10-Point Strategy could not be made
effective during the plan. Several factors were responsible for this. First was
the usual delay in the preparation of policies and projects. Second, was
political instability on account of which two interim and two elected
governments took over during the first three years. Third, reduction in the
foreign aid prevented the undertaking of new programmes as a result of
which the employment situation deteriorated during the first three years.
In November 1990, the Government embarked upon a series of
economic and social reforms of decentralization, privatization and
deregulation to improve savings and investment environment, efficiency and
equity, and to transform the agrarian economy into an industrial open state.
These measures were expected to lead to rapid expansion of employment
opportunities in the private sector. Besides, some other initiatives were taken
to boost up the economic activities presuming that these will adequately
generate jobs. These include implementation of NMC’s recommendations,
promotion of small scale industry and self-employment schemes by
provincial governments and financial institutions. The impact of this strategy

32. on employment is not possible to evaluate in quantitative terms as the
relevant data is not available.
Fiscal Policy
The budget deficit was increasing so rapidly that it forced the
governments to borrow not only for financing its development programmes
but also for a part of its non development expenditures, thereby increasing
its overall debt servicing liability. A reduction in the fiscal deficit allows to
pursue the objectives of employment generation and combating inflation.
Therefore, efforts were made to restructure the fiscal system at all levels in
order to reduce the growing budgetary deficit and consequent dependence on
internal and external borrowings.
An important change in the fiscal policy during the Seventh Plan
period was to restrict the budgetary allocation of some public organization
(Like WADP, OGDC, PTC etc) to finance their development programmes to
extent of foreign loans. For the rest, they were asked to finance their
programmes through internal resource generation, or by borrowing from the
capital markets. This step was expected to assist the Government in reducing
its financial liabilities.
Tax exemptions were withdrawn and the number of tax assesses were
increased. Besides, a number of steps were taken to improve the tax
administration and to simplify the assessment procedure and collection of
taxes. Inspite of these measures the proportion of indirect taxes was high a
compared to direct taxes. With a structure where 70 per cent of recoded
employment consists in informal sector, a high proportion of indirect taxes is
not justified. Direct taxes are progressive and more elastic. Therefore, a low
proportion of direct taxes in total revenues tends to make the tax structure
even more inelastic.
It was also planned to reduce the subsidies and to replace the excise
duties by a sales tax except for major commodities. It was expected that with
all these measures the overall deficit will reduce from 7.4 per cent of GDP in
1987-88 to less than 4.0 per cent by the terminal year of the Seventh Plan,
but the fiscal scenario conceived in the Plan could not materialize. In fact
budget deficit increased upto 7.9 per cent of GDP in 1992-93.

33. The fiscal deficit was financed through internal and external
resources. As a consequence of average budget deficit of 7.6 per cent during
the plan period, the domestic debt increased from Rs 290 billion in 1987-88
to Rs 605 billion in 1992-93.
The external current account deficit increased from 1.68 billion
dollars in 1987-88 to 3.69 billion dollars due to deterioration in invisible
trade. The rupee exchanges rate was brought close to market value which
resultantly increased service payments. The fall in the remittances was also a
reason of increase in external deficit.
The budget deficit was met through internal and external loans.
Resultantly, it affected the investment which depended on bank credit which
slowed down the process of employment generation in the country.
Monetary Policy
During the Seventh Plan monetary policy aimed at restraining
monetary expansion to 12.5 per cent per year in line with projected increased
in nominal GNP. The monetary expansion somehow generate employment
at the cost of inflation because investment in Pakistan largely depend on the
availability of credit. The annual growth in monetary assets at 15.2 per cent
was higher than estimate of Rs. 179.9 billion. Government credit expanded
to Rs. 190.6 billion against the target of Rs. 64.2 billion due to budgetary
support, which reached to Rs 175.6 billion against the target of Rs 175.6
billion against the target of Rs 51.7 billion. The expansion in the monetary
assets increased the investment but it could not had a significant impact on
employment due to ineffective control on the selection of the production
techniques and investment fields.
Eighth Plan Strategies
A Nine Point employment strategy outlined in the Eighth Plan
emphasizes on investment and high economic growth, encouragement of
labour intensive sectors, social action programme, rural development,
provision of credit facilities for self-employment, encouraging manpower
export and expansion of technical training facilities. The performance of first
two years of the Plan indicates that growth rate of GDP is considerably

34. slower than target and expansion in employment opportunities is also behind
the target.
Major economic policies have a direct or indirect impact on the
employment situation such as lowering down the price of capital will
encourage the capital incentive technologies instead of labour incentive.
These policies include monetary and fiscal policy, industrial policy,
agriculture policy, trade policy and structure of public expenditure and
review. In the following sections, some policies and examined in terms of
generating employment opportunities.
The emphasis of the Eight Plan is on using the agricultural policy as
the main instrument of economic growth and employment generation. It is
planned to generate 33 percent of the total employment opportunities
estimated for the plan period through agricultural sector. The plan envisages
growth in agriculture sector at the rate of 4.9 per cent per annum, and it
would generate 1.88 million jobs. The growth rate of agriculture sector
during the first three years is recorded 2.63, 5.9 and 6.7 per cent for the year
1993-94, 1994-95 and 1995-96respectively, which is below the target. The
agriculture sector has to grow at the rate of 6 per cent per year in the
remaining two years of the Plan to achieve the growth proposed target. The
strategies proposed in the plan to achieve the growth target and to generate
the employment in agriculture are as follow:
a) In creasing additional 0.7 million hectares of cropped area.
b) Shifting the cropping pattern in favour high value labour
intensive crops.
c) Development the livestock, fisheries and forestry.
d) Developing the rural economic activities through establishing
the processing, grading, packing and storing facilities.
There is a little possibility of horizontal expansion in land area due to
increase in the use of fertile land for non-agricultural purposes. As the cities
and villages are expanding therefore the adjoining fertile lands near the them
are being used for housing and setting up industrial units. Nothing is
proposed in the Plan to prevent the situation. On the other hand, bringing
new area under cultivation is subject to the availability of surface of water

35. resulting from irrigation projects. The Plan expects that the water
availability would increase to 3.3 million acre feet through canal
rehabilitation and remodeling, command water management and from small
irrigation schemes and small dams. The ground water is estimated to
increase by 5.3 million acre feet which will be used mainly for increasing
the productivity of existing cropped area. If the area under cultivation is to
be increased according to the Plan target then certainly it will have a good
impact on employment. The net effect may, however, be less due to shifting
of land towards non-agricultural uses.
The strategy to generate employment through shifting the cropping
pattern in favor of high value labour intensive crops seems ineffective. There
is no significant change cropping pattern in favour of high value labour
intensive crops. Vegetables and tobacco are high value labour intensive
crops. To what extent the Plan has proposed to shift in the area of these
crops, will not have a significant effect on employment. Moreover, the
cropping pattern can not be changed keeping in view the labour absorbing
factor because it depends on many other factors like profitability etc. On the
other hand, mechanization for intensifying production and reducing the time
element of pre-harvest and post-harvest farm operation is also being
encouraged. During first two years of the Plan, capital intensive technologies
such as tractorisation are being employed instead of labour intensive
technologies.
The plan has targeted 6.0 per cent annula growth rate of the livestock.
If the growth rates during the past few years and of 1993-94 (5.26 %) are
any indication, the target of this sub-sector would be accomplished and the
target of employment generation is likely to be achieved. The growth rate of
fish production is below the annual set target during the first two years of the
Plan. It indicates that Plan targets are not likely to be achieved in this area.
Forestry sector indicates wide yearly variations in its growth rates in
the past. The same is reflected in the first two year of the plan. According to
the statistics maintained by Ministry of Food and Agriculture, the increase in
the forestry product was 30.5 per cent in 1993-95, while it was –38.1 per
cent (negative) in 1994-95. Under these circumstances it is not possible to
predict about the targets fixed for this sector. Forestry sector is labour
intensive therefore steps should be taken to promote the forestry, which will
not only provide employment opportunity but also meet the deficiency of
forests in the country. The Plan has no details about processing, grading,

36. packing and cold storage facilities. However, these activities are labour
absorbing. The expansion of these will generate employment and will also
solve the problem of marketing.
Industrial Strategy
The core of industrial policy of the plan is to accelerate the privatization
programme and to ensure that the public enterprises which are not privatized
are properly managed. Direct foreign investment is also being encouraged to
improve technology, marketing and product quality. The policy of public-
private ownership is planed to assist investment by small investors and to
promote industrialization in backward regions. The steps are being
undertaken to ensure mobilization of resources for industrial development.
The policy of shifting from public to private sector leading to the
privatization and de-regulation which was started in 1991, will continue as a
key component of the economic reforms. The broad objectives of
privatization and de-regulation are:
a. To create a liberal economic environment.
b. To remove trade and tariff barriers.
c. To improve national productivity.
d. To achieve rapid industrialization.
e. To facilitate access of private sector to financial resources.
f. To improve efficiency and profitability.
g. To insulate economy from political interference.
h. To Develop a viable capital market.
i. To release resources for social and physical infrastructure.
The privatization policy is successfully being implemented. Many
industrial units, two commercial banks and partly the shares of Pakistan
Telecommunication corporation (PTC)and Pakistan International airlines

37. (PIA) have already been disinvested. The privatization programme is
continuing with the ultimate aim of disinvesting all such industrial units
which are not profitable. It is difficult to evaluate the impact of this policy in
relation to its objectives. Its impact on efficiency, output and price levels is
possible after sometime. It has, however, apparently serious implications for
employment.
It is expected that employment level in such units may decline due to
over-employment in such industrial units. Besides, these enterprises will opt
for capital-intensive technologies for increasing their productivity,
profitability and for competing the world market. Private sector may not be
able to generate sufficient employment in a short span of time even if
investment rises because it goes for capital intensive methods of production
for competitiveness.
The workers of such enterprises were having some reservations about
the privatization process. The general view of the workers is that
privatization process will increase frustration among the workers and new
owners will make retrenchment in the units. Prior to the start of privatization
process, government has entered into a deal with the workers of public
enterprises which includes job security for one year, golden hand shake
which allows the workers four months last drawn basic salary for each year
service besides one month’s gratuity for each completed year of service.
Government has accepted the liability of golden shake hand either by
providing the money by itself or by arranging the payment to the new
owners of the establishment. This scheme attracted 55 per cent of the
workers. Most of the workers might have opted to start their own business.
Ten per cent of the shares are reserved for workers. They are also given
preference in the sale of units provided they match the maximum bid. The
mode of privatizing and the deal with workers have significant implications
for cash flows, employment and productivity, etc.
The strategies proposed in the plan for achieving the targets fixed for
industrial sector are contradicted with the strategies proposed for
employment generation. It is proposed to achieve higher industrial growth
by upgradation of technologies and modernization, which is capital intensive
whereas for employment generation it is proposed to encourage the labour
intensive techniques. Similarly, expanding the credit facilities at lower mark
up implies making the capital cheaper and restricting adoption of labour
intensive technology.

38. Fiscal And Monetary Dimensions
Fiscal policy of Plan aims at using it as an important tool of policy
planning. The fiscal indiscipline in the past led to heavy dependence on
borrowing, increased debt servicing and substantial monetary expansion. It
is proposed to bring down the overall fiscal deficit from 6.8 per cent in
1992-93 to 4.3 per cent of GDP in the terminal year of the Eight Plan.
However, the steps taken by the Government could bring it down only to 6.1
and 5.0 per cent of GDP in 1993-94 and 1994-95, respectively. The fiscal
deficit can be brought down through mobilization of additional resources,
reducing public expenditures and rationalization of the borrowing policies,
which have different implications for employment.
While reforming the tax structure, the Plan proposed to reduce tax
evasion, enlarge the base of direct taxes, extend the scope of wealth and
capital value tax and broaden the base of sale tax. By enlarging the base of
direct taxes, the tax structure will be more elastic. The reduction in tax
evasion and other fiscal concessions tend to increase the price of capital
which may induce investors to consider to adopt labour intensive technology
or less capital intensive production techniques.
The plan also proposed to rationalize the custom tariff structure to
make it more responsive to the requirements of the emerging economic
dispensation. The proposed tariff rationalization may have adverse effect on
employment in short run as it will decrease the level of protection for the
local industry. The industrial units which cannot survive at lower level of
protection due to locational and technical inefficiencies, may have to be
liquidation, workers would lose their jobs. However, in the log run, higher
productivity would increase employment opportunities.
On the expenditure side, the Eighth Plan strategy is directed towards
containment of non-development expenditures by reducing the Government
expenditures on general administration, debt servicing and subsidies. There
little scope in containing the non-development expenditures as debt
servicing contains 47 per cent and defence 34 per cent of the current
expenditures. The rest of 19 per cent is being spent on other items. The
elimination of subsidies will decrease to some extent the volume of
Government expenditures as proposed in the plan.

39. It is estimated that 28.8 per cent of the Public Sector Development
Programme will be financed through bank borrowing. The Bank borrowings
are inflationary and can have negative impact on investment and
employment. The control of inflation is one of the serious problem in
Pakistan’s economy. The inflation rate has increased during the first two
years of the Plan. It is recorded at 9.26, 13.7 and 10.5 per cent in 1993-94,
1994-95 and 1995-96 respectively. The fiscal deficit was 5.8 per cent during
1994-95. The reduction in this deficit will lead to higher levels of investment
and employment.
The Eight Plan has envisaged adoption of a strategy of containing
monetary and credit expansion and making adequate credit available to the
economy for productive purposes. To achieve the target of 7 per cent
increase in GDP, a monetary growth rate of about 12 per cent is estimated.
The expansion of non-bank borrowing and competitive banking system is
also recommended. These strategies will have significant implications for
the volume and distribution of credit, the interest rate structure, and the
borrowing strategy.
One of the main issues in the monetary market is the provision of
credit to small producers. The Government is operating various schemes to
provide loans at lower rate of interest to small producers. Past experience
shows that small scale sector had generated more employment than the large
scale sector. In the past, large producers received more loans at concessional
rate. Now-a-days Government is encouraging Self Employment Schemes
and making credit available to small producers. It will have a positive
impact on investment and employment. Another issue is the improvement of
the collateral requirements for the small producers. The small producers
might be willing to pay market rate of interest rather concessional rate, if
they are provided loans against mortgaging raw materials or equipment. This
improvement would also make a commercially viable proposition to banks
and other financial institutions.
Commercial Policy
Pakistan has pursued a policy of import substitution and tariffs have
been rationalized since 1983-84. Resultantly, manufacturing sector
witnessed higher growth but had a little impact on direct employment
promotion. The reason is that this type of industrialization is generally more

40. capital intensive. Outward looking industrial policies have a positive effect
on employment in the long run.
In the area of trade Eighth Plan strategy is to encourage export-
oriented growth and to explore the Eastern European markets for securing a
more diversified structure of exports. Exports play a significant role in
employment generation. Accelerating the growth of output, by extending the
size of market, induces cost competitiveness, improves efficiency, and
quality of the products and generates more employment as exports are
expected to use abundant factor labour more intensively. Besides,
liberalization of imports, pursuing of privatization policy, retaining sustained
growth, ensuring full capacity utilization and maintaining a competitive
level in cost of production are important objectives of the trade policy of the
plan.
Reduction in tariffs and its rationalization is the integral part of the
commercial policy, Protecting the domestic industry through tariffs created
inefficient industrial structure which is always seeking fiscal and financial
support for sustenance. The target fixed in the plan contemplates to bring
down the tariff barrier from 91 per cent to 35 per cent. IMF has proposed to
bring down the custom duties from 70 per cent to about 50 per cent in the
year 1995-96 budget, but Government has brought it down to 65per per cent
on the justification the immediate reduction in custom duties will slow down
the process of employment generation because of liquidation of inefficient
industrial units.
CHAPTER 5
LESSONS FROM PAST FAILURES
All the Plan documents fully recognize the need to make substantial
increase in employment opportunities, However, the Plans are not
formulated on the basis of specific targets for utilizing available manpower
fully. Rather, employment generation was always considered a by-product
of GDP growth. It is evident from the analysis in the previous chapters that
GDP targets set in the various Plans had never been achieved except for the
Second and Sixth Plans. The employment effects were worked out on the
basis of GDP growth which did not prove accurate. Given these

41. circumstances, as rapid and continuous growth of the economy, with specific
emphasis on labour intensive projects and sectors, can ameliorate the
employment situation.
The economic policies adopted in different Plans had serious
implications for employment generation which has been discussed in detail
in chapter 4. Pakistan’s economy has undergone major structural changes
over the years; composition of output, investment, employment and trade
exhibits major changes over time. These structural changes have been
observed both across as well as within the sectors. Nevertheless it is
observed that the development strategy of Pakistan over the last 40 years has
remained somewhat unchanged. Growth, being the focal point in all the
plans the development strategy may be labeled as “growth-oriented”.
Important lessons gained from past experience in various economic
strategies pursued in different sectors are discussed in this section.
Basic Economic Environment
In assessing the successes and failures of planned development, the
economic growth has become a regular feature of the economy and high
growth has been witnessed with emphasis on agriculture and sound
economic management and domestic stability. Since development planning
started the average economic growth of Pakistan’s economy has been about
5 per cent. The targets set for growth had never been achieved except on one
or two occasions, as discussed in section 2.3 of Chapter 2.
In view of the expected high growth in labour force, the National
Manpower commission had suggested a growth rate of 7.5 per cent per
annum to avoid increase in unemployment and underemployment. The
investment required to achieve this target is 22 to 23 per cent of GDP, which
seems difficult keeping in view the past record of GDP growth and present
investment environment. The availability of foreign aid from IMF is
doubtful as Pakistan is not in a position to accept the conditions imposed by
that organization. The country’s stock market is experiencing depressing
condition during the last couple of years as a result of political uncertainty
and law & order situation in the country. Saving and investment rates are
averaging 14.8 per cent and 19.6 per cent of GDP respectively annually
during he last five years ended June, 1996. At these low rates of saving and
investment, it would not be possible to support future economic growth of
7.5 per cent, which is recommended by the National Manpower Commission

42. (NMC). Although the GDP target of Eight Plan has been fixed at 7 per cent
per annum but keeping above factors in view and low levels of capital
inflows this target may not be achieved. An indication to this effect can be
seen from the mid-plan review carried out in chapter 4. Slower growth of the
economy will thus ultimately raise the unemployed backlog. Efforts to
maintain a high rate of growth without mobilizing national savings would
result in a rapid accumulation of non-concessional external debit with
serious consequences for the balance of payments position of the country.
The Government must improve the external economies for investment
and enhance absorption capacity of the system through effective,
institutional arrangements. The basic infrastructure services like electricity
& gas, transport, communications, civic amenities must be accessible to
every investor. The infrastructure facilities are poor in the rural areas for the
development of non-farm activities. A comprehensive approach is required
to develop infrastructure at rural growth points, including farm to market
roads, on top priority basis for the fastest growth of full time non-farm
employment. In urban areas, lack of space to establish business, and non
availability of other basic facilities are the problems. There is, thus, need for
establishment of industrial estates at a fast pace especially in rural areas for
which Government should accord priority to improve the infrastructure.
Macro-Economic Balance And Public Resources
The fiscal policy is an important mechanism of policy planning. The
fiscal situation has deteriorated on account of slippage in revenues and
upward pressure on expenditure. This in turn has led to budget deficit and
heavy reliance on borrowing, increased debt servicing and substantial
monitory expansion.
It is not unrealistic to assume that private savings would rise and the
surplus of private savings over investment can be transferred to the public
sector through non inflationary means. The main emphasis must however be
on increasing public savings from the Government and public corporations.
The deteriorating situation warrants to control rise in Government
expenditure, reduce subsidies, increase the capacity for self-financing of
public corporations and restructure the taxation systems. In order to achieve
self-reliance goals, which are given priority in the Seventh and Eighth Plans,
it is essential that the growth of private and public consumption is restrained
so that the rate of saving can be increased. Higher volume of savings can be

43. private and public consumption is restrained so that the rate of saving can be
increased. Higher volume of savings may then be channeled into higher
revenue through price and tax policies. The most important factors that
affected Pakistan’s national saving rate in past were rising inflation, low
level of real interest rates, heavy reliance on foreign resource inflows, and a
lesser degree of financial intermediation.
Pakistan’s savings and investment levels are low in absolute terms as
well as in comparison with the levels attained by other countries. The saving
and investment have to increase substantially above the present levels to
accelerate the employment opportunities as discussed earlier. The savings
problem is particularly acute in the public sector, while it carries the major
weight of investment, its internal savings are sometimes low even negative.
Domestic saving gap or external deficit and the financing of public
investment through non-inflationary means thus appear as the main
constraints to achieve the set targets of economic growth.
The financing plan remains dependant on a number of optimistic
assumptions outside Government control, relating to the international setting
and private sector behavior. Therefore, some contingency planning of
additional Government measures would be needed in order to cover less
favorable outcomes. The strategies adopted so far indicate that little
attention is given to the pricing structure and the impact of taxation on
resource allocation and incentives. Tax collections are also very poor and
need to be improved substantially. A major effort is required in the field of
income taxation, both to obtain additional revenue and reduce inequalities
in income distribution and to close major existing loopholes in the system.
Agriculture Sector
Pakistan’s agriculture has undergone transformation over the last four
and half decades. It is supported by extensive irrigation system,
mechanization and bio-chemical technology. As a result of structural
changes in the economy, the share of agriculture in the Gross Domestic
Product (GDP) has declined from 53 per cent in 1949-50 to 24 per cent in
1995-96. It accounts for half of the total employed labor force while it serves
as the base sector for the country’s major industries like textiles and sugar.
The healthy expansion in agriculture will stimulate exports in other sectors
both through raising domestic demand for industrial goods and other

44. services, and by supplying raw-materials to agro-based industries.
Ultimately, these activities will generate employment opportunities.
Major components of strategies in this sector were diversification of
crops, adoption of improved seeds, fertilizer and better agronomic practices
and mechanization, which are still a core of current strategies. The strategies
adopted so far in this sector are “production-oriented” and die consideration
is not given to the employment which is clear from the compound growth of
employment generation in this sector being 1.52 per cent from 1963-64 to
1992-93. The compound growth rate of employment during the fifth and
Sixth Plan was 1.86 and 1.70 per cent, respectively. It drastically decreased
during the Seventh plan 10 0.22 per cent. Since various agriculture strategies
adopted in the Plans didn’t give estimates about the contribution in
employment generation, therefore evaluation of each segment of agricultural
policy is somehow difficult. However, the overall effect of agricultural
policies on employment is quite clear from the compound growth rates
during the Plan periods.
From employment point of view, te policy stress should be on the use
of labor intensive technologies whereas for increasing productivity and
improving quality, mechanization in agriculture sector seems essential.
These two policies should therefore be adopted in a manner that these
support each other rather than having any contradictions.
In the agriculture sector mechanization is a complex problem and
must be considered dynamically in relation to water availability, changing
farming patterns, cropping intensities and patterns etc. Certain points emerge
clearly:
a) Mechanization carries a definite risk of labour displacement, if
carried beyond seeded preparation;
b) It is not sure that mechanization will result in sufficient
increases in cropping intensity to prevent labour displacement;
c) It is evident that mechanization is associated with reduced
fallow and cultivable waste, permitting though not guaranteeing
increases in cropped acreage;

45. d) There is a need for detailed desegregated analysis of the
employment effect of stage-by stage mechanization.
The foregoing discussion leads to the more general recommendation
that employment effects be considered specifically in economic planning or
policies. So far the emphasis has been almost exclusively on production but
can be shifted somewhat now that constraint appears less stringent.
The desirability of mechanization in Pakistan (generally meant
tractorisation and tubewells ) from an employment point of view is
susceptible to adopt. The employment effect depends on the nature of the
farming system, what functions are mechanized and what are the effects of
mechanization on other determinants of employment such as cropping
patterns and intensities. The use of mechanization may be selective in
country like Pakistan. The use of mechanization may be selective in country
like Pakistan. The argument is that by removing power constraints at peak
periods, cropping intensities will rise more than enough to offset any direct
labor displacement. Another related argument as pointed out at “c” above is
that mechanization will permit a reduction in current fallow and in
cultureable waste, thereby increasing cultivated and cropped area and
increasing agricultural employment. If it proceeds beyond the selective stage
of easing peak period power constraints, resulting in broad displacement of
labor not offset by increased cropping intensity, it will lead to increased
farm sizes and widescale displacement of small farmers, particularly tenants.
The FAO has already strongly recommended a programme of
selective mechanization arguing that increased cropping intensity will more
than compensate for the direct displacement of labor as machines replace
bullocks. However, there is no assurance that mechanization will continue to
be selective.
Employment generation through increasing cultivation depend on
water availability and land reclamation programmes. The water resources
may be improved by improving the canal system, controlling the wastage
and installing tubewells. The water economy alongwith increasing its supply
must have priority of the agriculture policy. Land reclamation through the
control of water logging and salinity has not been given due consideration in
various Plans ever since it was started. Of course, it is a long term
programme and 18 year perspective plan was prepared but it is not being
given due importance. The programme, if implemented properly, will not

46. only be able to generate employment after its completion but will also
absorb labor to some extent during its operation.
The prospect of rapid agricultural expansion depends even more on
increasing yields than on extension of cultivation. The highly ambitious
targets for productivity are linked with the use of fertilizer, high-yielding
seeds, and other inputs. All these require money particularly to the small
farmers. The credit schemes started in various plans were in the favour of
big landlords or owners. The tenants were not in position to avail the credit
facilities as they were not able to provide anything for mortgage. The target
group of such schemes must be to the real growers.
The allocation of financial resources to the agriculture sector has been
on the decline in each successive Plans. In the first Plan, the allocations to
agriculture were 9.5 per cent of the total development programme while it
came down to 3.5 per cent during the Seventh Plan. It further decreased to
1.56 per cent during the Eight Plan. This situation must improve as
agriculture sector is still back-done of the economy.
Industrial Sector
Pakistan has made considerable progress in the industrial sector
inspite of inconsistencies in the policies adopted during the various periods.
In the 1950’s and 1960’s the industrial sector was encouraged, in 1970’s
nationalization policy was adopted and since the mid of 1980’s the policies
of privatization, deregulation and market friendly environment have been
initiated. The share of manufacturing sector in GDP is increased from 7.8
per cent in 1949-50 to 18.0 per cent in 1995-96. The industrial sector was
given various incentives, primarily protection against competing imports etc
as discussed in chapter 4. These incentives favoured the large-scale
manufacturing and its impact on employment was not impressive. The
import substitution strategy and fiscal incentives which cheapened capital
and encouraged capital intensive technologies have significantly constrained
the growth of employment. The large-scale manufacturing sector accounted
for 24 and 21 per cent of total investment in 1960s and 1970s, respectively
and absorbed and absorbed only 3 and 2.6 per cent of the increase in the
labor force during the respective decades.
The structure of employment in Pakistan has been oriented towards
self-employment. Therefore, the importance of small-scale industries and

47. self-employment schemes is growing. In 1970’s the structure of output and
investment started to change in favour of small-scale industries which is
labor intensive as discussed in section 4.1.3. The National Manpower
Commission Report indicates that large-scale industry was six and a half
times more capital intensive than the small-scale in 1969-70 which and
increased to over ten times in 1983-84. Capital productivity was also higher
for the small-scale sector with lower productivity.
In a country like Pakistan where labour is in abundant, the policy of
subsidizing capital does not seems logical. Capital must be provided at
existing market rate and its access must be easier to every investor whether
small or big. The strategies adopted in other sectors must be consistent to
promote rapid industrialization in the country. Import substitution should be
pursued in intermediate and capital goods. Moreover industry should
become export-oriented for a wider range of consumer goods and
equipments. There must be an effort to develop technologies appropriate to
Pakistan. Pakistan is not yet at the stage where domestically developed
productions techniques will have a substantial impact on the relative uses of
labor and capital. This would also require greater efforts in training the labor
force, together with more sophisticated management and organizational
ability at the plant level.
The privatization policy may reduce the labor absorption for a short
while as discussed in chapter 4, but it is expected to generate employment
opportunities in long run. However, a research study is required at
appropriate level in order to come up with definite conclusions regarding the
impact of privatization of employment.
Trade Policy
Upto seventh Plan, Pakistan’s trade policy was based on import
substitution. The protection was given to the local industry which could not
expand as it was expected. It also made a very little contribution towards
employment generation.
Since 1983-84, Pakistan has liberalized its import policy. Resultantly
more than 700 products have been removed from the negative list. At
present 120 products are on the negative list and 50 products are on the
restricted list. The import duty has fallen from 225 per cent in 1983-84 to 70
per cent in 1994-95 and is planned to decrease upto 35 per cent in 1996-97.

48. In 1995-96 the import duty is fixed at 65 per cent as discussed in section
4.3.4.
The present structure of protection, which is still at a high level was
evolved to meet the requirements of early phase of import substitution of
consumer goods, needs to be radically restructured to suit the present stage
of developing capital and intermediate goods industries. It also seems
necessary to evaluate its effects on resource allocation. The tariff structure
must be encouraging for exports and domestic capital goods production.
Intensive efforts to improve the export performance of Pakistan’s
manufactured products are urgently required to improve the external
balance. Quality control and market research are the problem areas that need
immediate attention. In the past whenever efforts were initiated to explore
the markets for Pakistanis products, the quality problem led down the
progress. Most of the times, the concerned authorities initiate action for
exploring new foreign markets but it is not followed up properly later on and
thus fails to bring any improvement in the foreign trade sector. For instance,
after disintegration of Soviet Union, efforts were initiated explore the
Central Asian Republic market for increasing exports but these initiatives
were not properly pursued afterwards. Consequently these efforts could not
make any real headway in the desired direction.
Foreign investment should be invited by providing basic required
infrastructure and legal protection. Foreign concerns may be able to provide
badly needed export outlets through their distribution networks abroad.
Trade Policy is being designed on yearly basis in Pakistan. Although,
some steps taken toward the various sector are given the continuity for a
longer period, but most of the changes are announced in the light of than
current external balance.
In order to fulfill the requirement of proposed set up for international
trade by World Trade Organization (WTO), Pakistan’s trade policy must be
a set of principles that encourage the national economy to move away from
protectionism and toward a free market economy, grooming Pakistan for
today’s free global trading system in which multinational companies and
international trade and investment set the norm. Although, Pakistan has
liberalized its trade policy, but still required to some more efforts so that the
entire framework of business and trade is provided with an auspicious and

49. fertile atmosphere of flexibility and mobility, a leap forward to the laissez
fair economies model. The trade policy must be a balanced, concessions
should be granted to import substitution (capital and intermediate goods etc)
industries and export-oriented industries.
CHAPTER 6
POLICY GUIDELINES FOR EMPLOYMENT GENERATION
It is evident from the preceding analysis that in Pakistan, there was
not well defined employment policy with the specific aim of developing and
utilizing the country’s human resources comprehensively and effectively.
The main objective of economic policy and employment planning for future
in our economy, therefore, should be to increase the real income of the
masses consistent with greater employment opportunities. Higher level of
employment and productivity being a direct function of economic growth,
the problem can be solved by activating each and every factor of expansion
kin the economy.
In our system, it is normal practice to adopt an unbalanced growth
strategy. The process of economic development can however, become self-
sustaining through coordinated and integrated balanced growth in all sectors
of the economy. Being an agrarian economy, measures to improve the rural
sector would not only make a substantial change in the employment position
of its inhabitants but would play an important part in rapid the economic
development and employment creation in other sectors.
This chapter is divided into four parts. The first section presents a
general approach to manpower planning and the requirements to make if
effective and some general recommendations. The rest of the sections review
specific recommendations in relation to taxation, investment, agriculture and
industry.
General Approach
Pakistan would remain a labour surplus country in the coming years.
With rapid economic expansion significant changes are taking place in the
structure of employment, in terms of both region and occupation. Manpower

50. planning should therefore be made an integral part of economic planning to
make maximum use of potential human resources. The planning is an
exercise of allocating scarce resources between a multiplicity of desirable
goals, some of which support each other, but some of which cannot be
attained simultaneously in view of global constraints. While employment
objective cannot take precedence over others, it should receive due attention,
both in the formulation of long term strategy and in the operational decisions
which are embodied in development planning. Employment planning is thus
not a separate exercise, but should constitute an integral part of the economic
planning and decision making process.
It is quite evident from the analysis carried out in the previous
chapters that this has not been the case in the past. On the one hand, the
economic plans have given priority to production targets, Whereas on the
other, the employment implications were worked out after the basic structure
of the plans had been decided, which played little role in determining
employment priorities. Rapid growth will of course improve the
employment and income prospects, but this does not imply that if growth is
high enough, the unemployment and underemployment problems will be
solved.
Employment planning can have significant impact if its objectives are
formulated before decisions are made. All decisions concerning programmes
and policies should be considered from employment point of view before
they are made. In order to make such a process possible, the targets of
employment should be fixed in quantitative terms. Realistic employment
targets would of course have to be based on existing and potential labour
supply. The first task would thus be to improve the labour market
information system.
By raising the output of consumer, intermediate and capital goods
from existing resources, the level of investment can be raised and more
workers can be supported in productive pursuits. Experiences of some
developing countries have, however, shown that strategies can be adopted to
raise the productivity and output with little additional capital outlay. A full
and effective application of the economical approach to both the traditional
and modern sectors could enable to apply a much faster rate of investment
expansion and employment creation.
Taxation

51. In the long run, domestic resources to generate self-supporting growth
should improve and efforts should be pursued to reduce the budget deficit as
discussed in the earlier chapter. It is recommended that the Government
should concentrate on raising additional resources through direct taxation,
both personal and corporate. Indirect taxation is subject to a number of
constraints relating to its price effects and economic efficiency. The evident
conclusion is that the efforts of the Government to raise additional resources
through taxation should be oriented in the first place to an improved
collection of direct taxes. This conclusion is reinforced by considerations of
income distribution. Indirect taxation distribution. Indirect taxation
discriminate between essential and luxury goods which need not be
regressive. Making more expensive the displaying consumption of the rich
does not seem effective. Direct taxation on their incomes will be rather more
effective. Direct taxation must be broadly based if it is to be effective in
raising a substantial amount of revenue. Experience has already shown,
however, that in order to improve tax collection, tax avoidance or evasion on
the part of rich must be drastically curtailed.
Effective steps should also be taken to close some of the largest
loopholes in the system and have better control over tax evasion. Unless
such measure are taken, any increase in tax rates can only aggravate the
sense of social injustice by some groups particularly salaried group.
Moderate rates and a serious enforcement are far better than higher rates and
loose collection. The higher rates of taxation induce tax payers to benefit
from such loopholes.
The concessions of dividend and investment allowances must be
withdrawn. The maintenance of these allowances has little justification and
didn’t create any substantial impact to enhance real investment in the past.
Similarly, the exemption of agricultural income has provided a convenient
means of tax evasion. Thus, even if it is not intended to impose a substantial
tax burden on agriculture, making its income liable to tax appears one of the
most effective means of reducing evasion on other forms of income.
It is recommended that income tax system must be revised keeping in
view the typical experiences of past. A society where around 65 per cent of
employed labour force is engaged in informal sector and most of them are
non-tax payers, and effective personal income tax system should be
designed. Each employed person whether employer, employee or self