Q.: What is cottage and small scale industry? Discuss the importance of small scale industries in Pakistan’s economy?

 
Cottage and Small Scale Industries

Cottage industry refers to an industry where production is made using simple implements and with the help of family members….

e.g. :  Embroidery, woodwork, toy making,,,, etc

A firm which employs less then ten persons  and its fixed assets do not exceed Rs. 2 million is given the name of small scale industry in Pakistan.

e.g. : Sericulture, rice husking, manufacturing of sports and handicrafts, spices industry,,,,etc

Importance of Small Scale Industry in Pakistan:

Small scale industries form an important part of manufacturing sector. Cottage and small industries are of great importance in economy of Pakistan as under:

1- Contribution to GDP:

Industrial sector in Pakistan contributes 17% to GDP,out of which 5% is from the small scale industries.

2- Employment Potential:

The small scale industries are labour intensive. It employs nearly about 80% of total industrial labour force. The proportion organization and development of these industries will not only reduce the disguised unemployment in the rural areas,but will also provide work to the off season i-e: cultivators, industrial labour force and opportunities for self employment.

3- Employment to Women:

Cottage and small scale industries like carpet industry,hoisery handicrafts,embroidery,,,etc  provide work opportunities to the women. They will not only be a source of earnings for themselves but also be an asset to the country in the production of goods also.

4- Establishment with Small Capital:

These industries solve the problem of capital deficiency in Pakistan, as it needs small capital to start. People can start these industries by obtaining small loans. In Pakistan self employment can be made successful only through cottage and small scale industries.

5- Use of Waste Material:

Small scale and cottage industries use waste of large scale industries like that of, cotton, iron, steel, etc. The small scale industries thus serve as by-product industries of the big industrial units.

6- Control of Rural Migration:

These industries by providing employment in the rural areas/sectors control mobility of people to urban areas and decrease the population pressure on urban areas. And also control problems like housing, sanitation, transport, health, education,,, etc

7- Support to Large Scale Industries:

Small Scale industries enable a country to produce standard goods on a large scale. The ports of various goods are made in small industries and then goods are manufactured in large scale industries. The industries also work as training centers for large scale industries.

8- Source of Foreign Exchange:

Small scale industries in Pakistan like hoisery, ready-made garments, leather goods, sports goods, surgical items,,, etc are producing goods which are exported and are earning foreign exchange. The industries earn about 25% of the total export earnings.

9- Extension of Market:

The production of goods on small scale with comparatively cheaper cost enlarges the domestic and foreign market.

10- Reduction in Inequalities of Wealth:

The progress and extension of cottage and small scale industries raise the income of the people, increase the standard of living and is helpful in removing income disparities in the country.

11- Development in the Backward Areas:

Small Scale Industries can be easily developed in the backward areas which can develop the backwardness of the areas and regional disparity can be reduced.

12- Import Substitutes:

The small scale industries will be helpful in providing the substitutes of imports.

13- Quick Yielding:

In these industries ,the time space b/w the execution of investment project and production of goods is quite short.So,these small scale industries are quick yielding as compared to large scale industries.

14- Promote Skills:

These industries promote skills and provide trained and skilled workers

Material        :  Prof Shahid Nadeem

Composed by:   Syed Kashif

Q: 14.  What are the main problems of cottage and small scale industries in Pakistan? Suggest measures to solve these problems?

 
Problems of Cottage and Small scale Industries:

Cottage and small scale industries have great importance in our economy. The industries contribute 35% of the value added in the manufacturing sector. There are many problems faced by these industries, such as

1- Financial Problems:

The major problem in the expansion and growth of cottage and small scale industries is the shortage of capital. The resources of  the owners of these industries is limited and they cannot purchase proper inputs and machinery due to financial problems.

2- Inadequate Credit Facility:

Institutional supply to this sector is limited. Sometime due to lack of securities and non-availability of credit schemes, lack of skilled persons, people cannot start their business. The financial institutions in Pakistan have been able to meet the capital needs of a limited number of craftsman’s and artisans.

3- High Cost Of Production:

The production cost of the goods produced on the small scale is comparatively high in Pakistan. They are therefore not been able to compete in the market.

4-Old Methods of Production:

Small scale industries use old and outdated machinery and old methods of production. The quality of production is poor. Moreover there is lack of standardization and there is problem of marketing both in the home as well as in the external market.

5- Shortage of Trained and Skilled Persons:

The Investors in the small scale industries are mostly illetrate.There is shortage of skilled labour and qualified staff. It reduces the quality and quantity of production.

6-Lack of Incentives:

There are a few incentives for small scale industries.Govt. gives most of the incentives to the large scale industries. These small scale industries are mostly in rural areas which are underdeveloped.

7- Inadequate and Irregular Supply of Electricity:

There are a large number of villages where electricity is not provided. The supply of electricity in cities is irregular too. The non-availability and regular breakdown  of electricity in villages and cities have also effected the production of these industries.

8- Smuggling:

Smuggling of consumer goods from neighbor countries like India, Russia, Iran, Singapore, Afghanistan, etc has also discouraged the small scale industries.

9- Lack of Storage Facilities:

Small scale industry in Pakistan particularly in villages is lacking storage facilities. Which is a major drawback of this industry.

10- Lack of Marketing Facilities:

The marketing facilities are inadequate .Generally; the products are sold out in local market at low prices. The entrepreneurs due to lack of capital cannot advertise their product.

11- Provision of Technical Training:

The provision of technical advice, training and technical facilities to small scale industries are inadequate.

 
12- Lack of Raw Material:

The owners of the small scale industries cannot get enough raw material according to their demand (what they required).There is no proper arrangement to provide proper raw material to these industries.

13- Lack of Consulting Services:

The small investors do not get proper information and guidance regarding the use of efficient technology and market of their production which is a hurdle to their development.                                                             Material        : Prof. Shahid Nadeem
Composed by:  Syed Kashif

Class                          :           B.Com II

Subject                      :           Pakistan Economy

Material                    :           Prof. Shahid Nadeem

Q:        What is vicious circle of poverty? How it can be broken?

                                                or

Q:        A country is poor because she is poor. Discuss?

Ans:

This can be explained under the following four heads.

1)      Vicious Circle of poverty

2)      Demand side of vicious circle

3)      Supply side of vicious circle

4)      Measures to break vicious circle of poverty

1)      Vicious Circle of Poverty.

Poverty is a root cause of under development and under development is the reason of poverty. Ranger Nurkse in his book “Problems of Capital Formation in under developed countries” describes vicious circle of poverty as the basic cause of underdevelopment of poor countries.

According to Ranger Nurkse,

“Vicious Circle of poverty means a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in a state of poverty. A country is poor because she is poor.”

He says that less developed countries remain poor due to domestic obstacles. The obstacles act and react on one another in such a way that they form a Vicious Circle. They keep the country in a perpetual low level of development. For example, the people in UDC’s have low per capita income, their rate of saving is low when savings are small in a country., investment will also be low. So, low investment leads to low productivity. And with low productivity level., Income is bound to be low. This situation causes poverty and completes the vicious circle of poverty. This vicious circle of poverty operates on the both sides of demand and supply.

2)      Demand side of Vicious Circle.

Demand side of vicious circle means that purchasing power of people remains low due to low income. This situation discourages investment and capital formation. The productivity is bound to low and it result in decrease in income.

3)      Supply Side of a Vicious Circle.

In UDCs, the real income is low and therefore saving rate in these countries remains low. The deficiency of capital and low investments leads to low productivity. As result, the real income is low and so there is poverty.

4)      Measures To Break Vicious Circle of Poverty.

            “Remaining poor are certainly no crime. The accepting of poverty and allowing it to continue is certainly a crime”. The vicious circle of poverty can be broken in UDCs like Pakistan by taking the following measures:

1)                  The UDCs can achieve rapid economic growth by making efficient use of existing natural resources.

2)                  The rate of saving and level of investments should be increased.

3)                  These countries can break this circle by adopting advance technology that is appropriate to the resources available to them in various sectors of the economy.

4)                  High rate of population should be lowered down.

5)                  The Government should take suitable measure to absorb the unemployed labour force.

6)                  There is need for investment in human capital to raise the quality of labour force.

7)                  The need is to remove the influence of feudal lords. The poor should have an access to education, health, employment and social security.

8)                  The various circle of poverty can be broken with the help of foreign capital.

9)                  Nurkse recommends the strategy of balanced growth to break this circle. He says, “If simultaneous investment in many sectors of the economy is made, it provides a market and source of supply for one another.”

10)              There should be adopted stable fiscal, monetary, and economic policies.

11)              Govt. should provide loan facility to the producers and investors.

12)              Export lead and import substitution policies should be adopted.

Class                          :           B.Com II

Subject                      :           Pakistan Economy

Material                    :           Prof. Shahid Nadeem

Q:        What is Deficit Financing? Discuss the reasons of deficit financing in Pakistan?

                                                            or

Q:        What are the effects of deficit financing and how can we reduce its inflanationary pressure?

It is a method to finance budget deficit.

Simply,

”The government borrowing banking and                   non-banking sources and printing of new notes is called deficit financing”.

According to Dr. Mahbub-ul-Haq,

“Deficit financing shows the gap between the expected income and expected expenditure of the government. To meet such gap government borrows from (i) Central Bank (ii) Commercial Banks                    (iii)    Non-Banking sources and (iv) Print new notes”.

The main idea of deficit financing is,

“The creation of additional purchasing power in the form of currency notes”.

Reasons for Deficit Financing in Pakistan

The government of Pakistan had been resorting to deficit financing since 1950’s .The main reasons of deficit financing in Pakistan are as under.

1-         To cover the Receipt Expenditure Gap.

            When the government receipts through taxes, other sources etc, are not adequate to finance the development expenditure. To fill this gap government adopts the policy of deficit financing. By adopting this way government can avoid the displeasure of people due to increase in taxes.

2-         Low Savings.

             In Pakistan, saving rate is just 12.5% of GNP which is very low. As such, government is compelled to use deficit financing as an instrument for economic development.

3-         Lack of Banking Facilities.

            There is shortage of financial institutions in Pakistan particularly in the rural areas. So, the government adopts this policy to mobilize resources to the desired extent.

4-         For Fighting against Depression.

            During depression, deficit financing can be safely used to expand income, output, and employment without any inflanationary danger.

5-         Rapid Growth of population.

            Growth rate of population in Pakistan is 2.1% per anum, which is an obstacle in the economic development. To meet the needs of people and to speedup the economic development government is using the deficit financing policy.

6-         Suspension of Foreign Aid.

            Due to delay and suspension of foreign aid, government has to adopt this policy to break the vicious circle of poverty.

After this discussion we can say that deficit financing is a necessary evil in Pakistan.

Effects of Deficit Financing.

There are some advantages and some disadvantages of deficit financing.

Advantages.

Deficit Financing is a useful fiscal weapon for stimulating economic development in the country. The main advantages are as under.

1-      It mobilizes additional resources for the economic development.

2-      It helps in building unutilized or underutilized resources.

3-      It helps in building up social and economic overheads.

4-      It helps in ensuring higher level of employment.

5-      According to Keynes,” It improves the economic condition by utilizing resources”.

Disadvantages.

1-      If government borrows funds, it competes with the private business borrowers. The additional demand for funds raises the interest rate in the money market. As a result the private investment can be depressed.

2-      If Central Bank prints new notes and extra demand which is increased due to created money is matched by the supply of goods then prices will not rise rapidly.

But if the time lag between injection of created money in the economy and completion of development projects (increase in output) is long, there will be greater inflanationary pressure in the economy.

How to Reduce Inflanationary Pressure of Deficit Financing.

Following are the important measures which can be adopted to control inflationary pressure of deficit financing.

1-         Proper Import and Export Policy:

Import and Export policy should be framed in such a way that the supply of essential goods may not fall and they should be provided at reasonable prices.

2-         Supply of Commodities:

Inflationary pressure can be controlled by providing the basic goods to the consumers at fixed prices through cooperative and utility stores.

3-         Proper Allocation of Resources:

The rise in prices due to deficit financing can be controlled by proper allocation of resources. Developing countries should prepare effective plans and resources of the country might not be wasted in non-productive projects.

4-         Monetary Policy:

An effective monetary policy can be adopted to reduce the inflanationary pressure of the deficit financing. It is very useful weapon for this purpose. It is used to control money supply and discourages the non-essential private investment.

Material                    :           Prof. Shahid Nadeem

Q:        What are the problems of Railways in Pakistan? What are your suggestions for the improvement of performance of Pakistan Railway?

             PAKISTAN   RAILWAY      

Pakistan Railway is a state owned enterprise and is the only railway system serving the entire country. It is the important source of passengers as well as goods transportation from the different areas of the country. It is an organization which is used to earn profits till 1971-1972.However, after this period, it continuously undergoing losses. Despite different corrective measures employed by the government, condition of Pakistan Railway is still not satisfactory.

Problems of Pakistan Railway

The condition and the performance of Pakistan Railway are depressing due to the following problems faced by it.

1-         Condition of Railway Assets:

The condition of Railway assets in Pakistan is not satisfactory as about 60% of rails, 55% of sleepers, 60% of diesel electric and 100% of system locomotives have become obsolete and required urgent rehabilitation.

2-         Shortage of Railway Engines:

The locomotive fleet which is numbered “1076” during year 1965-1970 came down to “599” by 2000-2001.Pakistan Railway is facing acute problems in providing efficient services to its customers.

3-         Shortage of Passenger Coaches:

Pakistan Railway has “2040” passenger coaches. These coaches fall short of the demand of the passengers. Further the condition of these coaches is not satisfactory.

4-         Shortage of good Wagons:

The numbers of good wagons are “27,251”.These wagons are not sufficient for the requirement of the economy. Thus the delivery of goods, raw material, machinery, etc is delayed by Pakistan Railway.

5-         Poor Condition of Railway Station:

The condition of almost all the stations is not satisfactory. The buildings are dirty. The provisions of water and sanitation facilities are inadequate. This is one reason which makes the journey by trains unattractive.

6-         Shortage of Funds:

Pakistan Railway requires huge financial resources for the development purposes as well as for the maintenance of existing assets. Although government has been providing reasonable amount for the development of railways but these funds did not fulfill its financial requirements.

7-         Unprofitable Routes:

Due to political reasons Pakistan Railway has to operate on many unprofitable routs. Operation on these routs adds into the losses of P.R.

8-         Single Track System:

The major portion of rail track is single therefore up and down trains have move on the same track. It causes delay of trains due to stoppage for crossing.

9-         Over Staff:

Pakistan Railway employs approximately, “132000” persons. A large number of railway employees do not perform any duty but hey are regularly paid salaries due to union of political influence.

10-       Corruption:

Corruption in Pakistan Railways is deep rooted. Funds are misused. Block marketing of railway tickets is a common phenomenon.

11-       Insufficient Staff:

A large number of people have been provided employment in Pakistan Railways in political grounds. These people do not have required skills and ability for doing technical work.

12-       Free Commuters:

A large number of people traveling by the railways do not buy ticket. Such free travelers cause heavy losses to the railways.

Suggestions for the Improvement of Pakistan Railway

The following suggestions may help for the improvement of Pakistan Railway.

1-         Special Maintenance Fund:

Government must set up permanent special maintenance fund. The rehabilitation work should be a continuous process over the years.

2-         More Passengers, Coaches and good Wagons:

Pakistan Railway has only “2040” passenger coaches and “27251” good wagons. This fleet is insufficient as compared to demand. To cover this shortage railway should increase the local production on emerging basis.

3-         Increased Production of Locomotion:

Although a locomotive factory has been set up at Risalpur but its production does not fulfill the requirement of railway. Government must take steps to increase the production level of factory.

4-         Renovation of Railway Station:

Railway should invite investment of private firms for the renovation of stations. For this purpose, it can ser a separate authority like CCA in “PIA” which will develop, maintain and control the administration of railway stations.

5-         Laying of Double Track:

The single rail track caused delay of trains. The track should be doubled. Although lying of a new track is not an easy task, but the problem can be solved by giving inducement to the foreign investors. The project can be completed by following the example of “Motorway project’.

6-         Administrative Reforms:

Government should take strict action against corrupt officials and honest personnel must be posted for their place to replace them.

7-         Introduction of Fast Inter-City Train:

Emphasis on the lower air conditioned coaches. Improving customer’s services can increase the revenue of Pakistan Railway.

8-         Privatization of Unprofitable Routs:

One solution for improvement and development of Pakistan Railway is to privatize unprofitable routs. By doing so, a lot of pressure of losses can be decreased and the performance of the Railways should be increased.

Class                          :           B.Com II

Subject                      :           Pakistan Economy

Material                    :           Prof. Shahid Nadeem

Q:        Discuss the importance of Agriculture in the economic development of Pakistan?