Ayub Khan, the first military dictator of Pakistan, assumed complete control of the state in October 1958 and reigned over the golden period of Pakistan’s economic history. With the help of Harvard advisors, Khan vigorously implemented the Planning Commission on Economic Management and Reforms with impressive results.6 GDP growth in this decade jumped to an average annual rate of 6 percent from 3 percent in the 1950s. The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government’s capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building.7 The Pakistani polity evolved from what political scientists called a “soft state” to a “developmental” one that had acquired the semblance of political legitimacy The Flat Fifties, 1947 to 1958
The main features of the 1950s was the establishment and expansion of thelarge scale manufacturing sector, which ranged from a high annual growthrate of 28.7% in 1953/4 to a low 4.9% in 1957/8. With industry growing athigh rates, there was reverse picture in the agriculture sector, which onlyonce in this period achieved double digit growth rates. Agriculture stagnated to the extent that its growth was not even enough to cope with the growth inpopulation, resulting in a fall in per capita consumption of food grain and theneed to import food as well. A stagnant agriculture in a predominantlyagricultural economy meant a slowly growing economy. The major impact of economic policy in the 1950s was to transfer income away from agricultureand from urban consumers and to the new and rapidly growingmanufacturing sector 7.2.1 The Trade Regime: 1950-60
The major instrument of protection to import-substituting industries during the 1950-60 period was the system of import licensing. The value of import licenses issued and the distribution of these licenses across import categories were determined by the chief comptroller of imports and exports. Both the level and the product composition of import licenses changed from year to year, but in all years demand for imports exceeded the controlled supply, creating a gap between importers’ costs (c.i.f. prices plus duties and sales taxes) and market prices. The margin above importers’ costs represented a windfall profit for those fortunate enough to have the import licenses. Also, domestic manufacturing firms were able to sell their products at prices well above importers’ costs because of the scarcity markups created by restrictive licensing. Tariff protection was, in most product lines, a far less significant factor in overall protection than the licensing of imports. The structure of nominal and effective tariff protection, therefore, provides little indication of the production incentives created by the trade-control system during this period. A study by Lewis (1970, p. 69) suggests that the scarcity markup-the percentage increase of the wholesale price above the importer’s cost-was 67 percent. Lewis also found that, for his sample,
nominal rates of protection across the three major subcategories of manufacturing- consumer,
The Export Bonus Voucher Scheme
During the 1950s it became clear that exporters were caught in a continually worsening cost-price squeeze. The maintenance of an overvalued exchange rate through restrictive import controls implied (1 ) a constant rupee return per dollar of goods exported; but (2) production costs that had a tendency to escalate when foreign exchange became scarce and the scarcity premium on imported raw materials rose. To offset this disadvantage, the export bonus voucher scheme was introduced in 1959.
For every Rs 100 of foreign exchange earned, the exporter received a voucher for either Rs 20 or Rs 40, depending on the...