Presented To: Mr.

Aqeel Baig

Presented by: Farida Brohi (4382)

 On assuming power on December 20th 1971,Bhutto promised to make
a new Pakistan out of the West Wing and to restore national
confidence. Bhutto inherited a new Pakistan that had been defeated in
war by India and he came to power as Pakistan‟s first democratically
elected leader.

 Asserting the principle of civilian leadership, Bhutto introduced a

new constitution with a modified parliamentary and federal system.
He attempted to control and reform the civil service and took steps to
revitalize a stagnant economy and better conditions for the poor
under the banner of Islamic socialism.
 Bhutto‟s charisma was rooted in his embodiment of popular
aspirations for social justice – “Roti, Kapra, Makaan”.

 He projected himself as a man of the people in contrast with the

„drawing room‟ politicians and maintained that „his voice was the
peoples voice, his speeches their speeches‟.
 Islamic Socialism was used as an instrument to solve the socio-
economic issues facing the country.

 “Socialism refers to any social system in which all means of

production e.g. land, building and important companies are
owned and managed by the state/government and the people in
general make use of the available resources under an economic
plan for their welfare”
 OBJECTIVE OF NATIONALIZATION

 To eliminate poverty and discrimination in Pakistan with more

equal distribution of wealth.

 Absence of competition in many industries lead to a form of

monopoly capitalism that was harmful to the economy.

 Nationalization would allow a more efficient resource allocation.

 To use the capital available with the bank for rapid national
development & social welfare
 The manifesto had said that those means of production that are
the generators of industrial advance or on which depend other
industries must not be allowed to be vested in private hands.

 Secondly, that all enterprises that constitute the infrastructure of

national economy must be in public ownership.

 Thirdly, that institutions dealing with medium of exchange, that is

banking and Insurance must be nationalized.

*The economic policies of Bhutto government rested on the premise

that the control of leading enterprises was to be in the hands of the
state.
 THE REAL PICTURE

 Nationalization of industries was intended to break the

economic potential of any possible political opposition.

 At the same time it placed the government tremendous power

of patronage, resources and employment opportunities which
could be used for the support of the party.
 The first phase of Nationalization took place in the LSM sector
essentially in the capital and intermediate goods industry.

 The Nationalization program was later extended to the Vegetable

Oil sector and then to cotton ginning and rice milling.

 The Nationalization of banks and Insurance Companies was a

critical assault on the close link that had built up between
Industrial and Financial Capital since the mid 1950‟s.
 January 1972: Public Take over of 31 large firms in 10 basic
industries: iron and steel, basic metals, heavy engineering, motor
vehicle assembly and manufacture, heavy and basic chemicals,
petrochemicals, cement and public utilities.

 March 1972: Management and control of 32 life insurance

companies.
 May 1972: Banking Reforms; State Bank of Pakistan extends
control over scheduled banks.

 June 1972: Labor Reforms.

 August 1972: Health Reforms

 September 1972-1974: Nationalization of educational institutes.

 June 1973: Trade in Cotton and Rice Nationalized.

 September 1973: Vegetable Oil, petroleum marketing and

shipping nationalized.

 January 1974: Nationalization of all private and domestically

owned banks.

 August 1976: Cotton ginning, rice husking and flour milling

nationalized
 Bhutto Government was in hurry in order to Nationalize the
industries without even thinking of its consequences on the
Industries.

 Investor‟s confidence was shattered as Mr. Bhutto kept on

breaking his own promises of not further Nationalizing the
Industries.

 Mr Mubashir Hasan (Finance Minister) said once after the

nationalization of Banks that Banks are not Industries , they are
Financial Institutions.

 No policy was announced even after years of Nationalization,

hence it was total uncertainty.
 Industries

 The public sector industrial units were not well-managed and thus
were not able to contribute to the industrial development of the
nation.

 At the same time the manner of implementing the nationalization

policy created a scare among the remaining private sector
entrepreneurs.

12
 Industries

 In 1972-73 these units employed 40,817 persons and the number

went up to 64,463 in 1976-77, a rise of 58%.

 Production did not increase correspondingly ,in many cases it

declined ,there was a sharp decline in productivity.

 Over the six year period (1971-72 to 1976-77)labour productivity

declined in 39 units out of 54 units examined, salaries wages and
other benefits as a whole are estimated to have increased by 322%.

 Despite the increase recorded in sales volume (in money terms

due to price increases) net earnings were negative on large capital
invested in these undertaking.

13
 Industries

 Among the industrial units profits were available only in the

cement sector where repeated price increases were introduced.
 A number of industrial units were setup without any economic
considerations. (Larkana Sugar Mill)

 Out of the 54 units only 15 units were in position to maintain

positive profitability position during all the six years (1972-77).

14
 Industries

 11 out of 54 units recorded losses throughout the period while

another 7 enterprises sustained losses for 4 to 5 years.

 For the financial year (1976-77) 25 out of 54 units had suffered

losses of Rs 308.77 million, while 29 had earned profits of Rs
269.40 million with an aggregate loss of Rs 39.37 million.

 Reviewing the cumulative position of the entire period, it was

observed that 32 of these enterprises had accumulated reserves of
429.77 million while 29 units had accumulated losses of 750.69
million on their balance sheet at the end of 1976-77 ( Net
accumulated loss of 320.92 million)

15
 Industries

 Labor productivity declined in case of 39 units.

 As many as 30 units were operating on an average below 70
percent of installed capacity.

 At the end of financial year 1977-78 there were 12 units which had
a negative net worth as compared to only 2 units having a
negative net worth in 1970-71.

16
 Claim of reasonable price
 Industries

 A major justification that the government had advanced for taking

over industries in the public sector was that it would ensure
regular supply of various commodities at reasonable price.

 However far from stabilizing prices at reasonable levels, the

government after taking an industry under monopoly control,
increased prices mainly to cover inefficiencies in management.

17
 Private sector industries

 Even greater damage was caused by the private sector‟s growing

distrust of the government intentions towards its future role.
 About 80% of production flows from the private sector.

 Sharp fall in investment by private sector.

18
1400
1320

1200
1171

1000
942
897
800

600
538
441 434 461
400
359
322

200
134
63 71 48
0
1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77

Total Private Sector Public Sector

19
20
 The major sector to suffer was textiles, the premier industry of Pakistan.

 The textile sector is highly export oriented and its operating efficiency can
be maintained only if 45 to 50 percent of the goods produced are
exported.

 One of the principal reason was frequent revision in the export duties.

 Between May 1972 and June 1974 the duty on yarn was changed on eight
different occasions before being abolished.
 Similarly duty on cotton cloth between may 1972 and June 1974 was
increased on 7 different occasions.

 By the time the duties were ultimately abolished in august 1974

considerable damage has been done to the export potentialities for these
commodities and the country had lost some of its traditional markets.

21
 Banking

 In January 1974, all commercial banks except foreign banks were

nationalized without consulting the State Bank.

 Banks were now under influence of the MNAs, MPAs, and other
politically influential people who pressurized them for their
benefit at the expense of the state.

 Many federal and provincial ministers were able to obtain large

loans under the Small Loans and Agricultural Credit Scheme for
Small Farmers.

22
 Banking

 Many politicians of the ruling party were also able to get

appointments in banks for their supporters due to political
pressure. In one bank there were as many as 569 appointments.

 Similar case was with promotions, where the party supporters

used to get promotions regardless of their skills.

 Banks were also directed to advance loans for the construction of

5-star hotels without any regard to judge their profitability.

 The reported loans and advances amounted Rs263.2 million

advanced to the hotels such as Hyatt and Sheraton in compliance
with directives from the Prime Minister himself.

23
 Total advances given by banks Rs in
from 1974 to 1977 under millions
irresistible political and Habib Bank Ltd. 274.1
administrative pressure or
influence, outstanding in 1977 National Bank of Pakistan 128.5
amounted to Rs.526.9 million.
United Bank Ltd. 60.9

 Mainly MNAS and MPAS Muslim Commercial Bank 44.7

benefited from them
Allied Bank Ltd. 18.7

Total 526.9

24
 National shipping corporation

 Recruitment in various cadres of NSC was made on

recommendations of Ministers and other influential persons.

 Out of 223 appointments between 1975-77, 187 were made by Mr.

Mumtaz Ali Bhutto.

 Wasteful expenditures by minister

 Misuse of funds in penthouse.
 Misuse of funds in custom duty on purchase of new cars.
 Maintanenance of cars and others.

25
 LAND REFORM

 In 1972, Bhutto pushed through land-ceiling legislation to reduce

the size of land holdings and to redistribute confiscated surplus
land.

 Legislation restricted ceiling on ownership on irrigated land from

500 to 150 acres; on un-irrigated land from 1000 to 300 acres

 Surplus land was to revert to government without any

compensation to the landlords and distributed free to the landless.

 Landowners were allowed to retain an additional 50 acres above

the ceiling if they invested in tractors and tube wells.
 Generous tax exemptions were granted for the purchase of
agricultural machinery and land development

 Feudal had little difficulty in retaining control over land through

division within family members as intra-family transfer of land
was allowed

 Only around 75,000 farmers were benefited from this reform

 Official statistics showed that by 1977 only about 520,000 hectares

had been surrendered, and nearly 285,000 hectares had been
redistributed among about 71,000 farmers.

 Another interesting point to note was that the lands of the army
officers were not considered under this legislation.
 The success of reforms was crucially depended on resumption of
maximum area held in ownership or possession in excess of
prescribed ceiling. Published studies by economists had estimated
the resumable area at around 2.8 million acres but it has found
that the area actually resumed is less than 1.25 million acres.

 Gross favoritism was shown by the former PM to a number of

persons in high position through Gifts with no justification in law
•The implementation of the reforms was also arbitrary. Landlords
hostile to the regime were targeted, while those loyal to PPP were left
alone. As a consequence, more and more landlords flocked to the party.

•The total land seized for redistribution was less then 1 percent in
punjab and 3 percent in sindh

•The ceiling was on individual rather than family ownership they had
little difficulty in retaining control over land through division within
family member

•The further reduction holding 300 acres to 240 acres. surplus land was
to revert to government without compensated to land lord and
distributed free to the landless ppp supporter
 Distribution of land on the political basis to get more and more
ppp workers

 Only 1 % landless tenant and small owners benefited by there

measures

 39% of the area resumed under the 1972 reforms is still held by the
government despite the presence of a large number of landless
cultivators

 Difference b/w 1972 & 1959 Land Reforms

The most prominent feature of the 1972 reforms was that, unlike in 1959, land
resumed from land owners would not receive any compensation, and this land
was to be distributed free to the landless tenants.
 Comprehensive labor reforms were introduced by the
Government in July 1972

 They guaranteed to the workers their long over due

fundamental rights of freedom.

 Association and collective bargaining, assurance of greater

security of service; representation in management, group-
insurance, old age pension, free education for children and
housing and medical facilities were provided to the laborers.
 As like other reforms Labor Reform met with unforeseen
consequences, which diminished the appreciation of beneficiaries.

 Encouraged by the reforms, workers flexed their muscles in a

series of strikes, which hit production in the poorly- managed
newly nationalized heavy industries.

 The business confidence was eroded by this reform and resulted

in decline in investments across the industrial sectors, leading to
rise in unemployment.
 March 1972, the New Education Reforms were announced.

 Universal and free education up to class (x) throughout the

country in three phases. Under this scheme all educational
institutions are to be nationalized. These institutions are now open
to gifted students from all over the country without regard to their
financial status and social background.

 So far about 400 colleges and several schools have been

nationalized in the provinces of Sindh and the Punjab. The college
teachers have also been given a respectable position in society.
 This was the most neglected sector independence.

 No health scheme could succeed because the common man did

not have the means to meet the cost of drugs.

 To obviate this, it was necessary as a first step to make medicines

available within the reach of the common man by bringing down
the prices and rationalizing their means.

 To achieve this goal, an act called the Drug act, 1972, was enacted
which prohibited the manufacture and import of any drugs under
brand names after 23 December, 1972 and their sale after 31
March, 1973.
 1. GROWTH RATE

 During 1972-77 the average annual growth rate of GDP was 4.6%,
compared with 6.8% in 1960s

 With major crops in agricultural sector and large scale

manufacturing in industry sector following short of even the
modest overall growth rate of the economy.

 Average annual growth rate of agriculture during the period was

2.1%

 Slower agricultural growth was result of exceptionally adverse

weather conditions, both drought and floods, with sub sectors
comprising major crops, livestock and fishing being mainly
accountable for that.
 Average annual growth rate of industry during the period was
5.8%

 Within industry, the annual average growth rate of output in the

large-scale manufacturing decelerated to 3.8% during 1972-77,
lower than the growth rate of 13.4% attained in the 60s.

 The main reason was nationalization of “commanding heights” of

the economy and the attendant inefficiency because of poor and
inexperienced management and politicizing of economic decision-
making.
 National savings during the same period averaged only 9.3% of
current GNP.

 Deterioration in external terms of trade, worsening fiscal situation,

reduced incentives for the private sector investment under a
socialistic regime and Uncertainty about the future were factors
affected the saving rate.
 One of the most unfavorable trends for the Pakistani economy in
the Bhutto years was the balance of payments difficulties.

 Newly launched modernization drive and the establishment of

basic industries, such as steel, increased the demand for imports

 The exports doubled from $728 million (1972-73) to $1132 million

(1976-77); and imports increased fourfold from $852 million (1972-
73) to $2418 million (1977).
 Workers remittances increase from $136million in 1972-73 to $ 578million
in 1976-77. Increase was due to movement of labor to middle east
following the oil boom and devaluation of Pakistani rupee

 On an average from 1972-77 the current account deficit was $675 million
per annum

 This dramatic difference between import and export growth lined the
way for a sharply rising debt burden and dependence on external loans.

 Bridge the growing deficit in trade and balance of payments, the Bhutto
regime was forced to turn to foreign sources
Year Inflation rate (%)
1971 / 72 4.69
1972 / 73 9.7
1973 / 74 29.98
1974 / 75 26.73
1975 / 76 11.66
1976 / 77 9.24
1977 / 78 6.89
• Bhutto regime saw Pakistan‟s one of the worst inflationary period.

• The value of money eroded during that period. Inflation in the

Bhutto era was about 18%, where as it was only 3% in the 60‟s.
 A sharp increase in monetary expansion

 A sharp rise in international oil prices

 A rise in world inflation

 Devaluation of Pakistani currency

 Increase in money supply

 Devalued the rupee by 56.7 percent

 It was commonly recognized that the rupee was overvalued and that

boost was needed for exports after the loss of the East Pakistan market

 Export bonus scheme was abolished

 Exports increased by 40% between 1972 and 1974.

 Pakistan found new markets for its commodity exports – mainly sugar,

rice and cotton.

 The overall fiscal deficit also increased averaging at 8.4% for the
five years.

 The period of 1973-77 the overall expenditure has increased and

averaging at 28.9%

 The main reason for the increasing deficit is the increase in

development expenditure, the Nationalization policy and Debt
financing
 The State Bank raised the bank rates gradually from 5% to 10%
during 1972 to 1977, also the interest on bank advances and bank
deposits were adjusted upward.

 National Credit Consultative Council was formed in 1972 whose

function was to examine the overall credit situation in the country
and indicate the credit limits for the public and private
enterprises.
 Credit ceiling although a power full measure of credit control
failed to achieve its objective because credit requirement worked
out on the bases of highly ambitious targets of production and
investment were usually large

 Monetary assets during 1972-77 expanded at an average rate of

18.8% per annum.

 The rate of domestic credit expansion was 23.3% per annum.

 Nationalization of industries was more importantly done to
demolish the powers of the elite “twenty-two families” then to
reduce poverty or discrimination in Pakistan.

 The public sector industrial units were not well-managed and

thus were not able to contribute to the industrial development
of the nation.

 At the same time the manner of implementing the

nationalization policy created a scare among the remaining
private sector entrepreneurs.
 A major justification that the government had advanced for taking
over industries in the public sector was that it would ensure
regular supply of various commodities at reasonable price.
However far from stabilizing prices at reasonable levels, the
government after taking an industry under monopoly control,
increased prices mainly to cover inefficiencies in management.

 By government‟s takeover of educational institutions adversely

affected the development of basic education as well as the quality
of education.
 Almost all of his Reform are theoretically good but implemented
as worst as possible. Corruption, mismanagement, political
interference is the key factor of Bhutto reform.

 However, some external uncontrollable factors like separation of

eastern wing adversely affected the economy.

 Besides there were some “ Bad Luck Factors”

 Devaluation of Pakistani Rupee (1972).
 Massive floods (1973).
 Increase in oil prices (1974 onwards).
 Huge failure of cotton crop.
 Worst floods in Pakistan‟s History (1976-77)