analysis
Touching new lows
The recent devaluation of the Pakistani rupee has affected all the economic targets, including those of imports and foreign debt repayment and servicing
By Shujauddin Qureshi
The Pakistani rupee witnessed yet another downslide earlier this month after May's massive devaluation, when it had reached the new low of Rs70 per US dollar. This time, the rupee could not even sustain the psychological barrier of Rs70 per dollar and went down further, touching Rs74 per dollar. However, after remedial measures by the State Bank of Pakistan (SBP), it receded and is currently hovering at around Rs70-71 per dollar.

firstperson
Seeking stronger solutions
There is frustration because the Kashmiris are feeling left out of the peace building process between India and Pakistan
By Murtaza Shibli
Wajahat Habibullah is one of the best-known Indian Muslim civil servants. Currently, he is the chief information commissioner of India. Considered as an expert on Kashmir, he has served in various capacities in the disputed territory. He has held negotiations with pro-independence militant groups as well as political parties, including the Hurriyat Conference.

BOOK REVIEW
Objectivity at its best
My Kashmir: Conflict and Prospects of Enduring Peace
By Wajahat Habibullah
Pages: 220
Price: $ 14.95
Year of Publication: 2008
Publisher: United States Institute of Peace, Washington DC
One of India's finest and best-known Muslim civil servants, Wajahat Habibullah, has remained associated with Kashmir through his appointments to various bureaucratic posts for nearly three decades. This has given him a certain vantage point from where to watch the socio-political developments as they unfolded. However, his relationship is not only due to his professional involvement, but also emerges from a personal commitment that is evident in the book under review. In Srinagar, Habibullah is remembered as a pro-Kashmiri Indian bureaucrat who believed in dialogue and accommodation. In the tumultuous decade of the 1990s, he was considered the only human face of the Indian state. He worked tirelessly, even risking his life, to repair and restore some semblance of engagement through his efforts at various levels.

politics
The defining divide
By staying in government without actually exercising power, the PPP is only digging its own grave
By Aasim Sajjad Akhtar
For more than 30 years, those who want change in Pakistan have been divided over how to deal with the phenomenon that is called the Pakistan People's Party (PPP). With the PPP now back in government after 11 long years and Pakistan having been set back by yet another military dictatorship, progressives are faced with the question of how to engage with the new regime. It is, therefore, necessary to revisit the contexts that gave rise to this defining divide.

A crisis in the making
Is the monsoon season good news for everyone? Perhaps not!
By Abdullah Khoso
The clouds have started bearing more rumbling water from the Arabian Sea and will soon approach the coastal belt of Sindh, which is a disaster-prone area. The monsoon season is generally welcomed throughout the country because of the pleasant weather it brings, but the flipside is that many areas like the coastal belt of Sindh will be flooded, resulting in the loss of both life and property.

agriculture
Who cares for the farmers?
The government has announced many incentives for the farmers in the budget, but the situation on the ground is not promising
By Aoun Sahi
Photos by
Rahat Dar
More than two-thirds of Pakistanis live in rural areas, of which about 68 percent, or 43 percent of the total workforce, are employed in the agriculture sector. In 1950-51, 65 percent of the total workforce was employed in the agriculture sector, but it is still the largest sector in terms of employment. The sector accounts for about 21 percent of gross domestic product (GDP), down from 53 percent in 1949. It has enjoyed a steady growth for almost three decades, substantially contributing to poverty reduction during the 1970s and the 1980s. However, the recent trend of agriculture incomes is far less encouraging, mainly because of inconsistency in term of growth.

Corporate farming: prospects and challenges
Pakistan has a vast potential to attract investment in the agriculture sector
By Sibtain Raza Khan
It is a proven fact that higher growth of the agriculture sector on a sustained basis has a lasting impact on poverty reduction, because it makes a tangible contribution to the economies of both developed and developing countries. Agriculture is still the single largest sector in Pakistan; it contributes 21 percent to gross domestic product (GDP) and employs 44 percent of the workforce. In short, the agriculture sector has a vast potential to become the principal vehicle for not only rural poverty alleviation, but also for providing support to the national economy on a sustained basis.

 

 

 

analysis

Touching new lows

The recent devaluation of the Pakistani rupee has affected all the economic targets, including those of imports and foreign debt repayment and servicing

By Shujauddin Qureshi

 

The Pakistani rupee witnessed yet another downslide earlier this month after May's massive devaluation, when it had reached the new low of Rs70 per US dollar. This time, the rupee could not even sustain the psychological barrier of Rs70 per dollar and went down further, touching Rs74 per dollar. However, after remedial measures by the State Bank of Pakistan (SBP), it receded and is currently hovering at around Rs70-71 per dollar.

The central bank is aware of the currency situation and continuously monitors the fluctuation of the Pakistani rupee on increasing demand of greenback. Though the SBP did not intervene this time by pumping US dollars in inter-bank trade, it, however, did adopt tight measures to halt the further slide of the Pakistani rupee.

The central bank suspended the forward booking of the dollar, reduced trading time, curtailed advance payments against imports from 50 to 25 percent and announced to make 100 percent payments for oil imports by itself. This provided a brief respite to the rupee, but bankers fear that due to the increasing demand of the dollar by importers, further depreciation will be hard to stop in the coming days.

In May 2008 too, the SBP had intervened and stabilised the currency through some administrative measures, such as pumping US dollars into the market. It may be recalled that the central bank had also asked private foreign exchange companies to transfer foreign currency from their nostro accounts held outside Pakistan to commercial banks inside the country and to close all the nostro accounts abroad.

The recent devaluation has affected all the economic targets, including those of imports and foreign debt repayment and servicing. The country's foreign debts and liabilities, which according to the SBP's data stood at $45.9 billion in March 2008, will also increase further as a result of the rupee's recent depreciation. It is pertinent to mention here that they stood at $40.5 billion on June 30, 2007.

The Economic Survey 2007-08, released in June 2008, points towards the increasing foreign debt burden: "The hard earned macro-economic stability appears to have been lost just in a space of one year (2007-08) of financial indiscipline." It further says the debt burden, which was decreasing till recently, is likely to increase again this year. Pakistan has paid a heavy price for financial indiscipline in the past and is likely to pay the same in the coming days unless sharp adjustment is made on the financial side quickly to regain the macro-economic stability, the Economic Survey 2007-08 rightly warns. Pakistan's debt situation will further aggravate with depreciation of the currency and economists believe that the country would have to resort to borrowing from the international financial institutions (IFIs), such as the International Monitory Fund (IMF).

As a result of the Pakistani rupee recent devaluation, petroleum products and food imports will be worst hit sectors. Pakistan is one of the major importers of food items -- such as tea, pulses, vegetable oil and wheat -- and they will become more expensive with this decision. The increasing prices of edible oil, pulses and flour have already upset the budget of the common people and the recent devaluation will put an additional burden on their pockets. This will also add to the inflation, which is already in double digits.

According to the SBP's statistics, the country's general Consumer Price Index (CPI), or inflation rate, in the financial year 2007-08 was 12 percent, against that of 7.8 percent in the financial year 2006-07. Importantly, the food inflation shot up to 17.6 percent against the previous financial year's 10.3 percent. "The rupee's devaluation will certainly cause further increase in the prices of food items, which are already quite high," says Anis Majeed, chairman of the Karachi Wholesale Grocers Association. He, however, adds that the international prices of commodities are on the higher side and most countries are facing food shortages because of lower production and higher prices.

Majeed says those importers who had booked their orders a few months back at Rs62-64 per dollar will now have to pay Rs72-73 per dollar to get their papers cleared and that this will be reflected in the prices of commodities in the coming days. "The recent devaluation will upset all estimates of imports," he warns. Some importers even got their papers cleared in a hurry at Rs74 per dollar last week, when the rumours were rife that the dollar will eventually touch Rs85. Majeed views that political uncertainty and the gap between supply and demand has weakened the Pakistani currency.

Though Majeed welcomes the measures adopted by the SBP to stabilise the currency, he believes that the importers have been further squeezed by the central bank, with reduction in advance payments against imports to 25 percent from 50 percent -- the importers were earlier allowed to buy US dollars in advance to the extent of 50 percent of the value of their imports. "The facility will now be available only to the extent of 25 per cent of the FOB (Freight on Board) or CFR (Cost and Freight) value of the goods to be imported," said the SBP in its circular.

Economists and bankers view that the rupeeís recent devaluation is a result of increase in the gap between imports and exports. As stated earlier, Pakistan's major imports comprise petroleum products and food items, and a major portion of the foreign exchange is diverted to them. Increasing prices of petroleum products in the international market have already put a dent in the country's foreign exchange reserves. Though the increasing international prices of petroleum products have affected most countries and Pakistan is no exception, the main concern of economists is its adverse effect on the industry.

The government has already increased the gas and electricity tariffs and this has hit the industry hard. People related to the industrial sector say the increasing cost of inputs has made the exports expensive and less competitive in the international market. It merits a mention here that Pakistan's trade deficit rose to an all-time high $20.745 billion in the financial year 2007-08, from $13.563 billion in the previous financial year. The 52.95 percent increase in the trade deficit has further weakened the country's already precarious balance of payment situation.

Pakistani exporters are currently faced with a difficult situation -- despite achieving the import target of $19.2 billion in the last financial year, they are expecting a tough time after the rupeeís devaluation. It is commonly believed that devaluation benefits the exporters, but this time they are unhappy because of the country's economic state of affairs. Pakistan's major exports are textile-related, while most of the textile units in the country are currently either on strike or have been closed down because of the increasing cost of inputs.

"The rupee's depreciation has not benefitted most exporters and we feel that it will only provide a temporary relief to some exporters," says Masood Naqi, former chairman of the Pakistan Readymade Garments Manufacturers and Exporters Association. He informs that only those exporters got any benefit who had received their remittance money within 15 days of the devaluation. In the long run, he adds, exporters will face a tough time, because the cost of inputs, such as imported raw material, will increase. Most of machinery used in the manufacturing sector is imported and its cost will definitely increase. "The cost of domestic inputs -- such as power, oil and gas -- has already gone up, thus the exports have been made less competitive in the international market," Naqi views.

According to the Federal Bureau of Statistics (FBS), the country's imports increased to an all-time high of $39.968 billion in the financial year 2007-08, against $30.539 billion in the previous financial year, thus registering a growth of 30.87 percent.

Pakistan imported petroleum products worth $1.623 billion in the previous financial year, followed by fertilisers ($542.4 million) and palm oil ($480.8 million). This has badly affected the country's trade balance. It is a pity that despite being an agricultural country, the country now has to import essential food items, such as wheat and cotton, which it used to export till recently. The import of wheat alone cost Pakistan $800 million in the last financial year, while the country spent more than Rs40 billion on the import of cotton, because the local varieties were attacked by pests.

There are some positive reports that Saudi Arabia has agreed to provide Pakistan petroleum at deferred payment for a year, which would give a breathing space to the economic managers to bring their house in order. Traders, however, believe that Pakistan -- being an importing country -- actually needs foreign exchange. For this, they suggest that import of luxury items should be banned and the government should give incentives to the agriculture sector, so that it could produce more wheat and cotton to reduce the import bill. Moreover, the consumption of petroleum products can be reduced by converging buses and other vehicles on compressed natural gas (CNG) and discouraging the rampant car financing.

Economists, on the other hand, are concerned about the declining investment in the country. Pakistan's stock market also witnessed a historic dip recently, while the privatisation programme has been halted and currently no foreign direct investment (FDI) is coming into the country. Actually, the investment is going out of the country. Moreover, Pakistan's foreign exchange reserves declined and reached the alarming level of $11.1 billion in June 2008, from the highest level of $16.5 billion in October 2007. In this scenario, the government needs to announce a concrete privatisation programme, as well as adopt measures to attract FDI. Moreover, it needs to reduce both domestic and foreign borrowing to stabilise the economy.

 

firstperson

Seeking stronger solutions

There is frustration because the Kashmiris are feeling left out of the peace building process between India and Pakistan

By Murtaza Shibli

Wajahat Habibullah is one of the best-known Indian Muslim civil servants. Currently, he is the chief information commissioner of India. Considered as an expert on Kashmir, he has served in various capacities in the disputed territory. He has held negotiations with pro-independence militant groups as well as political parties, including the Hurriyat Conference.

Wajahat Habibullah has also served as India's minister of education, secretary of consumer affairs and secretary to the Ministry of Panchayati Raj (local government). A former senior fellow at the United States Institute of Peace (USIP), Washington DC, he was honoured with Rajiv Gandhi Award for Excellence in Secularism for his distinguished services.

Wajahat Habibullah's recent book, entitled My Kashmir: Conflict and Prospects of Enduring Peace, published by the USIP, is a valuable addition to the literature on understanding the Kashmir issue and the efforts at peace building there. The News on Sunday interviewed him recently. Excerpts follow:

 

The News on Sunday: There is a strong lament in your book My Kashmir: Conflict and Prospects of Enduring Peace about the destruction of Kashmir, yet you sound so hopeful of a solution. Why?

Wajahat Habibullah: I sound so hopeful of a solution because there is a very strong yearning for peace in the people and because they want to live with dignity. I think most of the people are sick of violence, and they want to seek a solution through the constitutional and legal mechanism. It is now the duty of India, Pakistan and primarily the Kashmiri leadership to afford a sense of dignity and participation to the people of Held Kashmir, for ensuring a long-term solution. Indian Prime Minister Manmohan Singh's idea of roundtable conference was part of extending that hope and translating it into action.

TNS: Whenever there is some hope of a solution, it is punctured by some untoward incidents. Isn't the recent controversy over land transfer to the Shri Amarnath Shrine Board exactly the kind of setback that reverses such hopes?

WH: The controversy over land transfer to the Shri Amarnath Shrine Board is a cause for great pain and apprehension. It is a major setback to the process of peace. In fact, it has killed a part of me. We can't shut our eyes to issues like this. Unfortunately, former Governor SK Sinha failed to gauge the aspirations of the Kashmiri people. He equated the problems with what he had seen in the rest of the country, but Kashmir is different. Thankfully, new Governor NN Vohra has a great understanding of Kashmir, unlike his predecessors, and this will prove beneficial to the people of the Valley as well as rest of the country.

TNS: You mention about the Indian policy being always guided by its perception of 'security' and 'national interest'. Now, however, it seems that this 'national interest' is being extended to the entire religion. Giving land to the Shri Amarnath Shrine Board is seen as a legitimate function and role of the Indian government, for ensuring Hindu presence in the state. Is religion now also being 'securitised'?

WH: It has been by some, but not by the government. As you know, the land was never actually transferred to the Shri Amarnath Shrine Board. When the government became aware of the public resentment, the order was revoked.

TNS: Despite progress in the India-Pakistan peace process, the Kashmiris are very sceptical of a solution emerging. What do you think is the reason?

WH: There is frustration because the Kashmiris are feeling left out of the peace building process between India and Pakistan. Their scepticism can be mitigated by their being made part of the peace process. This can be achieved through different means, but it should ideally start from an effort to build their trust.

TNS: There is a general belief that India's slow response to President Musharraf's proposals killed the initial optimism about the peace process and now the new political challenges in the two countries have nearly stalled the process. What are your views on this?

WH: President Musharraf's proposals on Kashmir were responded to in a positive manner by no less than the Indian prime minister. It, however, is true that there are people within the Indian establishment who were averse to these proposals. In any case, it is my firm belief that democratic governments will be able to reach a more enduring settlement acceptable to their peoples. Such solutions, therefore, will be stronger.

TNS: You have made an observation in your book My Kashmir: Conflict and Prospects of Enduring Peace about the Kashmiris' penchant for cooking up conspiracy theories. But isnít it true that your explanation of the Hazratbal siege -- blaming a Jamaat-e-Islami sympathiser police constable for the same -- sounds like a conspiracy theory too?

WH: Well, that is my suspicion, based on being part of the negotiations. Moreover, the constable was the one who had delivered the highly exaggerated misinformation that provoked the siege of the shrine.

TNS: In your book, you seem to discount the massive human rights violations in the Valley, as well as their impact on fuelling insurgency and winning new recruits to it. Is there any particular reason you see money as the main motivation for insurgency, rather than human rights violations and the anger that they generate?

WH: I do not discount the cost of human rights violations and have in fact spoken of my direct experience of such incidents. I, however, cannot claim to have covered those incidents of which I had no direct experience. Let me also clarify that I don't see money as the reason at all! The outbreak was precipitated by a genuine anger and that was the major reason for its persistence into the mid-1990s. After that, however, money has started to play a larger role. I have known several young men who have or whose parents have admitted to me as much. I agree that this very susceptibility to resort to violence for money does indeed stem from anger.

TNS: You say freedom is the choice of every Kashmiri, but then claim that this freedom is guaranteed by the Indian Constitution. How do you reconcile the two ideas? Isn't it true that most Kashmiri separatists don't want to operate within the ambit of the Indian Constitution?

WH: Freedom, in my view, is freedom; and the Indian Constitution guarantees this. My argument is that the Kashmiris should be allowed to enjoy that freedom.

TNS: What is your position on Article 370? Why certain Indian political parties, such as the Bharatiya Janata Party (BJP), lobby for its abrogation?

WH: Article 370 allows Jammu and Kashmir to be the only state in India to have a constitution of its own, something that is the right of every state in a federal system; the leading example in this connection being the United States. Its abrogation would be regressive, but it should not be used to perpetuate the dominance of ruling elite in Jammu and Kashmir. It must allow the people of the state as much, if not more, freedom as the other people of India have under the constitution.

TNS: There is this greater talk about south Asia as a reference point where borders can become irrelevant. Can't President Musharraf's plan for Kashmir be the beginning of a post-Westphalian South Asia?

WH: A counter-question: why should the people of Jammu and Kashmir submit to management by another or worse still by joint management of more than one? Are any of India's other states managed by the Centre?

TNS: You discount any link between Kashmiri militants and al-Qaeda, yet in many official Indian accounts stress is laid on international jihadism, including links between al-Qaeda and Kashmiri insurgency?

WH: I have seen no links and I have seen the insurgency from close quarters.

TNS: What is the state of information regime in south Asia and how could this help in promoting peace and co-operation in the region?

WH: India's Right to Information Act 2005 is among the world's most enlightened legislations of this nature. I have been working with the Jammu and Kashmir government to adopt this legislation for the state, if not take advantage of Article 379 to have an even stronger law of this nature. The Jammu and Kashmir law, passed originally in 2004, is totally without substance; as a result, it has hardly ever been used. In May 2008, Bangladesh adopted the Right to Information Ordnance, which is based in great measure on the Indian legislation; Nepal had done so earlier. Pakistan's Freedom of Information Ordinance 2002 has some weaknesses that need to be overcome.

TNS: How do you see the current situation in Pakistan?

WH: I have never been to Pakistan, but have always been an ardent supporter of democracy. Unfortunately, like many other Third World countries, Pakistan has been experimenting with short bouts of democracy alongside dictatorship. Dictatorships succeed in the short-term, but they bring ruin in the long-term. The current situation is Pakistan is interesting and I see it as the first step towards genuine democracy. The onus, however, is on the new government. It is a difficult road, but I sincerely hope that democracy would flourish in Pakistan.

(The writer is a Srinagar-based security analyst and editor of www.kashmiraffairs.org)

 


BOOK REVIEW

Objectivity at its best

 

My Kashmir: Conflict and Prospects of Enduring Peace

By Wajahat Habibullah

Pages: 220

Price: $ 14.95

Year of Publication: 2008

Publisher: United States Institute of Peace, Washington DC

One of India's finest and best-known Muslim civil servants, Wajahat Habibullah, has remained associated with Kashmir through his appointments to various bureaucratic posts for nearly three decades. This has given him a certain vantage point from where to watch the socio-political developments as they unfolded. However, his relationship is not only due to his professional involvement, but also emerges from a personal commitment that is evident in the book under review. In Srinagar, Habibullah is remembered as a pro-Kashmiri Indian bureaucrat who believed in dialogue and accommodation. In the tumultuous decade of the 1990s, he was considered the only human face of the Indian state. He worked tirelessly, even risking his life, to repair and restore some semblance of engagement through his efforts at various levels.

My Kashmir: Conflict and the Prospects of Enduring Peace is a perceptive memoir, peppered with anecdotes that offer personal insights into the tensions and distrust between Kashmir and India that marked the formative years of their relationship, and how such mutual suspicion led to the emergence of one of the deadliest insurgencies in the region. The book tries to offer a sympathetic view of the Kashmir problem -- not from an academic angle or political standpoint, but from a humanitarian perspective. The author draws extensively from his experience of working, both as an administrator under various local Kashmiri governments and in the offices of two Indian prime ministers.

In his introduction, Habibullah asserts that though not a Kashmiri himself, he has tried to see the situation through the eyes of one committed both to India and to serving the people of Kashmir. He points out that the Indian government's constant fear that the Kashmiris might gravitate towards Pakistan has meant that 'national security' interests have taken precedence over everything else, including the rights of people. This privileging of the 'national security' interests also affected the author, because his civilian authority was often bypassed by the Army and police. On one occasion, it earned him a serious reprimand from the chief secretary, the senior most bureaucrat in the state, for not being quick enough in issuing warrants for the arrest of the workers of an opposition political party.

Habibullah offers several examples of how the Indian government and its officials continue to see Kashmir only through the prism of 'national security' concerns, enabling all sorts of malpractices that have further fuelled feelings of alienation among the Kashmiris. He himself became a victim of the same mindset when former Jammu and Kashmir Governor Girish Saxena selectively edited his report on the notorious Kunan Poshpora rape of 1992 by the Indian Army, giving a clean chit to the personnel involved. This report deeply angered the Kashmiris and cost Habibullah his credibility among them, so much so that a militant group tried to assassinate him.

The author makes some insightful observations about the characteristics of the Kashmiri people and terms their dexterity in weaving conspiracy theories legendary. Ironically, his account of the Hazratbal siege in 1993 is based on a conspiracy theory too. He claims that the police made false assumptions based on the word of a head constable who was a Jamaat-e-Islami sympathiser, thus effectively placing the blame on the organisation. However, besides this seemingly strange explanation for the genesis of the Hazratbal siege, Habibullah's role in mitigating the crisis was phenomenal; he even conducted negotiations with the holed-up militants at the risk of his own safety. His opposition to any military action angered the army's high command and an attempt was also made on his life.

The incident did not deter Habibullah, who continued his efforts to seek dialogue with the pro-independence Kashmiri separatists -- both militants and the political leadership. He has held various meetings and discussions with these leaders over the past two decades, opening and sustaining various channels of communication. However, he is too modest and does not give himself credit for this, despite the fact that it is his efforts that have been central to keeping alive the dialogue process between the Indian government and Kashmiri separatists. His assessment of Kashmiri separatists is that they lack leadership and vision, and he finds them devoid of clarity of thought or goal.

He narrates an interesting anecdote about 1977 state elections when Mirwaiz Maulvi Muhammad Farooq, the father of Mirwaiz Umar Farooq, tried to blackmail him by threatening to "set Srinagar on fire" if Habibullah stopped him from taking a procession in support of the Janata Party headed by then-Indian Prime Minister Morarji Desai to which Mirwaiz was aligned at that time. He terms Sheikh Abdullah's government a "sheikhdom" and observes that "in his last years in power, Abdullah was more concerned with securing an orderly succession than with running the government."

The author contends that "Islam has been pivotal to the evolving politics of Kashmir, but more as a symbol of people fighting for identity rather than its religious ramifications." He discounts any relationship between Kashmiri militant groups and al-Qaeda as "insinuations ostensibly made to curry US favour." He questions comparisons between Kashmir and Northern Ireland, arguing that while there was a demographic change in the latter, there was no such thing in the former. This claim, however, is contested by the Kashmiris. The systematic reduction of the Muslim population in Jammu and Kashmir since 1947, as evident from successive official census reports, is a clear proof of demographic engineering. Also, fears of demographic change were the main reason for recent mass protests in Srinagar, triggered by the illegal land transfer by the local state government to a semi-government Hindu body, the Shri Amarnath Shrine Board.

Habibullah stresses the symbolic importance of Kashmir to both India and Pakistan. He calls for any settlement to keep in mind the question of national pride in both countries, so that no "substantial compromise on territory can or should be expected -- or even hoped for." He accepts that freedom is the "dream of every Kashmiri", but tends to differentiate between freedom and independence, a term the Kashmiris usually use interchangeably. He contends that the Indian Constitution guarantees freedom that "can be achieved while retaining the territorial integrity of both India and Pakistan with the present boundaries becoming soft borders", and advocates against an independent Kashmir saying "true freedom cannot be won by independence, which would bring even more suffering and would be unacceptable to both India and Pakistan."

Wajahat Habibullah lives up to his reputation of being sympathetic to the Kashmiris, because he repeatedly refers to the pain and agony they have suffered "as a result of confrontations between India and Pakistan during the intervening half century." He places the need for the restoration of Kashmiri dignity and self respect at the heart of his argument. Expressing sympathy with the Kashmiri perception of a long history of continuous humiliation since accession to India in 1947, he calls upon India to concede those rights and liberties that are the entitlement of "every Indian citizen" and prophesies that otherwise "simmering resentments in Kashmir will render any abiding peace elusive." The merit of the book lies in the clarity of its arguments and the modest approach of the author. In short, the book is a useful addition to the literature on understanding the Kashmir issue and the efforts at peace building there.

-- Murtaza Shibli

 

politics

The defining divide

By staying in government without actually exercising power, the PPP is only digging its own grave

 

By Aasim Sajjad Akhtar

For more than 30 years, those who want change in Pakistan have been divided over how to deal with the phenomenon that is called the Pakistan People's Party (PPP). With the PPP now back in government after 11 long years and Pakistan having been set back by yet another military dictatorship, progressives are faced with the question of how to engage with the new regime. It is, therefore, necessary to revisit the contexts that gave rise to this defining divide.

On the one hand are those who invoke the fateful events of 1977 when the majority of progressive political forces joined the Pakistan National Alliance (PNA) against the ruling PPP government, the eventual result of which was one of the most brutal dictatorships of the 20th century. On the basis of the historical evidence, this group argues that opposition to the PPP effectively empowers the establishment and its right-wing allies. They also maintain that the PPP remains a substantively more progressive party than any other mainstream force in the country.

On the other hand are those who argue that the PPP has, almost from its inception in 1967, betrayed its radical genesis. They point to the PPP's dubious stand on East Pakistan, the Bhutto regime's suppression of the resistance movement in Balochistan, its sowing the seeds for Zia's Islamisation, and the slow but steady withdrawal from what remained of the party's radicalism after the resumption of power in 1988. This group will readily concede that the PPP's cadre offers great sacrifices when out of power, but insists that when in power, the party degenerates.

Of course there are many people who veer towards one perspective or the other at any given time, a reflection of just how fluid Pakistani politics is. In the current conjuncture, the lines seem to be very clearly drawn between the pro-PPP and anti-PPP camps. One suspects that this divide will become sharper over the next few months, given the magnitude of the multiple crises that the PPP government is facing.

First, the new regime has been saddled with a faltering economy and the so-called 'war on terror'. It has been five months since the February 18 general elections, yet neither the fate of the deposed judges nor that of Pervez Musharraf has been decided. Protests of all kinds are erupting all over the country. And if it could get any worse, the threat of major American incursions into Pakistan is now very real.

On both sides of the divide, there is an agreement that the PPP's popularity graph was destined to fall given its inheritance. In other words, there can be no quick fixes to the structural crises that have been outlined above, and so it was to be expected that an increasingly frustrated population and an increasingly annoyed imperial patron would start to bear heavily upon the new regime.

But this is where the agreement ends. The pro-PPP camp insists that progressives of all stripes should avoid subjecting the party to unnecessary pressure and that the tremendous constraints facing the government should be acknowledged before raising slogans against it. Their argument almost always ends with the refrain of 'Don't give the establishment and the religious right another chance to derail the democratic process.'

The anti-PPP camp points out that in the five months since the elections, it has become clear that the PPP -- or at the very least its current leadership -- does not have the political will to make change happen, no matter how imposing the constraints. The indictment is based largely on the party's acquiescence to 'America's war', its unwillingness to resist the neo-liberal policy impositions of the international financial institutions (IFIs) and what is perceived as unnecessary wavering on the issue of the sacked judges.

In thinking about this divide it is important to posit the underlying realities. First, the PPP is definitely not a party committed to a radical overhaul of the economic and political structures that are in place in Pakistan. Whether or not it once was such a party is now a moot point, though those who think so would do well to accept that it definitely is not anymore (the longing for a return to the past needs to be replaced with a realistic recognition of the imperatives of power politics in the current

context).

Second, the chances that the military establishment or the religious right will attempt to directly take over the reins of government in the near future are slim to none. The military has just receded into the political background after coming in for more abuse than at any other time in Pakistan's history and it is hardly in the mood to come back into the public eye given the deteriorating state of affairs. The religious right, meanwhile, is unable to muster up even a fraction of the street power that it used to in the past.

Third and perhaps more importantly, keeping the PPP in power and making it the fall guy for everything that is happening is exactly what the establishment currently wants. The PPP has always been the whipping boy of the establishment, because it has been willing to become part of government when things are at rock-bottom. It has, therefore, become patently unpopular even though it has not necessarily been responsible for everything that has gone wrong. In the current conjuncture too, by staying in government without actually exercising power, the PPP is only digging its own grave.

At some level, those who insist that the PPP government should be insulated from criticism in spite of the plight of Pakistan's people are acceding to the logic of the military-dominated political system. Over the past 30 years, the military establishment has put into place a politics in which people are almost completely missing. While it may be argued that the PPP is the best possible choice in this game of power politics, backing the PPP uncritically actually precludes the possibility of extricating ourselves from the military-dominated system.

The PPP may once have been a lightning rod for the anti-establishment sentiment. To some extent, the popular memory of that bygone era continues to keep the PPP afloat today. But popular memory is not enough to cope with the crises of the state that we are presented with. The anti-PPP camp might be expecting too much of the party to make a complete break with the establishment, the Empire and the international financial oligarchies that prop up Pakistan's bare-bones economy, but if it becomes clear that the PPP is making no break with Musharraf's Q-league, it becomes untenable for progressives to defend the government.

If the PPP leadership is willing to take on America and the army, it can rest assured that it will gain much respect and support in the process, even if it fails. But if it does not take even symbolic actions that prove its commitment to its own populist credentials, it risks a great deal, including its own political future. Diehard PPP supporters should stop raising the spectre of a 'return' to dictatorship and start pushing for the party to live up to the ideals that they hold dear to their hearts.

 

 

A crisis in the making

Is the monsoon season good news for everyone? Perhaps not!

 

By Abdullah Khoso

The clouds have started bearing more rumbling water from the Arabian Sea and will soon approach the coastal belt of Sindh, which is a disaster-prone area. The monsoon season is generally welcomed throughout the country because of the pleasant weather it brings, but the flipside is that many areas like the coastal belt of Sindh will be flooded, resulting in the loss of both life and property.

The coastal belt of Thatta and Badin districts in the province was devastated by Cyclone A2 in 1999, which claimed more than 400 lives and left nothing behind for poor farmers and fisherfolk except deprivation. Noor Muhammad Themore, a social activist hailing from Thatta, recalls that the cyclone killed mostly young people, who were in the sea for fishing. Because they were the sole bread earners of their families, their relatives had to face unending hardships. Besides, the cyclone caused displacement of the people at a mass level -- the number of registered voters in Union Council Kar Malik Thatta decreased to only 5,000 after the tragedy, while it was more than 15,000 earlier.

On July 29, 2006, precipitation hit the coastal belt of Thatta and Karachi, which disturbed the routine life of the people, as well as damaged both property and crops. In June 2007, Cyclone Yemyin -- having a speed of 220-kilometre per hour -- hit Karachi and Thatta. It claimed four lives and about 2.5 million people were affected by it. After the cyclone, the affected people were without shelter, food, safe drinking water and life-saving drugs.

The cyclone proved to be a tragedy for many people who are yet to resume their normal lives. "I could only manage to save my family. Everything else -- my fishing boat, my house and all my possessions -- was washed away with the cyclone," says Rajab Themore, a resident of the Kalkan Chani village in Thatta. Rajab does not have enough sources to bring his life back to the normal and he is left with no choice but to face the hardships of life.

Cyclones have both short- and long-term effects on development. They destroy the infrastructure -- schools, health centres, roads, etc -- and, thus, have a direct bearing on the economy. It is estimated that after Cyclone Yemyin, about 70 percent annual income of the poor fisherfolk and farmers was lost, which further increased inequality and social exclusion in the area. In short, cyclones hit poverty-ridden fisherfolk, farmers and minorities, especially children and women, the worst.

It is being feared that the forthcoming monsoon season will further exacerbate the ongoing food shortage. The people living on the coastal belt are worried and are undergoing a psychological trauma because of such fears. The increasing number of fishing vessels, the extensive use of harmful nets and fishing by deep-sea trawlers have already resulted in economic hardships for the poor fisherfolk of the coastal belt. They do not bring much catch from the sea any more and whatever they fish is not enough to meet their needs, because the prices of major food items have escalated in the recent past.

I do not know what will happen to us, says Noor Machi, a fisherman of Deh Allah Bano, Karachi. "The markets are overcrowded with workers, the catch of fish is decreasing gradually, the prices of major food items are increasing and every year monsoon rains play havoc with us," he adds. The monsoon rains bring problems with them all over the world,. With the passage of time, most countries have developed early disaster systems and mechanisms that help them to abate the risk to human lives, as well as socio-economic losses.

After the 2005 earthquake in Azad Jammu and Kashmir and the NWFP, the government established the National Disaster Management Authority (NDMA). Similar authorities were also set up at the provincial level and later devolved at the district level. It was believed that a District Disaster Management Authority (DDMA) would be more effective than its provincial counterpart, provided it remains independent of the NDMA. Sadly, however, the DDMAs have failed to protect precious human lives, mainly because the administrative machinery at the district level remains even unaware of the monsoon contingency plan.

The district coordination officer (DCO) is responsible for managing the DDMA. "My personal experience tells me that most DCOs do not even know about the DDMA," says Ziauddin Abro, emergency coordinator with ActionAid-Pakistan. If DCOs do not know about the DDMA, then how would they do the hazard mapping, vulnerability assessment and resource mapping, which are integral parts of a disaster contingency plan?

The DCOs, as heads of the DDMAs, are responsible for preparing the monsoon contingency plans -- they are supposed to know how many schools, ambulances and other resources are available to them. "I once approached a DCO in one of the coastal belt districts of Sindh and asked him about the DDMA. Not only did he not know about any such authority, he was also unaware of the number of functional ambulances in his district," Zia laments.

The preparation of a monsoon contingency plan requires consultation with all the stakeholders. As part of the administrative system, nazims of union councils should also be involved in the consultation process. "The monsoon season is around the corner and the Meteorological Department has warned us about the impeding danger, but no higher authority has consulted me as yet," says Mubarak Sanghu, nazim of Union Council Gabo Pat, Karachi.

"The DCO has held no consultative meeting to discuss the available physical resources and funds, and to prepare a contingency plan for the forthcoming monsoon season," comments a town health officer, who is currently serving in Karachi, on condition of anonymity. "I have never been invited to a monsoon contingency planning meeting," informs Ghulam Qadir Talpur, a district government official dealing with revenue. "We have always been kept in the dark. The DCO does not bother to consult us on any issue. How can the monsoon contingency plan be an exception?" asks Saeed Ghani, leader of the opposition in the City District Government Karachi.

Only civil society organisations have informed the people, especially fisherfolk, living on the coastal belt about the impeding danger, while no district government official has come to share the situation with them. This shows that there still are many gaps in disaster preparedness and management at the district level. In this scenario, the government ideally should establish an autonomous body for disaster management at the provincial level. The monsoon season has already started, but the responsible people have done nothing noteworthy. If our government has done nothing concrete in this connection, maybe the people should do something on self-help basis. Given Pakistan's context, this is the only strategy to manage an emergency in an effective manner.

(Email:[email protected])




agriculture

Who cares for the farmers?

The government has announced many incentives for the farmers in the budget, but the situation on the ground is not promising

 

By Aoun Sahi

Photos by

Rahat Dar

More than two-thirds of Pakistanis live in rural areas, of which about 68 percent, or 43 percent of the total workforce, are employed in the agriculture sector. In 1950-51, 65 percent of the total workforce was employed in the agriculture sector, but it is still the largest sector in terms of employment. The sector accounts for about 21 percent of gross domestic product (GDP), down from 53 percent in 1949. It has enjoyed a steady growth for almost three decades, substantially contributing to poverty reduction during the 1970s and the 1980s. However, the recent trend of agriculture incomes is far less encouraging, mainly because of inconsistency in term of growth.

According to the Economic Survey 2007-08, the growth of the agriculture sector in the last six years has been of a volatile nature, ranging from 1.5 percent to 6.5 percent. In the financial year 2007-08, the agriculture sector recorded a meagre growth of 1.5 percent against the target of 4.8 percent, which is 69 percent less than that of the set target and 59 percent less than the 3.7 per cent growth achieved in the financial year 2006-07. During this period, major crops have also registered a negative growth of three percent and 8.5 per cent, respectively.

The government, though, seems committed to bring about improvements in the agriculture sector. It has announced many incentives for the sector in the federal budget 2008-09, which is also being termed an agriculture-friendly budget. The government has increased subsidy on a bag of DAP fertiliser from Rs470 to Rs1,000, while 16 percent general sales tax (GST) on locally-manufactured urea fertilisers has been withdrawn.

The government has also provided complete exemption from sales tax and other duties to imported and local pesticides. It has also announced to build cold storages throughout the country for timely storage of agricultural products, such as vegetables and fruits. To better use the cultivated land, bulldozers will be imported. Similarly, duty-free import of machinery and equipment for grain handling and storage facilities has been allowed. Moreover, the government has allocated Rs75 billion in the Public Sector Development programme (PSDP) for the financial year 2008-09 to construction of dams and irrigation channels and courses.

In all, the government has provided a relief of about Rs40 billion to the farmers in the financial year 2008-09, in the shape of subsidies and exemption of GST and import duties on fertilisers and pesticides. The farmers, however, complain that the benefits of these subsidies are yet to reach them. The price of one bag of DAP fertiliser, after deducting the Rs1,000 subsidy, should not be more than Rs1,900. Similarly, after exemption of 16 percent GST, the price of urea fertiliser should be Rs600 at the maximum. The rates of pesticides should also decrease by at least 15 percent, but the situation on the ground is totally different.

"We were getting one bag of DAP fertiliser before the budget at Rs3,000 and now it is available at Rs2,800. The price of urea fertiliser has increased by about Rs100 in the last one month and it is available to the farmers in our area at Rs750," Munir Ahmad Kahloon, a farmer hailing from Fort Abbas in the Bahawalnagar district, tells The News on Sunday. According to him, the rates of pesticides have also increased by about 25 percent in the last two months.

"The agriculture officers in our area are well aware of the situation, but they have never come to the rescue of the farmers. In fact, government officials, along with dealers and middlemen, are getting the benefits that are due to the farmers," he alleges. Munir and his family cultivate cotton on 65 acres of land every year. "The cost of agricultural inputs has been increasing constantly by 30 to 40 percent every year, and this year has been no exception. The government's duty is not only to announce relief, but also to ensure that it reaches the deserving people," he stresses.

The situation is almost the same throughout the country. There prices of fertilisers and pesticides have not decreased by even a single rupee after the so-called 'agriculture-friendly budget', says Asghar Ali, a small farmer hailing from the Mandranwala village in the Sialkot district. According to him, if poor farmers argue with the dealers on the rates they do not sell them fertilisers and pesticides. "Because there is no formal mechanism to lodge a complaint against these dealers, the farmers are forced to buy agricultural inputs at the rates decided by them and not by the government," he adds.

According to Asghar, who is a rice producer, there are many other promises and announcements of the current government regarding agriculture that have not yet been fulfilled. "The government had announced last month that from July 1 there will be regular power supply of at least 10 hours at a stretch daily to the farmers. But the benefit of this announcement too has not reached the farmers so far and they are facing problems in irrigating the rice crop, which needs a lot of water."

Due to the unavailability of electricity, he has installed a new tube-well, run by a diesel engine, to irrigate five acres of paddy crops. "I have spent Rs50,000 on installing the new tube-well. Had there been uninterrupted supply of electricity for 10 hours daily, this money could have been saved." He is also spending a lot of money on irrigating his fields with a diesel-engine tube-well, as the price of diesel has reached Rs55 per litre.

Ministry of Food, Agriculture and Livestock (Minfal) officials admit that they have no mechanism to implement the subsidised prices of fertilisers and pesticides. "To ensure implementation of new prices of agricultural inputs is the responsibility of provincial governments and Minfal cannot intervene directly in this matter," an official of Minfal tells TNS.

Agriculture experts believe that the lion's share of agricultural subsidies in Pakistan goes traditionally to the pockets of industrialists, importers, government officials and dealers. "Government departments always put blame on others for their misdeeds. In fact, Minfal officials are getting millions of rupees from the people responsible for not letting subsidies worth billions of rupees reach the farmers," alleges Ibrahim Mughal, chairman of the AgriForum Pakistan. According to him, two billion litres of diesel is consumed annually in the agriculture sector in Pakistan. "In the last two months, the price of diesel has increased by Rs18 per litre. This means that the agriculture sector will have to pay an additional Rs36 billion because of increase in diesel prices."

On the one hand, the benefits of subsidies are not reaching the farmers; while, on the other hand, the cost of agricultural inputs is so high that many of them cannot afford fertilisers and pesticides. "That is the main reason that we are among the lowest in the world in terms of per acre yield of major crops. The per acre production of cotton last year was 17 maunds (40 kilograms), while China, India and other countries are producing 35-40 maunds cotton per acre. By increasing cotton yield by one maund per acre, an additional Rs11 billion can be earned," Mughal informs.



Corporate farming: prospects and challenges

Pakistan has a vast potential to attract investment in the agriculture sector

 

By Sibtain Raza Khan

It is a proven fact that higher growth of the agriculture sector on a sustained basis has a lasting impact on poverty reduction, because it makes a tangible contribution to the economies of both developed and developing countries. Agriculture is still the single largest sector in Pakistan; it contributes 21 percent to gross domestic product (GDP) and employs 44 percent of the workforce. In short, the agriculture sector has a vast potential to become the principal vehicle for not only rural poverty alleviation, but also for providing support to the national economy on a sustained basis.

Pakistan's agricultural base is 79.6 million hectares, of which 22 million hectares is cultivated area, 18 million hectares is irrigated through canals, eight million hectares is barani (rain fed) and the rest is unfit for cultivation. As far as Pakistan's agricultural potential is concerned, the country has four seasons, tropical weather, the world's largest canal irrigation network, vast tracts of land along the Indus basin comprising five rivers, and crop production throughout the year. Besides this, Pakistan is the world's largest producer of orange varieties, and it ranks among the top five producers of mangoes and dates.

Being an agricultural country with such a vast potential, Pakistan needs to revolutionise its agriculture sector. The country needs to adopt modern technologies and practices, such as mechanisation, use of chemical fertilisers, improved canal irrigation system and corporate farming. Pakistan has received a lot of foreign investment in different sectors in the recent past, but it has not explored the possibility of attracting investment in the agriculture sector. Pakistan is located in the food deficit region, but enjoys a comparative advantage over its neighbouring countries. The agriculture sector, therefore, has the potential to cater to food requirements of the neighbouring countries too.

The good news is that many countries, especially those in the Gulf, have shown interest in investing in Pakistan's agricultural sector. Major business groups of the Gulf countries in general and the United Arab Emirates in particular are willing to avail the opportunity and commit significant investments in the country's agriculture sector.

For example, the Abu Dhabi Group is interested in setting up sugar mills, and is looking at investment opportunities in the agriculture and dairy sectors. Similarly, the Qatar Livestock Company wants to invest $1 billion in corporate farms in Pakistan. The al-Rabie Group of Saudi Arabia has also shown interest in sourcing tomato paste, citrus pulp and packed beans from Pakistan. Moreover, the United Kingdom has sanctioned a £25 million project for dairy and agriculture infrastructure investment in Punjab. In addition, five to 10 major groups of the UAE are interested in exploring Pakistan's agriculture sector by making significant investment in corporate farming.

Despite these bright prospects, the question remains: will foreign investment in the agriculture sector help in reducing rural poverty and making a significant contribution to our economy? It is yet to be seen whether corporate farming would revolutionise the agriculture sector in general and provide support to small farmers in particular.

The concept of corporate farming or foreign investment in the agriculture sector has received mixed reaction. If one group considers it a panacea for all agricultural ills, the other believes that it is a recipe to kill small farmers. According to the first group, agriculture in Pakistan lacks capital and corporate farming is an attempt to attract capital in the agriculture sector. They argue that one can find a buyer for a house or a factory even if it is priced at Rs100 million, but one cannot find a buyer for a 1,000-acre piece of land. This is largely because agriculture in Pakistan is backwards and suffers from over-employment, factors which have turned it into a non-profitable business.

In the West, only two to three percent of the population is employed in the agriculture sector. In Pakistan, however, more than half of the population is directly or indirectly involved in the agriculture sector and is still unable to feed the remaining half. It is mainly because the agriculture sector is inefficient and lack funds. Therefore, the first group argues that corporate farming will attract investment, make the system efficient and end stagnation in the agriculture sector.

On the other hand, the second group fears that through corporate farming wealthy landlords will find collaborators in the form of trans-national agri-business corporations. Because about 94 percent farmers in Pakistan are small landowners and tenants, corporate farming will severely affect them, mainly because of the comparative advantage which those trans-national agri-business corporations will have over them.

"It is a recipe for disaster for poor and middle-class farmers," views a farmer of southern Punjab. "It will attract more investment, but at what cost?" asks an irritated farmer from central Punjab. The foreign investors come on their own terms and if independent power producers (IPPs) are an example to go by, then one should better avoid risking such investment. The whole nation has been held hostage to the investment made by the IPPs. Some people also fear that corporate farming will afford an opportunity to multi-national corporations (MNCs) to strengthen their grip on Pakistan's socio-political environment.

Corporate farming offers both opportunities and challenges; therefore, we need to support the idea with some reservations. The agriculture sector needs investment that can only come from the private sector; however, this should not be done at the cost of poor farmers who constitute a majority of Pakistan's population. Despite the fact that Pakistan has adequate land for cultivation, the country's per acre yield of major crops is still far below the world average. We need to explore new ways and means to increase our agricultural productivity, because it will help in reducing food shortages as well as make a significant contribution to the economy by increasing exports.

Some analysts have pointed out that small farmers may be in for big trouble if they are exposed to foreign investors. In order to avoid this situation, therefore, only government and barren lands should be offered for corporate farming. In addition to this, small farmers need not fear, because nobody could deprive them of their land. Only the willing farmers will sell their land to foreign or local investors, while having least adverse affects on the overall farmer community that may not be interested. It is also hoped that efficient corporate farming will have a trickle-down effect on rest of the sector. As a result, there will be a change for the better in the agriculture sector.

While introducing corporate farming, small framers should also be helped to adopt modern methods of cultivation ñ such as better utilisation of water, use of quality seeds, land-levelling through conventional means, soil testing, and the optimum use of fertiliser and pesticides ñ so that they can improve the productivity of their land and get maximum benefits from it. For this purpose, the Ministry of Food, Agriculture and Livestock (Minfal) needs to play an active role in building the capacity of poor and middle-class farmers on how to practise new techniques of cultivation.

(Email: [email protected])

 

The FBR is trying to take credit for something it has not done

 

By Huzaima Bukhari and Dr Ikramul Haq

The bosses of the Federal Board of Revenue (FBR) are taking credit and getting kudos for collecting more than Rs1 trillion for the first time in the country's history. The FBR has wasted a lot of taxpayers' money on media advertisements, congratulating the public and the tax officials for this 'extraordinary achievement'. It is strange that the FBR is trying to take credit for something it has not done -- 98 percent of the tax collection was made possible through withholding agents or voluntary payments. Secondly, there is no occasion for self-praise, because the FBR is duty-bound to collect revenues -- this is for what the whole army of collectors gets paid out of the taxpayers' money.

For exceeding the revised tax collection target of Rs990 billion by Rs10-14 billion, tax officers are getting special rewards. This is a mockery of reason and logic. The apex revenue authority is making a fool of everyone. The real potential of tax is not less than Rs3 trillion, while the FBR has collected only one third of that and is posing as if wonders have been achieved. It is shameful that the indirect tax-to-gross domestic product (GDP) ratio in 2007-08 was about six percent and the direct tax-to-GDP ratio only 4.5 percent. The latter comes to even less than two percent if withholding taxes are excluded.

The tall claims of broadening the tax base in the last decade are now proving to be false. The strategy devised by top managers at the apex revenue body is faulty and isolated from the ground realities. There has hardly been any effective co-ordination between policy-makers and field formations. The issues of motivation, integrity and efficiency are still lingering on despite the FBR being only months away from the last year of Tax Reform Administration Project (TARP), launched with borrowed funds without any public debate or support of stakeholders.

The FBR chairman recently said: "Though we are happy to cross the psychological barrier of Rs1 trillion in revenue collection in 2007-08, still there is a gap of Rs400-500 billion. This gap cannot be bridged until and unless we enhance our tax-to-GDP ratio from the existing 11 percent to 15-16 percent. It is not impossible unless we have the will, commitment and tools to do it."

It is sad to note that even the big boss of the FBR is unaware of the real revenue potential of the country. Our real tax potential at the federal level is not less than Rs3 trillion. It is sheer lack of will and incompetence on the part of the FBR that we have failed to collect the potential revenues where these are actually due -- unprecedented benefits are available to the rich and foreign companies are remitting huge untaxed profits through abusive transfer-pricing transactions. For the last many years, the government has been extorting money from the people who are not supposed to pay any taxes, and granting unprecedented concessions and exemptions to the rich -- a 20-year tax exemption has been give to operators of the Gwadar port as if they will be engaged in some charitable work.

For tapping our actual potential, there is an urgent need for taxing the rich, bringing undocumented economy in the tax net and distributing the incidence of various taxes judiciously among all the segments of society. The tax loss due to one section alone, [section 111(4) of Income Tax Ordinance, 2001] granting complete immunity from probe and taxation to untaxed money fictitiously remitted through normal banking channels by paying a very nominal commission to any money exchanger, is in billions.

The cost of exemption under just one head alone -- capital gains on stock markets -- in the financial year 2006-07 was Rs112.45 billion, according to government's own admission on page 262 of the Economic Survey 2006-07. Had this exemption not been granted, the total collection for the financial year 2006-07 would have been Rs953.85 billion. For the financial year 2007-08, it could easily have been Rs1.5 trillion. This exemption continues in the financial years 2008-09 and 2009-10 with negative revenue impact of about Rs250 billion and Rs350 billion, respectively.

The people of this country are accused of not paying income tax; whereas the reality is that even a petty shopkeeper in a village (whose total income is much below the taxable limit of Rs100,000) is paying as high a tax as Rs720 per annum. On the other hand, a rich absentee landlord having agricultural income of millions of rupees does not pay a single penny as income tax.

A person making millions in speculative transactions (shares and property) is enjoying tax exemption, whereas a widow on her meager income of Rs90,000 from a bank savings account pays full and final tax of Rs9,000. Interestingly, there is no tax on business or any other income falling under normal tax regime of Rs120,000. In case of salary, the non-taxable limit for the financial year 2008-09 is Rs180,000; for women, it is Rs240,000. Why a widow, being female, is subjected to discrimination, whereas she actually deserves more tax concession?

The collection of taxes from speculative transactions, taxing income avoided by big foreign companies through transfer pricing (cost of revenue is about Rs100 billion) and withdrawal of exemptions can easily increase our tax collection to Rs3 trillion. However, this requires strong political will, which is completely lacking as those in power have vested interest in safeguarding the landed classes, the rich and the mighty. The unwillingness to tax the rich and mighty reflects in pathetic state of affairs vis-a-vis tax-to-GDP ratio from 1990-2000 to 2007-08. The tax-to-GDP ratio of direct taxes is appallingly low. It may be noted that in the official figures, huge amount of indirect taxes is shown under the head of income tax. The actual tax-to-GDP ratio of direct taxes for the financial year 2007-08, after excluding presumptive taxes, is only about 1.4 percent, whereas officially it is projected at 4.5 percent.

It is an established fact that despite resorting to all kinds of high-handedness, illogical policies and unjust withholding taxes, the FBR has failed to improve the tax-to-GDP ratio. The burden of a number of presumptive taxes levied under the income tax law (which are nothing but crude forms of indirect taxes) has been shifted from income earners to consumers and clients. These presumptive taxes have not only distorted the whole tax system, destroyed economic growth and made the consumer / client the ultimate sufferer, but these despotic, short-term, myopic and figure-oriented measures have also failed to bridge the fiscal deficit. Of the total collection of Rs1.04 trillion by the FBR in the financial year 2007-08, regressive taxes were to the tune of Rs800 billion (after making adjustment of indirect taxes collected under the name of income tax!).

The rich and mighty, who do not pay personal taxes despite enormous wealth and incomes, are the real culprits. If the government removes all exemptions and concessions, brings big absentee feudal landlords into the tax net, manages to get taxes from the influential people and succeeds in imposing general sales tax (GST) across the board (preferably with a low rate of three percent at one single point), there will be a record collection of Rs3-3.5 trillion in a year. This goal can only be achieved if the government simultaneously addresses issues related to wasteful expenses, tax evasion and rampant corruption.

(Email: [email protected])



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