The Government of Pakistan is currently finalizing its Poverty Reduction Strategy Paper (PRSP) to set the stage for integrating its attempt to reduce poverty with the process of economic growth. To facilitate a contribution to Government policy in this area by independent economists, the Pakistan Institute of Development Economics and the UNDP organized a symposium last Monday. This is the second of a series of articles for the Daily Times that briefly outline the policy paper that I presented at the symposium.

Before proposing a policy for pro poor growth it may be helpful to identify the structural factors that constrain the capacity of GDP growth to alleviate poverty. In last week's article we showed how governance, inadequate health facilities, asymmetric markets and local power structures generate poverty. In this week's article we will indicate the institutional factors in agriculture and industry that constrain growth and exacerbate poverty.

Institutional Factors in Slow and Unstable Crop Sector Growth: In agriculture the average annual growth rate of major crops has declined from 3.34% during 1980s to 2.38% in 1990s. At the same time, the frequency of negative growth years in some of the major crops has increased. The slow down in growth and increased instability of output in major crops has resulted in sharply increased rural poverty on the one hand and a slow down in the export growth on the other. Underlying this phenomenon are five major institutional constraints: (a) Reduced water availability at the farm gate due to poor maintenance of the irrigation system and low irrigation efficiencies of about 37%. While the availability of irrigation water has been reduced, the requirement of water at the farm level has increased due to increased deposits of salts on the top soil and the consequent need for leaching. For example, according to the government about 33 million tons of salts are annually brought into the Indus Basin Irrigation System, out of which 24 million tons are being retained. (b) What makes improved efficiency of irrigation even more important is that the extensive margin of irrigated acreage has been reached, so that future agricultural growth will have to rely on improving the efficiency of water use and other inputs. Thus the rehabilitation of Pakistan's irrigation system for improving irrigation efficiency has become a crucial policy challenge for sustainable agriculture growth. (c) It is well known that high yielding varieties of seeds gradually lose their potency through re-use, changing micro structure of soils, and changing ecology of micro organisms in the top soil. Therefore, breeding of more vigorous seed varieties adapted to local environmental conditions and their diffusion amongst farmers through an effective research and extension programme is necessary. Yet there is no organized seed industry in Pakistan to meet the needs of farmers for the supply of vigorous varieties of seeds even in the major crops. In wheat, for example, the average age of seeds is 11 years compared to an average of 7 years for all developing countries. It has been shown that there was a sharp decline in growth of total factor productivity in Pakistan after 1975. Pakistan's lower factor productivity growth compared to India, can be attributed to the poorer level of research and extension in Pakistan compared to India. (d) A new dimension to the imperative of improving research capability in the crop sector is indicated by the possibility of declining yields per acre related with global warming. Given the sensitivity of wheat seed to temperature increase, even a 2-degree centigrade increase in average summer temperatures could mean an absolute yield decline of between 10 to 16 percent during the 21st century. With a 2.8 percent population growth, even a decline of 5 percent in yield per acre associated with global warming, could mean serious food deficits for Pakistan. It is, therefore, necessary to develop heat resistant varieties of food grains. The current ineffectiveness of agriculture research and poor diffusion amongst farmers is a cause for concern. This is particularly so in a situation where future agriculture growth and labour absorption will have to depend more on input efficiency than on enlargement of irrigated acreage and input intensification which were the major sources of agriculture growth in the past. (e) One of the most important constraints to sustainable growth in the crop sector is the degradation of soils, resulting from improper agricultural practices such as: (i) lack of crop rotation and the resultant loss of humus in the top soil; (ii) stripping of top soil and resultant loss of fertility associated with over grazing; (iii) water erosion along hill sides and river banks due to cutting down of trees and depletion of natural vegetation. According to one estimate, over 11 million hectares have been affected by water erosion and 5 million hectares by wind erosion.

2 Some Constraints to the Growth of the Large Scale Manufacturing Sector: The large scale manufacturing sector which historically was growing at 7 to 11% per annum is now growing at less than 3%. The factors underlying this dramatic decline include the following: (a) A fundamental structural constraint to industrial growth as indeed the underlying factor in slow export growth, is the failure to diversify exports. The large scale manufacturing sector, particularly exports are concentrated in the traditional low value added end of textiles. (b) A changed pattern of global demand for industrial products with a shift towards higher value added and knowledge intensive products. Pakistan's industrial structure was not positioned to respond quickly to these changed market conditions. (c) An erosion of the domestic framework within which investment and growth is sustained. This includes: (i) A continued threat to the life and property of citizens due to a continued poor law and order situation. (ii) High electricity tariffs, relatively high interest rates (though these have fallen this year), (iii) Lack of trained professionals especially in the high skill sector, (iv) An inadequate technological base through which industry can respond in a flexible way to changing patterns of demand, (v) An adverse policy environment in the past within which tariff and export incentives were distorted against those entrepreneurs who were seeking to improve quality and productivity for export growth, (vi) Dumping of smuggled, poor quality and extremely low priced imported goods which are in many cases counterfeit copies of branded Pakistani manufactured goods.

It is clear from our analysis that structural factors in the practice of power, the functioning of markets and the institutional framework of agriculture and industry, constrain both the level of growth as well as its capacity to reduce poverty. A policy of pro poor growth if it is to go beyond mere slogans, will have to seriously address each of the five structural constraints we have identified.