Bangladesh economy an analytical study

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BANGLAD.ESH ECONOMY An Analytical Study

KALYAN

- ---

Du·rr

RANAJIT DASGUPTA

ANIL· CHATTERJEE '

PEOPLE'S PUBLISHING HOUSE New Delhi

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ato,age

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140, 8 ' I) 34

September 1973 (P 47) CoPYRICHT

© 197,'3

K.u.YAN

Dvn-,

RANA}rr DASGUPTA

& ANIL

CHATrEIIJEB

Price : Rs. 25.00

Maps drau.,-n by Shri Moni Mohan lli.sra Printed by Tarun Sengupta at New Age Printing Press, Rani Jhansi Road, New Delhi 110055, and published by him for People's Publishing House Private Limited, Rani Jhansi Road, New Delhi 110055.

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To the Memory f the Martyrs in the Bangladesh Liberation W a, 1971

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Preface It is unfortunate that since India was partitioned, there has been little interest shown here in the economic development of Pakistan. Studies and researches by Indian economists on Pakistan are very meagre and the import of economic literature from Pakistan almost ceased since 1965. With the emergence of free Bangladesh, however, we have awakened to the need of knowing our neighbour who is a cosharer with us in the ideals of democracy and socialism. It is with a view to make up our deficiency of kno,vledge about Bangladesh that the authors have undertaken the present exercise. \Ve tried to collect as much information and data as was possible under our limited circumstances. Nonetheless there may be gaps and even mistakes. Our only hope is that our readers will rectify them by criticisms and comments. The readers will note that we have made some suggestions regarding institutional changes and government policy. The recommendations are obviously in the nature of broad judgments and cannot be applied to detailed circt1mstances. That would require further study in depth. Our only purpose in making these recommendations was to elaborate in terms of economic policy the fourfold objectives announced by Prime Minister Sheikh Mujibur Rahman : nationalism, secularism, democracy and socialism. It should be stated that this work is a product of close collaboration among ourselves, and therefore all errors and shortcomings are our joint responsibility. Still it may be indicated that Kalya11 Dutt is primarily responsible for chapters 2, 3, 4 and 12, Ranajit Dasgupta for chapters 1, 5, 6, 7, 10 and 11, and Anil Chatterjee for chapters 8, 9 and 13. THE AUTIIORS

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Contents PART ONE :

BACKGROUND

1. Emergence of Bangladesh (a) Introduction (b) Pakistani Colonialism (c) Transfo1rriation of Struggle for Autonomy into Struggle for National Independence

3-36

2. Bangladesh : Some Salient Features (a) Demographic Features (b) Mineral Resources (c) Forest Resources (d) Water Resources (e) Power Resources (f) Industries (g) Transport and Communications (h) Summary

37-49

3. Growth Rate, Actttal and Potential, (a) Disparity in Investment Rates (b) Saving Ratio (c) Prospective Growth Rates

50-60

PART Two:

EcoNOMIC STRUCTURE

4. The Structure of Bangladesh's Economy (a) Structural Parameters of Banglade~h (b) Industrial Structure (c) Interindustry Flow Analysis

63-75

5. Some Significant Aspects and Characteristics of Agriculture 76-117 . (a) Predominance of Agriculture (b) Certain Constraints on Agricultural Develdpment

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BANGLADESH ECONOMY An Analytical Study

. DASGUPTA

K.ALYAN

RANAJIT

DgIT

A.NIL· CHATTERJEE '

. •

PEOPLE~S PUBLfSHING HOUSE

.'

New Delhi

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8torage

September 1973 (P 47) CoPYRICHT

© 1973

KAI.YAN

DuTr.

RANAJn' DASGUPTA

& ANIL

CHATTERJEE

Prjce: Rs. 25.00

l\.laps drau--n by Shri Mon, Mohan Alisra

Printed by Tarun Sengupta at New Age Printing Press, Rani Jhansi Road. New Delhi 110055. and published by him for People's Publishing House Private Limited, Rani Jhaosi Road. New Delhi 110055.

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To the Memry f West Pakistan GDP/ capita 86.6

275

.364 . '

301

393

Gross regional/ domestic prod1,1ct Population (million)

•

•

75.5

76.6

..

Va~ue added l>y ag,;iculture as percentage ' · of GDP 64.0 • . . . '' Valµe added in largescale mfg as per-:IBntage of GDP . 1.0 I

(701) (1,589)

50.7

61.0

47.6

57.8

44.3

3.1

2.3

6.8

. 4.0

8.3

•

'

Source : Lewis, op. cit., Table 6.2. •

•

· · _The consequence has. been widening of ·eco0:omic disparity in terms of per capita income. A?cording ~o the estimates made by T. · M. Khan and A. Bergan, per capita income stood at Rs 297 for East Bengal: a11d Rs 343 for West Pakistan in the period 1950/51-1954/$5 indicating a difference of about 14 per cent;_corresponding figures were Rs 275 and 364 or a difference of about 25 per cent in the · 1955/56-1959/60 period, and Rs 301 an4 Rs 39S or a difference of more than 23 per cent in 1960/61-1964/65 period (see Table 1.5). Data available for the later year disclose a further widening of economic gap between the two regions .due to

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Emergence of Banglqd~h

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19

amongst others considera~ly impressive performance of the agricultural sector in the west wing. A report by a panel of economic advisers to the Planning Commissio11 of the Government of Pakistan makes the estimate that in 1959-60 the average income of a West Pakistani was 32 per cent higher than that of his eastern counterpart. Over the next ten years, the rate of growth of income per annum in West Pakistan was 6.2 per. cent while it was only 4.2 per cent in East Bengal.28 Consequently, by 1969-70 income per capita in \Vest Pakistan was 61 per cent l1igher than in the East. Thus in one decade the income gap doubled in percentage terms; it increased much more in absolute terms.29 · The same picture of wide economic disparit), is indicated. by comparative figures of average annual per capita consumption of certain selected commodities in the two wings, as presented in Table 1.6. It is found from the table that per capita food consumption was almost the same in the two wings of Pakistan. However, available price data show that in Easl Ben~al both rice and wheat were considerably more expensive than in West Pakistan. The consequence was, as pointed out by Arjun Sengupta, •can overwhelming portion of East Pakistan's per capita income, which was substantially lower than that of West Pakistan, was absorbed in the consumption of cereals ...'' Quite naturally the per capita consumption of various other consumption items was much less in East Bengal than in West Pakistan. Table 1.6 discloses that with the exception of fish a11d kerosene oil, the per capita absorption of various commodities was very much lower in East Bengal than in West Pakistan. Thus per capita consumption in East Bengal of cloth and sugar 28 Government of Pakistan, Planning Commission, Report of the Advisory Panels for the Fourth Five Year Plan, 1970-75, Vo]. I. We have not come across the actual Report. But certain portions of the Report are presented in a summary form in Edward S. }.fason, Robert Dorfman and Stephen A. Marglin, Conflict in East Pakistan : Background and Prospects, Calcutta, April 1971. 29 Ibid. For a detailed analysis and study of economic disparities between the two wings of Pakistan see also Arjun Sengupta, op. cit.

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Bangladesh Economy : An··Analytical Studr, ·.

20. .

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TABLE \

'

1.6.:. AVDACE

ANNUAL· PER CAP.ITA .CQNSm.w.nON OF· SF.J.F'.C"IEO · .

.

'

(1951/52-.1959/60)

COMMODI.TIES

·---------------------------'

Unit

Commodity

(a) Food items foodgrains

lb

,,

ra,v sugar refined sugar

.

,.

tea

.

fish

,,

salt

,,

milk2 fats and oils

2

,,

Bangladesh

389

Pakistan•

399

16.1

46.9

2.7

6.8

0.1

0.8

8.3

3.2

11.4

16.7

21.0

228.l

6.4

13.9

2.2

7.8

(b) Essential consumption

goods cloth

yard

match

no.

7

11

cigarettes

no.

21

121

kerosene oil · paper

gallon

0.5

0.4

lb

0.4

1.0

(c) Selected production

goods coal

lb

electricity

kw

1.0-

18.8

petrol

gallon

0.1

0.8

{d) Luxuries motor cars

no. per 1.0

9.8

6.4

46.5

10,000 persons

.

radios Note:

32

66

1

Pakistan refers to former West Pakistan. 2 Milk, and fat and oil data are in relation to 1969-70.

Source: S. U. Khan, 'A Measure of Economic Growth in East and West Pakistan', Pakistan Development Review, Autumn 1961; reproquced in K. L. Seth, Economic Prospects of Bangl,adesh~ 1972; and Arjun Sengupta, op. cit., Table 4.

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Emergence ·of Barigladesl,

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was -about ·a third ·of that ·m the West, of paper :and coal less than a half; of cigarettes about a sixth, of· radios about a seventh, of tea and petrol about an eighth, of motor cars about a tenth and of electricity _less than one-eighteenth of ~e per ~apita consumJ?tion . i~ the West. These data are 1n rel~tion to an earfier penod. But the per capita consumption figures contained in Pakistan government's Fourth Five Year Plan document exhibit that the feature of wide disparity in per capita consumpti_o n was present throughout the subsequent period. ''The statistical thrust and parry, however'', as observed by Mascarenhas, ''only serves an argumentative puq>ose. It gives no proper idea of the immense human misery, nor does it put the painful realities in the required human frame. They are entirely on the side of the sufferi~g peo. ple of East Bengal.''30 It is instructive to further quote Mascarenhas who has travelled extensively throughout the two wings. Here are a few of ·his peisonal observations, ''Even a casual visitor from West Pakistan, which is not by an)r means a land of ·milk and honey, -is dumbfounded by the povert)' he finds in East Bengal.'' . He writes, ''Looking back, I have no hesitation in sayi11g that nowhere in West Pakistan did I find such incredible poverty as I saw in East Bengal.· The Pathan tribesmen living in caves in the North-West Frontier areas near Peshawar came verv ., close to it. So did the Hari tena11tfar1ners of Sind where the governor, Lt-Gen Rakhman Gul, was astonished to find families of eight to ten people living on an annual 'income' of six to 14 bags of wheat. While the misery ·of these people would shame any society, it is in te11ns of Pakistan confined to relatively small groups. It is hardly comparable with the unrelieved povert~, of the people orie finds on such_ an immense scale in East Bengal!' · · . . . . · . Writing about the pervasiv_cness of. abject povett~, in East Bengal· Mascarenhas continues, ''Unl~ke West Pakistan, the poverty in the East is manifest in equal measure in ., . . . 30 Mascarenhas, op. cit., p, 21, Digitized by

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Bangladesh Economy : An Analytical Study

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·the towns and in t4e countryside ... Malnutrition· endemic. So . are tuberculosis and other respiratory dise~ses and stomach complaints, "Nothing like this can be seen on a comparable scale any\vhere in West Pakistan. Clothing in the East consists of a lungi and a soiled or tattered vest for the men. The women make do with only a saree used to cover both breast and loins. The poorest village woman in West Pakistan would have at , leas.t three garments - salwar, kamiz . . and dopatta ..." "Food is often a single meal consisting of a pan of boiled coarse rice topped with lentils or a piece of fish. Meat and dairy products are seldom come by, whereas in the vVest the villager may not always get meat; but he does somehow manage ·a daily quota of rnilk or lassi (buttermi~).~ ·.· · He adds, ''The people of West Pakistan are undeniably poor. But they appear to live more happily than the Bengalis, who appear to be crushed by their problems. An important psychological factor, perhaps, •is that in the West they have more opportunities and the hDpe of a better life. In East Bengal my brothers were faced with diminishing opportunities and appeared to have given up the struggle."31 Mechanisms of Exploitation As the matter stood, the western wing benefited and prospered at the expense of the East. A close look into the relationship prevailing between the two wings reveals economic strangulation and a striking similarity between the 1necl1anisms of exploitation by the British imperialists and of Bangladesh by the Pakistani, particularly Punjabi bigbusiness-landlord-militarv-bureaucratic combine. ., (i) Allocation of Development Expendittire : In the first place, it is found from Table 1.7 which presents data on allocation of development expenditure in four five-year periods that in all the four periods the bulk of development expenditure was made in the West though 55 per c-e11t of !31 Ibicl, pp. 21-22. Digitized by

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TABLE

1.7 :

t!1

DE\'ELOP~IENT E'.'CPENDITURE IN EAST AND \VESl' PAKISl',\N

.(i,i 111illio11s of rupees) 0 -·

z

of all Paldstctn

~ ~

~

.a '2:1 ~

total ·

700 1,970 6,250 11~060

300

5

. .7 .

6

8

·g

Eas-t Pakistan 1,000 . 2,700

9,250. 16,560

730 3,000 5,550

1950/51-1954/ 55 1955/56-1959/ 60 1960/ 61-1964/65 1965/ 66-1969/70

-

-

1,000 .

-

2,700

450

9,700 16,560

2,710 . 5,240. '14,040 21,410

. 20

11,290 16,550 ~3,550 51,950

80 74

26 32 . 36

· Indus Basin · · Works Programme

C

:::0

ture

Development expendUure in re:. gions as per cent

~

- ----- - - - -- - - - - -- -- - -- ---- -- -- -- - -- - -- - - -- - -- - - -- - -

West Pakistan

< m

erpendi-

progrc,nm1e

1950/ 51-1954/ 55 1955/ 56-1959/ 60 1960/ 61,-1964/ 65 1965/66-1969/ 70 z

Total

tvorks .

CJ 0

1'otal de.velw· ment e%f)enditure (2+,5+6)

:!I

4,000

7,570 18,400 26,100 .

2,000 4,640 7,700 10,100

2,000 2,930 10,700 16,000

2,110

3,600

-

4,000

'7,570 200 .,

-

20,710' · 29,700 -

68

.. 64·

•

. -;-- , - -

Note: Public sector development expenditure of the provincial gover1ui1e0.t· l)lus that of central government on projects · . estimates. Private .· development expenditur~ .as locate(l in the province, mainly ' basecl on' Plannin,g Commission ' . estimated by Planning Commission. . . . . . . Source : R~port of Advlsorfl Pane"ls for, the Fourth Five Year Plan, 1979-75, Vol. I, P1anning C9n11nission, Government. of Pakistan, reprod11ced in Edward Mason and others, l)p. · cit.• 'table 1.

y . ~

Bangladesh Econo,nv; .~n J\nalytical Studr,

the pop11Jation lived in the East. Less than one-fourth of total development expenditure (public and private) went to East Bengal in the preplan and First Plan periods, and her share was only 20 per cent and 26 per cent respectively, and reached a peak of 36 per cent during the Third Plan period of 1965/66-1969/70. In public sector expenditure, her share changed for the better, rising from a little over 25 per cent in the preplan period to around 45 per cent in the Third Plan. In calculating this the publlc-sector expenditure on the Indus Basin Works has been excluded. The inclusion of that would further lower East Bengal's share in public development expenditure. The major impact of public investment and public outlays was more rapid and considerably greater development of infrustructural facilities, such as transr:, communications, water and power, in West Pakistan n in East Bengal32 and in consequence had an external economic effect of encouraging private ·investment and industrial activity in the West. Furthennore, the relative share of public expenditure to total expenditure declined froJll about 65 to 50 per cent only indicating growing importance of private investment. And East Bengal's share in private investment was low for the entire period, and amounted to a little over 25 per cent of Pakistan's total private investment in recent years.33 Akhlaqur Rahman puts it at a still lower level - only about 22 per ~t.34 A related aspect is that Pakistan created a number of specialised financial institutions like such as PICIC (Pakistan Industrial Credit and Investment Corporati011), IDBP (Industrial Development Bank of Pakistan), HBFC (House Building Finance Corporation) and NIT (National Investment Trust) to facilitate equity finance and acct~Ierate the development of the private sector. But as shown by 32 . Mason and others, op. cit., Seetio~ III. See also M. Akhlaq,1r Rahman, 'The ~ole of the Public . Sector in the Economic Development of Pakistan•, · in E. A. G. Robinson and Michael Kidron, Economic Development In South Asia, International - Economic Association, Mac• millan, 1970, pp. 70-71. and 87; and · Sengupta, op. cit. 3S Mason and:. others,-·07>. cit. . :. . 34 Rahman, op. cit., .p. 86. . . . t ' -. ·- ' . . ~· ... ,

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Table 1.8, it. is West . Pakistan which has reaped greater benefits from these . ..institutions and thus industrial development in the West was promoted. 1.8:

TABLE

REGIONAL

D:STRIBUTJON

INSTITtm:ONS,

OF LOANS BY

1961-62

TO

CERTAIN FINANCIAL

1966-67 ( in crOf'es of rupees )

PICIC

Years

East

West

1961-62 1962-63 1963-64 1964-65 1965-66

2.9 4.7 0.9 3.8 7.6

9.5 10.3 13-.2 22.7 14.0

1966-67

-

-

IDBP East

West

8.7 11.0 19.5

8.1 6.9 14!.9 15.0 14.9 17.3

8.6 4.7 15.1

HBFC Ea.st W est

l :, .., ·__

3.7 3.2

,3.5 3 :) 3.0

3.6 2.9 3.0

"':)

·-

-

Source: M. A. Rahman, op. cit.• Table 5.7.

(ii) Allocation of Foreign Exchange . Earnings: Secondly, the Pakistani rulers imposed a svstem of centralised exchange control, import licensing and quantitative restrictions to the detriment of the eastern wing. In the years 1948-49 to 1969-70 East Bengal's share of Pakistan's total foreign-exchange earnings has been consistently more than half varying between 50 to 70 per cent, while her sl1are of imports was consistently in the range of 29 to 32 per cent.35 Until 1962-63 East Bengal showed substantial surplus in trade with foreign countries other than West Pakistan and even in recent years some swplus, though a nominal one. Thus East Bengal enjoyed an overall favourable balance of trade of Rs 424 million in 1950/51-1954/55, Rs 355 million in 1955/56-1959/60, Rs 41 million in 1960/61-1964/65 and Rs 1.8 million in 1965/66-1969/70 with countries other than West Pakistan. By contrast, West Pakistan's trade ' .

35

For details see Chapter 8 below. ·See also Mason and others, op. cit., Section III and Table 2. . . . . . ..-

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Bang/acle,h Economy : ..\n Analytical Studr,

exhibited a substantial and chronic deficit with countries other than East Bengal and surplus with East Bengal. In fact, it is East Bengal's foreign-exchange earnings obtained by commodity exports which financed 40, 23 and 1.6 per cent in the three periods 1950/51-1954/55, 1955/56-1959/60 and 1960/61-1964/65 respectively of West Pakistan's imports from the rest of the world.36 This has the additional implication that the net trade ·surplus of East Bengal financed imports of development goods which "directly facilitated increased investment both in the public and private sectors of West Pakistan".37 (iii) Foreign Aid: In continuation of the foregoing dis• cussion, the extent of East Bengal's dependence of foreign aid may be considered. It is well known that Pakistan as a \vhole received huge foreign aid totalling $ 6,038 million till the end of 1969, more than 93 per cent being contribut~ ed by countries belonging· to the western bloc, i.e. by the neocolonialists. Although it appears that many projects in East Bengal were financed by foreign aid, in reality West Pakistan virtually monofolised aid. The net trade surplus enjoyed by East Benga du~ing the preplan, First Plan a11d Second Plan periods clearly reveals that till 1964-65 there was no net inflow aid to .the East and its investments were ''financed entirely from internal savings>'.38 (i-v) Distribtttion of Impart Licences : A highly important aspect was the import licen~ing system-decisions, m_a de ce11trally, on the distribution of .import licences to the pri.; vate sector. Commercial and industrial licences were distributed by the executive officers (most of whom hailed from Punjab or were migrants from .N orthern India) in Karachi who allocated to traders located • at the seat of the ce11tral ~ovemment "lion's share of import licences, in~ eluding those for conducting trade for and in East Pakistan'',39 In the early fifties, Karachi tr~ders and indus36 Computed from Table 8.3 belo,v. ·· 37 Rahman, op. cit., p. 85. 38 Lewis, op. cit., p. 147. See also N. K. Chandra, 'The Class Character of the Pakistani State', Economic and Political Weakly, Annt1al Number, February 1972, p. 290; and Sengt1pta,_ op.· cit. · . . . 39 Rahman, op. cit., p. 83.

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E,nergence oi ·BaugladeJ,

27

trialisfs ,used to obtain around 60 per cent of the licences, the rest of West Pakistan 10 per cent~ and East Bengal 30 per cent. By the early sixties, as industries develaped out-side Karachi, \Vest Pakistan's share increased to 30 per cent at the cost of Karachi~ which received about 40 per cent of the industrial import licences, East Bengal's share remaining the same, i.e. just about one-third of the total.40 This pattern Qf distribution of licences allowed the import of raw materials and capital goods by the trading contmunities in Karachi enabling phenomenal increase in industrial activity in Karachi and certain other places in \Vest Pakistan. These non-Bengali traders (mostly migrants from Bon1bay and Gt1jarat) based in West Pakistan, a11d especial}), in Karachi, made windfall profits during the Korea11 b0• 29. 44 Ibid, pp..163-64 .. , . 45' This section is hasecl on lbis affluents and channels. 4. The North Bengal rivers. 5. The rivers of -Chittagong Hill . Tr~cts and adjoining plains. · · The peculiarity of the river sytem is that the main rivers .are all perennially fed and· there is excess water dttring

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Bangladesh: Some Salient Features

43

seven months of the year. It is only in winter that the discharge of water comes down and there is lack of irrigation. In Bangladesh, excess water and flood is as much problem as irrigation. There is considerable amount of soil erosion and destruction of land and property by the constant changing of course by rivers. Hence prevention of flood and soil-erosion and provision of drainage facilities are as much important as irrigation. The two important river projects, Ganga-Kobadak and Tista have been designed to provide these as also navigation. There are other projects like the Tidal Eml)ank~1ent Project, the Brahmaputra Embankment Project, the old Brahmaputra Multipurpose Project, the Southern Rajshahi Irrigation Project, the Dacca-Narayanganj-Demra Project, the Tippera-Chittagong Multipurpose Project, the Karnaphuli Project and the Ground Water Development and Pump Irrigation Project.

V. POWER RESOURCES •

The Kamaphuli multipurpose scheme is a major power project of Bangladesh. It has an installed capacity of 80,000 lw. A ~rd generator providing for another 40,000 k-w ,viii be installed at a later stage. Besides generating po,ver, the scheme will provide for (i) flood control, (ii) navigation, (iii) road development leading to industrialisation and tourism, and (iv) exploitation of forest resources. _. The total installed capacity in Bangladesh has increased from 7,600 kw in 1947 to 3,40,000 kw in 1969.4 Of this, hydel power constitutes a minor fraction. Thfs is because of lack of precipitation in the river system. Bangladesh has: a remarkably plain landscape. Many places, even when they are about 100 miles away from the sea, are less than 30 feet above the sea-level and the slGpe is less than five inches per mile.5 In 1951, the installed capacity of electricity was not more than 15,000 kw. The capacity was divided between diesel ..

S Ibid~

4 K. L. Seth, op. cit.

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44

Bangladesh Economy : An Analytical Study

:an~ steam plants. In 1953, the installed capacity increased to 4~,000 kw, diesel plants accounting for two-thirds of -output. · Power development was entrusted to East Pakistan Water and Power Development Authority (EPWAPDA). The installed capacity in 1963 was 190,625 kw and maxi• mum demand was 74,483 kw. In 1963 there were 37 power stations of which 31 were run on diesel fuel, five on steam .and one was hydroelectric. The consumption per capita was 4.96 kwh. In order ·to make up gaps in power supply, it has been proposed to set up, with the assistance of the USA or USSR, an atomic reactor plant at Rooppur in Pabna district witl1 a capacity of 100 magawatt.6 The following table shows the location and capacity ol major power plants: . TABLE

2 2:

MAJOR PO\VER PLANTS OF BANGLADESH

(1964-65)

Site

Motive

Capacity i,i kw

p0tver

Dacca Siddhirganj -doChittagong Karnaphuli Goa]para

Coal Diesel oil 14·t1mace oil

private

6,000

EPWAPDA

., ., .. "

10,000

. 30,000

.

-doBheramara Thakurgaon Fenchuganj Chandraghona Khulna (Newsprint mill)

EPWAPDA ot

Diesel oil Hydroelectric Coal Diesel oil Coal Diesel oil Natural gas Furnace oil

14,000

Furnace oil

16,400

10,000

80,000 16,000 . 7,500 8,000 · 7,500 30;000 ·

••

., ,.

"

.. ..

Private

Source: East Pakistan Water and Power Development Authority, April

1965.

..

.

.

. . .

.

.

6 Naµs Ahmad, op. cit.

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Bangladesh: Some Salien, Features

·45-

VI. INDUSTRIES Large industries, employing 20 or more workers and ~n by mechanical power, can be classified under four major groups: I. Agro-industries:

(a) Te~tiles-cotton-ginning, baling, ~eaving, spinning: and hosiery, jute milling and baling. (b) Food-processing-rice-milling, flour-milling, sugar~ tea and vegetable oils. (c) Raw material producing and processing-hides, skins and leather works, wool and silk . .

2. Forest-based industries: (a) Timber-s~.wnrilling, railway sleepers, boats ancl furnitures. (~) Soft wood-matches, plywood a~d newsprint. (c) Bamboo-paper, rayon and nylon.

8. Mineral and Metal-U8ing industries: (a) Cement, glass, chemicals and fertilisers. (b) Aluminium and other metals. (c) S~eel. (d) Oil re&ning. 4. Engineering indt,stries : General engineering, railwaY' workshops and ship repairs. Production of some selected industries in Bangladesh, \vill be found in Table 2.3; We quote the followin~ extracts from "Economic Survey of East Pakistan, 1969-70 ·, Government of East Pakistan Planning Department, to show the progress of basic industries in the recent period·. · Basic Metal : The first steel . mill of the country, the Chittagong Steel Mill, went into production in 1007. The Digitized by

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Bangladesh Economy : An Anal,ytical Study

46 TABLE

2.3:

PRODUCTION OF SELECTED INDUSTRIES IN BASGLADESH

Unit

Item

1960-61

1968-69

1969-70 (estimatecl)

Jute manufactures Cotton: {i) yam

(000 ton)

257

518

620

(Mil. !b)

48

96

108

(ii) cloth

(Mil. yd)

69

61

58

Sugar

(000 ton)

56

57

90

Paper and ne\\1sprint

(000 ton)

60

83

Matches

9171

14520

Cement

(000 gross) (000 ton)

83 13191

86

63

72

Cigarettes Fertiliser {urea)

(Million) (000 ton)

1450

17811 87

17900

-

90

Source: Economic Survey of East Pakistan, 1969-70.

mill, completed at _a cost of Rs 33.6 crores, · has a small capacity of 150,000 steel ingots. Tl1e project was carried forward from the Second Plan. During the Third Plan, expansion of capacity of the mill by another 100,000 tons was under implementa'tion. Production of steel ingots in 1969-70 is esti;mated to be about 55,000 tons as against 60,000 tons produced in 1968-:-69. Cement: In order to augment the supply of cement in the province, two projects for manufacture of cement ,vere initiated during the Third Plan. One of these_projects; based on imported cfinkers, with a capacity of 300,()()0.: tons, is in an advanced stage of completion. The other project, based on limestone deposit found at Jaipurhat, has not so far made substantial progress due to- nonavailability · of foreign assistance. .. . .. Machinery: The Third Plan provided an allocation of Rs 26.6 crores for manufactur.e of machinery an,d machinetools. This included a provision for setting up a machinetool factory now under implementation. The factory will have a capacity of 1.2,000 tons of machine-tools and other items in its final phase. Production of the first phase is expected to start by 1972. A diesel-engine manufacturi11g

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Bangladesh: Some Salient Feature,

47

plant with a capacity of 3,000 engines has started assembly with imported components and will start progressive manufacturing . later.

Fertiliser: A high priority was given to production of fertiliser during the Third Plan. The plan •set a target of additional 958,000 tons of fertiliser, composed of 357,000 tons of urea, 307,000 tons of TSP and 294,000 tons of NPK. In 1964-65 total production was 72,000 tons of urea only. During the plan period the following projects were under implementation : . Capacity tons

340,000 32,000 . 120,000

Urea Fertiliser Factory, Ghorasal TSP-I,. Chittagong_ TSP-II, Chittagong Ammonium Sulphate Plant, Fenchuganj

12,000

Fuel Oil: The first oil refinery, ·E astern Refinery, went into production with a capacity of ·1.5 million tons. VII. TRANSPORT AND COMMUNICATIONS , I

'

Among all forms of transport and communications, the most dominant are waterways. The rivers of Bangladesh are full of water throughout the YfYcll" and _thus offer opportunity for perennial navigation. During monsoons, when vast areas are flooded and road transport becomes almost impossible, remotest areas can be approached only by water routes. The Inland Water Transport Authority (IWTA) was established in 1958 to control and develop water transport. Thanks to its efforts, perennial and seasonal route-mileage · increased from 2,882 in 1959 to 4,991 in 1965. Bangladesh haq 1,714.47 total route-Iriileage of railways in .1961. The relevant facts about railways in 1962 are given as follows : · Digitized by

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Bangladesh Economu : An Analt,llcal Stud11

48

Route-miles . Railway stations Locomotives (diesel 51) Coaching vehicles C.oods wagons . Passengers carried Freight carried (tons) Gross earnings (rupees) Persons employed

1,714.17 416

481 1,611 15,307 71,175,063 5,884,555 184,857,014 54,725

Modem road transport is of recent origin. Roads are auxiliary to and not competitive with railways and water transport. In the last few years a number of trunk and superior surface roads have been developed. Some such roads are: Cox's Bazar-Mymensingh (350 miles) via Chittagong. Coniilla and Dacca with only a single river-crossing by ferry at Daudkandi on the Meghna river. Khulna-Jessore-Jhenaidah, 67 miles. Bogra-Rangpur, 68 miles. Dacca-Ariclia, 55 miles. Sherpur-Sujanagar, 50 miles. Rangpur-Dinajpur, 35 miles. Goafando-Magura, 33 miles.

VIII. SUMMARY The basic features of Bangladesh are now summarily presented as follows : 55,125 sq ini.les

Area Population (estimated in 1967) . Urban population as per cent of total (1961 census) Percent share of total workers in · largescale manufacturing industries in 1959-60 (Lewis, op. cit.) Digitized by

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65 million

5

' 31 Original from

UNIVERSITY OF MICHIGAN

BANGLADESJ/ HINBRALS

•

"#AN01.. -NONlll •

-·• -

COlC6Alo4 •

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( •

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•

\•

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UNIVERSITY OF MICHIGAN

Bangladah: Some Salient Features

49

Percent increase in civilian Jabour force during 1951-61 (Ibid.) - Agricultural - Nonagricultural Percent increase in the share of literate to total population aged 5 or more during 1951-61 (Ibid.) Per cent of population with 5 or more years of schooling to total aged 10 or more years in 1961 (Ibid.) Total reserves of natural gas as yet discovered (Fourth Five Year Plan, Pakistan Planning Commission)

39 18

5

8

9.34 mil.-mil. cubic feet

Electricity (installed capacity in 1969, K. L. Seth, op. cit.) 3,40,000 kw Number of industrial establishments 1,135 in 1963 (Nafis Ahmad, op. cit.) Average number of workers 2,70,220 employed daily in 1963 (Ibid.) Average number of workers employed daily in jute mills 70,247 in 1963 (Ibid.) Average number of workers employed daily in tea factories in 1963 (Ibid.) 99,874 Route-mileage of water-transport 4,991 in 1965 (Ibid.) Route-mileage of railways in 1961 1,714.47

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B '

Growth Rate, Actual and Potential .

.

When Pakistan was created, there was not m4ch disparity between its two wings with respect to the level of . gross domestic product. Disparity began to grow with ye_ars as a result of the economic policy pursued by government. The following table shows . the trend of growth of the gross domestic product in the two wings of Pakistan.. t

-TABLE . 3.1: GROSS PROVINCIAL PRODUCT AT

1959-60

•

FACTOR COST AND

PER-CAPITA GPP

Year

1949-50 1954-55 1959-60 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70

Gross provincial product . (Rs cro-res)

Per-capft.a GPP

(R~)

East

\Vest

East

West

1237.4 1381.6 1497.2 1867.1 1861.8 19M.7 2053.7 2143.0 2237.5 2271.3

1209.1 1410.6 1646.7 2009.0 2244.1 2243.2 2459.6 2708.2 2891.2 3156.3

293

342 354 366 400

290 ·

278 · 313 301 300

315 320 325 321

443

459 461 494

514 546

.

Source: Khan and Bergan, op. cit.; Arjun Sengupta, op. cit. •

.

•

This table reveals that although they s~arted from the same base iri 1949-50, west wing of Pakistan developed at a much faster rate than the East. As a result, in 1969-70, GPP per capita of the West was 1.70 times higher than that of the East, while in the initial year it was only 1.17 times higher. The growing disparity was due not to any difference in natural or in factor endowments but to a deliberate colonial policy pursued by the West-based Pakistan government. . Digitized by

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Crou,'th Rate, Actual and Potential

61

•

I. DISPARITY IN INVESTMENT RATES. Disparity between the two regions was in fact much greater after the inception of planning than in the preplan period. The table below shows that the gross domestic product of the two·- regions was· more ·or less the-same in tlie preplan period. It was in the First Plan period (1955-60) that the disparities began to grow. During the Second Plan, the growth rate of the two regions became equal but the Third Plan accentt1atecl the difference. TABLE

3.2:

CRO\VTH RATES IN THE

nvo

Growtli rate

Gross provincial product annual average of the preplan period, 1950-55 at 1959:-60 factor cost

REGIONS

East

West

Rs l-'351.0

Rs 1303.7

erores

crores

Annual compound rate of growth of GPP (p.c.)

3.5

(2) 1959-1964

1.4 5.3

(3) 1964-1969

4.1

6.1

(1) 1949-1959

5.4

Source: Lewis, op. cit.; Pakistan Economic Survey, 1969-70.

Dispariy in the growth rate is due to the differences in the rates of investment in the two regions. Dr K. L. Seth has estimated per-capita investment in the two regions during the first three plans. TABLE

3.3:

PER-CAPITA INVESTMENT

(Rs) •

. Wing

. 3rd Plan

1st Plan

2nd Plan

125

190

443

225

292

482

. East West

Source : K: L. Seth, op. cit.

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Bangladesh

Economv : An Analytical

Studp

Dr S. R. Lewis Jr shows the divergence in the rates of investment as per cent of gross provincial product during the Second Plan : · TABLE

3.4:

Year

1960-61 1961-62 1962-63 1963-64 1964-65

INVESTMENT AS P,C. OF CPP

East

West

7.8

17.0 19.5 21.1 21.1 21.5

10.6

9.4 12.0 12.7

It would be interesting to examine the breakdown of investment into public and private sectors. According to an estimate,! even in the preplan years, government concentrated public development expenditures in the west wing. From 1948-49 to 1954-55, government spent Rs 50 crores per year for development purposes and 80 per cent of it went to West Pakistan. Most of these expenditures went to develop infrastructure facilities of West Pakistan. In the First Plan about Rs 400 crores of public development expenditures went to West Pakistan and Rs 113 crores to the East. Rs 187 crores were spent to develop water supply, power, transport and communications of West Pakistan while only Rs 64 crores were spent for the same purpose in the East. During the Second Plan public development expenditure in the \Vest was Rs 763 crores while in the East it was Rs 631 crores. In the Third Plan, it was proposed that Rs 1600 crores would be spent in the East and Rs 1400 crores in the West. Actual expenditures in these two regions were however Rs 1130 crores and Rs 1056 crores respectively. Disparity in the rates of investment is much greater in the case of private than in the case of public sector. MahbubuI Haq estimates2 that total private investment between 1949 and 1960 was 2 to 2.7 times more in the West than in the East. 1 Rahaman, op. cit.

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2 Haq, op. cit-

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53

Crou:tlt Rate., Ad:sal end Pole dial

The following table shows the amount of pri,'1lte in,~estment for tb1ee years. •

TABIE

3.5:

PRI\.ATE ~~T

(Rs er~)

Years

19'9-50 1954-5.5

14

38

20

1959-60

37

-' '

M

Source: Haq, op. cit., p. 255.

The Third Plan provided for Rs 11,000 crores of pri\·ate investment for each wing of Pakistan. Actual i11,·est• ment however was Rs 1620 crores in the \Vest and 011ly Rs 544 crores in the East. Disparity in the rates of pri,·ate investment in the two wings of Pakistan has followed from the government policy of dcvelping invesbnent oPPortunities in the West with the resources transferred fron1 the East. In 1952, Pakistan Industrial Development Corporatio11 {PIDC) was set up to promote industries with or without private participation. Since its head office was i11 Karacl1i, its promotional activities were conce11trated i11 \\1est Paki-stan. It also initiated the exploitation of 11atural gas reserves at Sui. Little was done by PIDC to develap industries or infrastructural facilities in the East. The vast difference in the infrastructural facilities of tl1e two regions is shown in the following table. TABLE

3.6:

INl-'RASTBUCl'URE IN n1E TWO \VINGS OF PAlt.ISTAN

Wm

East Net availability of elecbicity (000 lcwh) in 1951-52 -doin 1959-60 Per million persons in 1959-60 1. Railway wagons 2. Buses and trucks 3. Post offices 4. High type roads (miles) 5. Branch offices of banks

20,225

77,226 6

85

83 28 110

295,474 1,198,779

166 495

136 225 288

Source: Haq, op. cit.

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54

Bangladesh Economu : An Analytical Studr,

. The most important factor contributing to the differential rate of development was the industrial policy pursued by government. Plan11ing in Pakistan was primarily capitalist planning in the sense that it was the private entrepreneurs rather than the state that acted as a lever of industrial development. This gave rise to three lines of development, each contributing to imbalance between the regions. In the first place, traders who later turned into industrialists were mostly immigrants from India, living and aperating in and around Karachi. Karachi, being a port and also the capital~ offered opportunities for quick profits to these capitalists. In 1954, of the total value added in largescale manufacturing in Pakistan, 31 per cent was in Karachi alone, 49 per cent in the rest of West Pakistan and only 20 per cent in the East. In 1959-60, the corresponding percentage figures were 30 in Karachi, 45 i11 the rest of West Pakistan a_n d 25 in the East. Secondly, _ reliance on private initiative to develop industries led to a much faster growth of consumer industries than of capital goods or inter1nediates. As a result, the latter two types of goods had to be i;mported from foreign countries. Since foreign exchange was scarce, import was restricted by co:mniercial and industrial licensing system. Agai11, persons that obtained these licences were those who ~ad alr.e ady been established in Karachi. Moreover, Karachi atqacted new entrepreneurs round it because it was much easier to get licences and other facilities there than elsewhere. Thirdly, as consumer goods indust1ies began to expand and at the same time the foreign exchange position did not permit a proportjonate i~crease of the import of capital goods ~nd i11termediates, _it became profitable to manufac_ture these goods. Traders ·,vho were importing capital gc:>ods and raw materials to sell them turned to manufacturing these products. But since Karachi and ,vest Pakista~ had alread~, bee,1 developed industrially, it ,,,as more profit-· able to set up the manufacturing units of capital goods and interrnediates i11 the West than in the East. A dispersal of eC011omic development could have taken place only if the._state took _up .increasing r.espQnsibili_ty to establish new industries. Digitized by

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Crowth Rate, Actual and Potential

II. SAVING RATIO With the emergence of a free and sovereign Bangladesh, it, can be reasonably hoped that the factors that inhibited the acceleration of investment activity will no more be there. Let us now make an estimate of how much investment can be financed b)r domestic resources. The following table shows the saving-investment position in the past. TABLE

3.7:

SAVING AND INVESTMENT RATES IN EAST AND WEST PAJCISTAN

Item

1960-61

(1960-61

1961-62

TO

1964-65)

1962-63

1964-65

1963-64

·---- ---- - - - - - - - ---East ,vest East West East West East West East West

Investment as p.c. of GPP 7:8

17.0

10.6

19.5

9.4

21.1

Saving as p.c. of GPP 6.4

10.5

10.0

12.6

7.5

14.1

P.c. of investment financed by o,vn saving 81.8

-

61.7

'

12.0 21.1 8.4

12.7

21.5

9.4

11.5

74.2

53.7

12.2

'

'

94.0 64.8 80.0 64.l 72.1 57:8

Source : Lewis, op. cit. '

Saving rates given in the above table were estimated by. J. J. Stern by subtracting an estimate of import surplus from the investment estimate. This method understates saving in· the . East and overstates it in .'t he West. This is because Pakistan,s currency was overvalued and since West Pakistan had always an· import surplus and East Pakistan an export. surplus, the saving rate, on this method of calculations, ·was overrated in·the West and· underrated in the East. As .has been noted by S. R. Lewis Jr,3 ''If one used the domestic price structure as the basis of comparison:, one should increase both ·the f.o.b. value of foreign exports and c.i.f. value of imports . from abroad in order to refiect the'

.

'l '

'

'

. .

'

3 Lewis, op. cit.

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. .

Banglnde,h E«ao1111: AA Anoq;ical Studr,

higher shadow price of foreign exmange. Data from earlier studies suggest that the adjustment upward might be at least 50 p.c. in order to approach an appropriate value for foreign exchange. The result of such an adjustment \\·ould increase the size of East Pakistan's surplus \\'ith the rest of the world and would also increase the size of her O\·erall surplus. In West Pakistan an upward adjustment ia the valuation of foreign exchange would lead to a gr~ter deficit ,vith the rest of the world in all periods and a giecater o,·erall deficit in all periods." An alternative estimate of private sa,ing has been made by Asbjom Bergan. According to him the per cent of gross private saving to gross private income in 1963-64 was 12.2 in the East as against 10.5 in the \Vest. S. R. Lewis Jr thinks that Bergan bas understated the level of corporate saving. H an adjustment is made on this account, the sa,.,iI1g rate. in both states ,vill be higher. Thus, a 50 per cent upward adjustment of Stein's estimate would bring the saving rate of East Pakistan in 1964-65 around 14.1 per cent mid an adjustment of Bergan's estimate would bring it in between 12 and 14 per cent.

Thus, if the sbucture of Bangladesh re1nains as it ·w as in the sixties and no vigorous measures to promote savings are taken, 12 to 14 per cent of national product will be saved every year. How much growth rate can such savings gener;ite?

Ill. PROSPECTIVE GROWTH RATES Growth rate of national income is the product of investment rate and incremental capital output ratio. The latter ratio is a t.d,nical p.u-aroeter, the value of which is more or less stable in a particular stage of develOJlment. Mahbubul Haq estimates that in the First Plan capital output ratio in East Pakistan was 1.4. In future, as industrialisation gets under way, this ratio will be higher. Following table shows the growth rate on the basis Q( alternative assumptions of capital output ratio.

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57

Growth Rate, Actual and Potentud TABLE

3.8:

PROJF.CI"ED GROWTH RATE OF NATIONAL INCOME OF BANGLADESH

Saving rate

C.0 .R.= 2

>Growth rate of national • mcome, p .c. per year tGrowth rate of per-capita • mcome, p .c. per year

=

12 to 14 p.c

C.O.R.= 3

6 to 7

3.5 to 4.5

4 to 4.7 1.5 to 2.2

In the immediate future (say five years) capital output ~atio is not expected to be greater than 2. This is because .a large amount of develapmental activities in rural areas .can be done by labour-intensive methods and a substantial .amount of industrial capacity is still unutilised. Hence the growth rate of per capita income should be between :3.5 to 4.5 per cent per year and this will be a remarkable ~improvement on the past trend. But as capacity comes to be fully utilised and new industries are set up, capital •output ratio will rise. Maintenance of growth rate in this ·situation will require a_larger saving rate or recourse to foreign aid. If Bangladesh seeks to pursue a selfreliant line of development, efforts have to be made from the beginning tto step up the rate of saving. Sa, ings consist of two com·ponents: (i) domestic saving, i.e. the difference bet,veen ,domestic product available for home market and domestic consumption; (ii) exPort surplus, i.e. the difference be'tween export and imprt. Circumstances that will go to favour a rise in the rate of saving are the following: 1

(a) Tremendous amount of popular support may be 'Utilised by government for greater production and for cur• 'tailing nonessential consumption. Experiences of other •countries, coming out victorious after a revolution, show that an unprecedented spurt in the saving rate is possible :if people are exhorted to make maximum utilisati011 of ,existing capacity, avoid all sorts of waste and extravagance· :and tap all sources of indigenous knowhow to increase· labour productivity.

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Bangladesh Economy : An Analytical Studv

58

(b) Bangladesh has been having favourable balance ol trade with countries other than West Pakistan, although this export surplus has been gradually diminishing. With West Pakistan however she has been mnning in deficit and the deficit has been mounting. It is not possible to forecast precisely what the efforts of trade diversion from West· Pakistan will be on Bangladesh's export surplus. But it is. wel] established that wing to the polid.ies pursued by West-Pakistan goven1ment (e.g. overvaluation of currency, export bonus scheme, import licensing system), terms of trade between the West and the East wel!t against the latter. According to a11 estimate made by S. R. Lewis Jr, agricultural products of Bangladesh, which are its main exports, received not more than 59 per cent of its potential value in the ,vorld market. The situation would certainly have been more favourable for Bangladesh, if it could have an independent trade .policy. There may arise, however, some other situations which will depress the rate of saving. (i) The present democratic and popular government will certainly seek to bring about a more equailtarian distribution of income and wealth, redirecting the flow of resources from the upper to the lower and from urban to rural sections of the papulation. In view of the fact that a large number of rural households, particularly those belonging to the lower income groups, have been denied for years nutritious diet and other basic amenities of life, a redistribution of income in their favour will lead, at least in- the immediate future, to a reduction in the rate of saving. We may recall in this connection the experience of th~ Soviet Union in mid-hventies. After land redistribution, landless and poor peasants were transformed into middle peasants. They ,vere eating more of their own produce and as a result the marketed surplus of foodgrain (which is' the rural component of national savings) came down. The proble_m was solved. by introducing col,ective fa~ining and improving the 'technique of· cultj.:vati~n. In Banglade~h, a redistribution of income is an urgent necessity not only from ethical point of view but also on grounds of enrich• ment of human capital. If it leads to ·a redudtion in the Digitized by

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Growth Hate, Actual and Potential

59

saving rate, Qther compensatai:y devices should be taken up. (ii) Economic development in its process creates a proliferation of white-collar jobs engineers, doctors, professors, accountants, civil servants, etc.-and this in tum accelerates the demand for the ·socalled U-sector consumption like superior types of clothing and garn1ents, motor cars, refrigerators, and various types of modem gadgets. Unless the government, armed with strong moral support,. checks this demand, the upper middle class- will use its political and social position to divert resources from productive to unproductive consumption. Government of Bangladesh, like other governments in developing countries, will therefore have to make special efforts to keep down the level of nonessential and unproductive consumption. It will also have to prevent, through fiscal policy and through institutional changes, resources from being frittered away in wasteful uses like usury and speculation. Several lines of action may be indicated to bring this about. In the first place, the aim of land reforn1 should be an effective elimination of all intermediaries between the state and the cultivator, so that the whole of economic rent goes to the state. Secondly, replacement of private moneylenders by state banks will also enable the state to own a major share of the economic surplus while assuring the producers an enlarged flow of credit at a cheaper rate of interest. Thirdly, a gradual enlargement of state trading, by eliminating the unproductive and speculative middlemen, will bring in commercial profits to the state exchequer and at the same time secure the interests of consumers and producers. Lastly, we should remember that in a predominantly rural country like Bangladesh with a large nonmonetised and subsistence sector, special devices and organisations have to be evolved to step up investment and saving acti• vit)'. A considerable amount of investment in rural infrastn1cture like houses, irrigation, roads, bunds, schools and public utilities can take place with n1ral labour and mate rial without necessitating money outlav equivalent to the full value of the projects. This should not be a difficult task for the Bangladesh government which commands 4

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60

Bangladesh Economy : An Analytlcal Study

.overwhelming support of the people and which can count -0n the organisational talent of thousands of youth who have been trained in the liberation struggle. The in,ajor component of saving in a rural community is ·the marketed surplus of food and cashcrops. Government -can create financial resources by printing more money, without fear of inflation, if there is a matching increase in ·the marketed surplus of rural produce. The basic strateg)' -0£ resource mobilisation should therefore be built up on .a policy of inducing the farmers to produce more and sell more. Offering peasants more facilities for production .and provision of price incentives will not secure larger -production and sale unless proper motivations are created ·to increase sale orientation. Government, social workers, .advertising and marketing men should chalk out a com·mon programme to create among the rural people "felt,. needs for garments, shoes, soaps, toothpastes, medicines, housing, electricals, transport, recreation services, etc., to ·help in making possible a good life for the masses, as well as i11 securing an increased How of resources to towns and industries.

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PART TWO

Economic Structure

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The Structure o_f Bangladesh:s Economy .

An economy is ~hara~terised by ·certain structural para• meters. Most important among these are the distribution of the working·· force between occupations, relative producti• vity of different ·se_ctors and intersecto1·al inequality. An underdevelaped agra1ian economy has a high concentration of working force in agriculture, a low relative productivit)' of .agricultural workers and a high differential behveen nonagricultural and agricultural incomes . .A low per-capita income creates a consumption pattern which is oriented towards consumption of agric~ltural (particularly cereals) pr~ ducts. This, combined ,vith limited opportunities for diver• sification into secondary and tertiary sectors, leads to concentration of working force . on cultivation. This in its tum results in a low per-capita output in agriculture and a wide disparity between agricultural an·d nonagricultural incomes. I.

STRUCTURAL PARAMETERS OF BANGLADESH .

Table 4.1 shows the distribution of population of Bangladesh and West Pakistan between different occupations. Civilian labour force has been defined as persons in the working age-group excluding persons emploYed in defence services, or in noneaming occupations (e.g. · students and housewives) and those who live on unearned income (e.g. landlords). The table reveals the following features : . (1) Civilian labour force was relatively larger in Bangladesh in both .~ e periods. This is. because a much larger proportion of West Pakistan's than of East Bengal's population was engaged in defence services. The same fact also

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UNIVERSITY OF MICHIGAN

Bangladesh EcoMfnf! : An Analytical Stud11

64 TABLE

4.1:

DISTRIB'lmON OF POPULATION BETWEEN DIFFERENT OCCUPATIONS

p.c. of civilian p.c. of f)Of)Ulation

labour force

p.c. of ~ n

employed In

(1963-64)

(1961)

agriculture ~

=! ~

...."':::: .... tr. ~

.,_, j ~

1 .s

~

l1- t I.. ;s

Bangladesh

34.31

34.14

rural

34.23

34.10 0.13

urban

35.76

34.96

West Pakistan

0.17

~

'~=! .. Q

C ~

15.8.s

35.12

.,_, ~

~

.s

~

t 1

""'4 Ir., O')

""'4

34.82

0.30 83.2

rural urban

29.86

29.95

85.3

36.05 0.58

31.80 0.56 32.60 32.28 0.32 65.1 33.16 32.69 0.47 33.37 33.09 0.28

0.85

~

""'4

0.29

32.36

29.01

""'4

;s

35.04 34.75

0.80 36.63

1

29.47

59.3

0.48

Source : Statistical Year Book of Pakistan, 1968.

explains why the difference in the proportion of civil ppulation was larger in urban than in rural areas. (2) Unemployment was lower in the East than in the West both in rural and in urban areas in 1961. But in 196364, employment increased and unemployment was reduced in West Pakistan; whereas in the East there was an increase of proportions of the unemployed as well as the employed. Between the two periods, civilian labour forceincreased in Bangladesh by .81 per cent._Out of this, .68: per cent was employed and .13 per cent unemployed. In West Pakistan, civilian labour force increased by .24 per cent. Not only were these additional men employed but· .24 per cent of the existing ~nemployed were also absorb-ed so that employ!Ilent rose by .48 per cent. (3) Between 1951 and 1961, relative employment in agriculhJ!e had increased bv 2.0 per cent in Bangladesh but in West Pakistan it declined by 6.0 per cent.

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65

Tlie Structure of Bangladesh'a Economy

A distinguishing feature- of· underdevelopment_ is the lo,v level of relative prodQctivity in agriculture. The gap bet,veen per-capita national product and per-capita outpu~ · of agricultural workers is much bigger in a ·backward than i11 an advanced country. This results in a high degree of intersectoral inequality between agricultural and nonagricultural incomes. The following table shows the situation of Bangladesh and West Pakistan for the preplan period, 1950/51-1954/55 and the Third Plan period, 1960/611964/65. TABLE

-1.2:

RELATIVE PRODUCTIVITY OF AGRICULTURAL

\\"ORKER AND INI"ERSECI'ORAL INEQUALITY

Bangladesh

1950-51 to 1954-55

Items

West Pakistan

1960-61 to 1964-65

1950-51 to 1954-55

1960-61 to 1964-65

\ "alue aclcled by agriculture as p.c. of GDP

64.0

57.8

50.7

44.3

Valt1e added by nonagricullure as p.c. of GDP

36.0

42.2

49.3

55.7

P.c. of civilian labour force employecl in agriculture

84.7

85.3

65.3

59.3

P.c. of civilian lal>0ur force emplo:red in nonagriculture

15.:3

14.7

34.7

40.7

Relative productivity of agricultural worker in p.c. (ro,v 1 7 ro,v 3)

75.5

67.7

77.6

74.7

[ntersectoral i11eq\1ality in p.c. (2/4 -:- 1/3)

\

310

420

180

180

Sot1rce : Calculated on the basis of data given in Khan and Bergan·~ op. dt. •

The last two rows show the ·progressive backwardness. of the economy of Bangladesh. In the preplan period. BE--5

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Bangladesh Economu : An Analytical Study

the output of an agricultural worker was 76 per cent of the gross domestic product per worker. In the Third Plan period it came down to 68 per cent. In West Pakistan, the fall was from 78 to 75 per cent. The explanation is that in Bangladesh the pressure on agriculture has not diminished but in West Pakistan the percentage ot working force in agriculture has fallen fi:om 65 to 59.

us

that in Bangladesh ~ worker in nonThe last row tells agricultural sector produced three times as much value as an agricultural worker in the preplan years. In the Third Plan period the differential was four times as great. 111 West Pakistan the disparity is narrower and it has remained constant. · It is a condition as well as a consequence of eco110111ic development that the productivity of workers in agrictilture should rise in proPortion· tQ the rise of tl1e. overall GDP per worker. Industrialisation relieves agri(:ulttire of pop~lation pressure and at the same time provides it \\·itl1 industrial inputs like machinery and fertiliser, tl1t1s maki11g for a rapid increase in the productivity of agricultural workers. A rise in the productivity of ag1iculturai ,vorkers is a necessary condition to sustain economic develc.>p111e11t because in a developed economy an agricultural ,,·orker has to provide food and raw materials for a larger numl:>er of people employed outsicle agriculture than it is the case (n underdeveloped economies. In planning for ec-onomic development, serious efforts are needed to correct the i1nbalance created by the low level of relative prodt1cti,·ity of agricultural workers and the high degree of interse(:toral inequality. This requires, first and foremost, a massive investn1e11t (n industries which are ancillary to agriculture a11d also development of infrastructural facilities. There is immense scope of increasing the productivity of agric11lture by adopting measures to prevent flood, w~terloggi11g a11cl soil erosion and by providing tubewells a11d 1)um11 sets, fertilisers, pesticides ~nd high-yield v~ety of seeds . . .. •• ... . . . : .. . . . . . '

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The Structure of Bangladesh's Economy

67

II. INDUSTRIAL STRUCTURE IMBALANCES

The industrial structure of Bangladesh reveals tl1e following imbalances : (a) Employment of industrial workers is highly conce11• trated in jute, cotton textiles and tea; in 1963, the average daily employment in these ind~stries was 26 per cent, 19 per cent and 37 per cent respectively of total industrial workers.I Jute and tea are almost entirely exportoriented and cotton textiles depend on the import of raw cotton. Any unfavourable turn in export and import \viii thus affect 86 per cent of the industrial workers of J1a11gladesh. Diversification of industrial structure is therefore a basic need. (b) Small industries, producing as they do quite a significant portion of industrial output, are nevertheless sl1owing a declining trend. In the preplan years, small industries produced 76 per cent and in 1964-65 only 37 yJer cent of total industrial output. From the preplan period to 1964-65, the output of small industries increased only 33 per cent, whereas the largescale industries increasecl tlteir output by 612 per cent during the same time.2 (c) Growth of largescal.e industries exhibits sonie irrational · features. There has been too mt1ch of dee1Je11ing of capital in an economy with surplus manpower ancl falling real wages. In the Fourth Plan repo1t it is officiall:r ad1nitted that real wages came down by one-third in the sixties. In an economy where labour is available even at a failing real wages, economic considerations should have led to capital-shallowing instead of capital-deepening. But i11 Pakistan, in both the wings, capital-labour ratio was l1igl1er even than what it was in an advanced count1y like Japan. Owing to the policy of the government encot1raging import of capital goods through overvaluation of currency and licensing S)'Stem, there was a tendenc~· to over•

1 Nafis Ahmad, op.,_cit. . . 2 Based on data given in Lewis, op. cit.

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Bangladesh Economy : An Analytical Study·

68 .

capitalise in industries. The following table is a remarkable evidence on this point. TABLE

4.:J:

CAPITAL-LABOUR

RATIO

IN

~fAN11FACTURING

INDUSTRIES

(Value of foxed ass~ in US $ per worker) 1,ulustries

Sugar Edible oil Cigarettes Cotto11 textiles Jute textiles Paper Leather Rubber goods Chen1icals

Japan

Pakistan

(1955)

East

West

5221 3106

4109

-

(1962-63)

4566

508

1713 2130 11424

422

960

269

1122 826

475

1100

5503

5184 2418

1164 2764 4082

Sotirce : 1\. R. Khan, 'Some Problems of Choice of T echniqttes in a ~fixed Economy: The Case of Pakistan', published in Econonuc Development i11 South Asia, edited by E. A. G. Robinson and ~1. Kidron.

preparing this table the author has made all the necessary provisions to make the figures as much comparable as possible. It is striking that the capital-labour ratios should be less in Japan than in both wings of Pakistan. The situation underlines the need to make a fuller titilisation of capacity by securing a greater supply of raw materials and spare parts. Such a policy will increase production and employment without necessitating capital im1Jorts. An increase in capacity utilisation will necessitate larger imports of raw materials and spare parts, unless they are produced at home. The following table describes the situation in this regard. The figures refer to industries in Pakistan as a whole. We have however taken those industries which are mostly located in East Bengal. 111

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Tlie Structure of Bangladesh'8 Economy Ti\BLE

4.4:

U9

CAPACITY UTILISATION

1:-J LARCESCALE MANUFACTURING INDUSTRIES IN PAKJSTA:--J,

Industries

Rat!o of actual to full capacity production 0.940 0.890 0.938 0.862 0.856 0.-379

Jute

Cotton Sugar Tobacco Cigarettes Paper Tea Leather Rt1bber

0.899 0.586 O.S.'39

1965

Rate of dependence on import for raw ,naterials s11are parts

0.01 0 .10 0.01 0 .11 0.13 0.30 0.03 0.26 0.67

0 .4-1 0.44

0.45 · 0.78 0.76 0 .48 0.63 0.50 0.71

Source: Government of Pakistan, CSO, Report of Surr;ey Utili.satiou by l\1a11ufacturing Industries (1965).

011

Capacity

. Paper industry, which was located in ~ast Bengal, utilised only 38 per cent of its capacity. An increase in l)aper production would increase impo1t of spare parts and raw materials substantially because 30 per cent of its raw 1naterials and 48 per cent of spare parts have to be imported . . The rate of dependence for spare parts is fairly higl1 in tobaGco, cigarettes, tea and rubber. The threefold imbalance in the industrial structw·e of Bangladesh has led to a situation in which the worst stiffer. ers are the common people, particularly workers a11d l)easan,ts. In the first place, the entire industrial structure is precariously founded, likely to be swept off its feet at every unfavourable tum of export and import. The fate of some r)iillions of workers, peasants and artisans i~ tie·d with jute, tea and cotton textiles and wl;ienever prospects of expo1·t of jute and tea or of import of raw cotton decline, the 1·esult will be unemploy:rµent, falling jute prices or closure of l1andlooms. · Secondly, th~ adoption of · capital-intensive techniques and resulting idle capacity has led . to high prices of .

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Bangladesh Economy : An Analytical Study '

consumer goods. Since industrialists must get a 'reasonable' rate of profit on their high capital costs, and sine~ capital cost per unit cannot be reduced by a sufficient exllansion of production, either because of the limited size of the market or because of the difficulty in importing raw materials and spares, they have to increase prices. Thus, i11flatio11 coexists with idle capacity of men and machines. Thirdly, small industries which could provide employme11t opportunities to a large number of people, particularl~· those living in villages, are in a decadent state because ot the policy of Pakista11 government. Practically nothing has been done to resuscitate small industries by providing them finance, ra,v materials and components and technical knowhow. INDUSTRIAL POLICY OF PAKISTAN GOVERNMENT

The imbalances i11 the industrial structure of Bru1glaaesh are the direct results of the industrial policy pursued by Pakistan government. The Government of Pakistan basically relied on the rrionapoly capitalists, both at home and abroad, to bring about industrialisation. It did not initiate the inclustrial development by starting producer-goods industries. Such a line of development was inconceivable in free enterprise which seeks to make sure and quick profits. The ind11strial policy on the other hand encouraged the establishment of these industries which were assured of a large market. Such were cotton textiles, jute, tea, leather ,vorks, paper and tobacco, machinery and components for manufacturing these goods were imported from outside and their import prices ,vere kept artificially low by overvaluati011 of Pakistan rupee. The export bonus scheme along with vervaluation of the rupee created a situation in which invest.ors tended to overinvest in traditional export industrit.~'i at the cost of developing the basic and capital-goods i11dustries. In the Third Plan an attempt was made to develop basic industries but ~ much greater portion of invest1rten·t in these industries was made in West Pakistan. Government of .Pakistan not only _q epended on the Jlrivate monopoly sector for devel0pment of indt1~tri

z

~

t

9349

31

2715

12004

115:31

473

.,..

14()

19(i8

3188

3165

2:3

~ 0

600

696

660

36

80

4

1242

4

5

99

-

J ••

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Fishing Manufactt1ring

food tobacco

~

::s

z

< m :::0 Vlo

tl::I

.

-

-

48

114

-

114

-

-

1

111

2~

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744

25

11

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77

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.....

l'>'J

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35

375

410

410

...__

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>

3255 1484

2631

8245

6:353

1892

ta ~

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98

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-

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930

1222

1141

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150

168

168

--,.

.... s::

Cl)

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textile 0 -·

z

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505

550

1716

739

171U

-

~

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( I)

10

-

10

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167 9:,_,

1

. 15

16

142 97

.., ()

105 97

37

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2 ~

;:

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chemicals n1etals, l)asic 1netal-,vorking Electricity, gas ,

C

-

-

48

-

-

-

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9

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39

9

10

55

262

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277

579

326

253

l l, ~

~-.

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::s

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397 319

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1519

197

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68

-

-

216

-

680

216

-

839

8

Total interme has declined steadily over the years. Yield of another cash crop, sugarcane, has remained steady at the extremely low level of only 1.5 tons per acre as against 4.5 tons i11 Indonesia and Taiwan and 8.10 tons in Hawaii. These, l1owever, signify both the backward character of Bangladesh agriculture and the possibilities of its future development. \Vithin the total picture for Bangladesh agricultural economy as a whole there are salient points and characteristics to be noted in relation to individual principal crops. RICE

'

Rice, the staple food crop, occupies a much more domi11a11t position in Bangladesh than in other Asian countries. l11 the past the region had traditio11ally surplus productio11 in spite of a huge domestic consumption. The situation changed adversely because of rapid population gro\vth without any modernisation of agriculture. Since 1934 (\:vith the exception of 1937) Bengal has been reduced to tl1e position of a deficit region with regard to rice. This became particularly manifest in the fami11e year of 1943 and there has been a shortage of rice, though the total area 11nder rice cultivation has been sho,ving an increase since 1911-12.10 10 :--Jafis Ahmad, op. cit., pp. 184-85.

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UNIVERSITY OF MICHIGAN

91

Some Significant Aspects TABLE 5.9A:

RICE (PADDY) YlEJ.D:

BANGLADESH A:\1) \VORLD

(SELECTED COU1'TRIES)

1968 (100 kg per 11ectare) Yield

Country

17.4 18.9 17.1 14.0 24.0 25.1 41.8 16.1 19.1 57.2 35.7 37.5

Bangladesh Asia (average)

Burma Can1lJodia Ceylon China" Tai,van India Inclonesia Japan Korea (North) Korea (South) Laos Pakistan (former W. Pakistan) Philippines Thailand \ 'ietnam (North)b Vietnam (South)

9.7 19.6 13.3 16.0 18.4 18.2 14.2 51.1 31.3 41.5 35.3 41.l 60.4 34.1 -'38.1 19.6

Africa (ace-rage)

Egypt Algeria Europe (average)

France ltalv Spain USSR North and Ce11tral America (arerage)

Cuba ~lexico

_, """...."

USA

49.6

Soutli America (

z

••

.

> ., > :,

a.

cc: ....

~ ,c:

~

Second Plan 6.30

1960-61

14.58

1.01

21.89

2.50

6.57

0.45

9.52

10.8

12.3

12.1

11.8

0 -·

1961-62

5.87

14.08

1.01

20.96

2.33

6.65

0.48

9,46

10.8

12.8

13.1

12.3

N

1982-63

6.19

14.22

1.07

21.48

2.20

6.05

0.48

8.73

9.7

11.6

12.2

11.1

1963-64

6.59

14.60

1.(17

22.26

2.86

7.29

0.51

10.46

11.0

13.6

13.0

12.8

1964-65

6.64

15.11

1.05

22.80

2.50

7.26

0.57

10.34

10.2

13.1

14.8

12.3

Average

6.32

14.52

1.04

21.88

2.44

6.16

0.50

9.70

10.5

12.7

13.1

1:2.1

'

,,, . J ;

--

-t.~5

t, I ·f'-;")-."~,

1.24 1•f:.>.,~

J',Hjy .-") ;

1.2.1

J'"rn, --•.~

1~56

J~-YS--~ J~J J yf'.,(J.fj I

1...-, :,:_ 1.:17 1.51

-:>~:>-:>

- --

0.99

.5 .46

0.97

1001 .(j2

2 .()6

I SJf52.(j.) I SJfS;j.f~-4

1.72 J.70

6.96 6.:30

JSJ(~-'55 JSJf ~fS,(j7 IS)(S7 -01-S

2.16 2.3.5

1.:24 1.12 1.04 0.95 1.1:3 1.16 1.20

So 11r" 17.-l

-18.2·· .:,.-,

19.:3 .:!1 .8 19.:3 19.l 19.6 14.3 16.4 17.8 16.8 15.6 14.8 14.4 1:3.9

l'akistan, CSO, op. cit., Table 3.17.

,,£

estimation.13 But whatever may be the actual jute acreage in a particular year the significant feature to note fs heavy annual fluctuations in jute acreage characterised l>y constancy over the long run. In tl1is connection it is necessary to take into account the l>chaviour of jute production. Jute production received a severe jolt when in 1949 the Government of Pakistan re• '

1!3 Ibid.

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UNIVERSITY OF MICHIGAN

Some Significant Aspects

fused to follow India, UK and other sterling-area countries in devaluation. The immediate result was that jute production declined from 6.84 million bales in 1947-48 to 3.33 million bales in 1949-50. But the period after the outbreak of the Korean war witnessed a tremendous upsurge in international demand for raw jute with the effect that jute production recovered the lost position and reached the output figures of 6.82 million bales in 1952-53 or the average annual figure of 5.86 million bales for the period 1950-51 to 1952-53. But as soon as the Korean war came to an end there was a trade and price fiasco in 1952. According to one estimate the prices of raw jute declined from about Rs 20-40 in 1951 to Rs 9-12 in 1.952.14 This upset jute cultivation with the result that jute acreage was drastically curtailed in 1953-54 and 1954-55. In 1953-54 the output sharply fell to 2.50 million bales, the lowest figure reached during the past twentyfive years. Following the devaluation of Pakistani rupee in 1955 llroduction again increased to 5.60 million bales in 1955-56. However, between 1953-54 a11d 1964-65 on average jute output fluctuated considerably around a lower level. Si11ce 1964-65 tl1e ot1tpt1t has agiai11 been showing a11 increase. The stagnation in jute ·output is largely reinforced b~· a distinct deterioration in the crop yield per acre. Thus peracre jute yield declined from 19.3 maunds in 1955-56 to 16.4 maunds in 1961-62 and then to the further lower level of 13.9 maunds in 1967-68. It has been st1ggested that drastic fall in yield figure is the result of changes in the methods of estimation of jute acreage. But tl1ere is no dot1bt about the fact that real jute yield declined to a certain extent even if this decline is o,,erestimated.15 This fall in jute yield is attribt1table partly to Pakistan government's policy. 111 view of the food shortage in East Bengal government policy ,vas directed towards the raising of rice production and ,,ery little attention was paid to measures for raising )'ield and providing incentives to _culti•

,, ·.

14· Na6s

Ahmad, op. cit., p 175n. 15 Kahnert, op. cit., p. 164. Digitized by

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UNIVERSITY OF MICHIGAN

100

Bangladesh Economy : An Analytical Study

vators. The decline in jute yield is also due to the extension of jute cultivation in recent years on marginal land. ·

JUTE-fuCE COMPETITION

. ~ i~portant fac~~r affe~ting jute p~oduction is that j1:1te 1s 1n direct competition with aus and ·broadcast aman nee for the same land. It is possible to have doublecrpping of jute with transplanted aman, but the apportunities are limited. Naturally most of the farmers are left with the option of cultivating jute instead of rice. Under the circumstances rice prices to a considerable extent indicate the opportunity cost for jute production and the rice-jute price ratio is likelv ., to affect the cultivators' decision whether to raise rice or jute. The rice-jute yield ratio may also influence this decision.16 According to one exercise, changes i11 relative price and yield ratios have caused about 70 to 80 per cent variations in jute acreage in the past.17 It should be noticed in this connection that cost of cultivation of jute is higher than that of rice (see Table 5.12).1& Evidently enough jute prices usually should remain much higher than· rice prices. The Land Revenue Commission of Bengal (1939) expressed the oPinion that the relative ricejute price should be roughly 1 : 3. But the fate of jute grower is linked with both international and domestic markets. Shrinkage of world demand and fall in prices will 16 Ibid, p. 162. 17 Ghulam Rabbani, 'Economic Determinants of Jute Production in Inclia and Pakistan', The Pakistan Development Revietv, Summer 1965. See also Kahnert, op. cit., p. 163. 18 According to plot-to-plot enumeration in 1944-45, the cost of cultivation of different crops 9er maund ,vas as follo,vs : autt1mn rice or aus, Rs 4 as 8, winter rice or aman, Rs 4 as 4 and jute Rs 8 as 2 (Nafis Ahmad, op. cit. ). But these costs changed radically in a few years. Th.is is revealed by talJle below:

Cost per maund

Cost per acre Autumn rice Winter rice Summer rice Jute

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Rs 212 215 250

385

as

Rs 19 17 20 21

0 8 8 0 Original from

UNIVERSITY OF MICHIGAN

as 8 6 0 8

lOI

Some Significant Aspects TABLE

5.12:

ECOI'liOMICS OF JUTE VERSUS RICE PRODUCI10N

196-'3-64 1964-65 196,5-66 1966-67 1967-68

Items .-\. Jute production

16.9 15.6 14.8 14.4 1. yield in maund per acre 2. average jute price at grower's level in 27 ,,'39 22.18 31.47 36.03 Rs/maund 3. cultivator's gross revenue in Rs per acre 375 491 405 519 4. total cost of production 294 294 in Rs/acre 294 294 5. net revenue in Rs/acre 81 197 111 225

13.9

27.54 383

294 89

B. Rice production 1. yield in maund per acre 2. retail price in Rs/maund

3. cultivator's gross opportunity cost in Rs/acre: if he has to buy the amount of rice foregone through jute production 4 . total cost of production . in Rs/acre 5. net opportunity cost in Rs/acre 6. cultivator's gain by growing jute instead of rice in Rs/acre Notes:

12.8 27.2

1....... ry ry 07 .... ry

-

12.l -~ry . 0 •)_,

11.1 43.0

11.8 37.0

348

·33o ' '

-

387

477

4:35

175

175

175

175

175

173

157

212

302

260

-92

40

-101

-77

-171

Production costs: the costs of production for aus, ,vhite and tossa jute have been calculated 1ly Ghulam Rabbaniop. cit.-for 1965-66. It is assumed here that the prodt1ction cost for jute and rice have remained unaltered from 1963-64 to 1967-68. Labour inputs in ·shado,v priced at half the prevailing market rate for hiring lal)our and it is assumed that 80 per cent of labour input for jute prodt1ction is hired. The breakdown of C'Osts are as follo,vs : Factor input

Seed and fertiliser Human labour

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Rv per acre \Vliite jute

Tossa jute

Aus

30.6 164.5

36.6 168.4

41.8 39.3

Original from

UNIVERSITY OF MICHIGAN

102

Baugladesh Economy : An Analytical Study Factor input

Rs per acre

White jute

Tossa jute

43.7 54.5

39.0 52.3

46.5 47.5

Total cost Rs per acre

293.3

296.3

175.1

Total cost, factor inputs valued at market prices in Rs per acre in Rs per mattnd

406.2 28.6

408.4 26.5

299.3 18.8

Bullock labour Rent and interest

Aus

Source: F . Kahnert and others, op . cit., Tal)le 54 in .Appendix.

induce the jute cultivator to expand acreage under food.crops at the expense of jute acreage. This is what happened in the years following the partition of the Indian subcontinent in 1947. Along with heavy fluctuations in world demand for jute (see above) jute prices fell from a level of about Rs 22 per maund in 1951 to about Rs 6 to Rs 8 in 1953. Thus instead of a 1 : 3 rice-jute price ratio prevailing till the second world war, it remained unsteady between 1: 2 and par; and then the relative price ratio radically changed to 3 : 1 in favour of rice. So the long-ter1n, i.e. 1936-37 to 1959-60, decline in jute area has been caused at least to a large extent by a rise in relative rice-jute price ratio. However, from 1960-61 to 1964-65 the acreage increased along with an improvement in the relative price in favour of jute and remained on the whole at par. l11 the still more recent years, i.e. from 1965-66 to 1967-68, i11 spite of falling relative price there has been some expansion in the output and the acreage perhaps because of i11creased prices for jute. TOBACCO

The tobacco crop, though an important cash crop anll useful source of income to the cultivators, occupies onl~r 0.30 per cent of the cropped area. The production performance, as shown in Table 5.13, is extremely poor. Output declined consistently since 1954-55 up to 1966-67 when tl1e trend was just checked. This poor and deteriorating

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UNIVERSITY OF MICHIGAN

103

Some Significant Aspects

pedormance has been due tQ falling acreage and yield per acre. TABLE

5.13:

TOBACCO Aflo'D SUGARCANE:

ACREAGE, PRODUCTION

AND YIELD

Tobacco

Sugarcane

production yield acreage (000 (000 (maund/ (000 acres) tons) acre) acres)

acreage Year

1947-48 1948-49 1949-50 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68

131 126 128 128 130 131 131 135 113 109 l

z

... 0

(c,

110

Bangladesl& Economy : An Analytical Stucly

other countries of the world. In fact, import of a large quantity of foodgrains became a per1nanent feature of Bangladesh economy. A cursory look at Table 5.16 shO\vs that since 1959 imports have never gone below half a million tons except -in 1961-62 and 1964-65, and that in 1969-70, the year of peak food output, imports am0t1ntecl to 1.6 million tons which is about 14 per cent of the record food output and more than 18 per cent of the output of bad years like 1962-63. To be more specific about imports and their composition in recent period, total import of rice during the Third Plan period amounted to about 1.7 million tons as against import of 1.65 million tons during the Second Plan period. Import of wheat during the Third Plan period totalled 3.8 million tons compared to 2.2 million tons during the Seco11d Plan period. Thus the total import of basic foodgrains during the Third Plan was 5.5 million tons as against 3.8.5 million tons during the Second Plan period. But in spite of this increase in imports, average consumptio-n o-f fooclgrains per head of population in Ba11gladesl1 derived by dividing total foodgrains available for consumption by pDpulation remained lower during the Third Plan period as a whole compared to the Second Plan periocl. Such estimates i11dicate that during the Third Plan period average consumption of rice and wheat together per l1eacl was about 351 lb per year against 359 lb per year during the Second Plan period. The position regarding rice, the basic food, was even \Vorse, per-capita availabilit:' bei11g 327 lb per year during the Third Plan period com1)arecl to 342 lb per year during the Second Plan period. It should be noticed here that these estimates of availability do not take into account the changes in stocks l1elcl by the government and by far1ners and traders. Thus these estimates have the deficiency of the assumption that production and imports in a particular year are entirely co11 · sumed in that year. The lower availabilitv of foodqrains combinerl witl1 growth of population ancl income led to rise in prices of foodgrains during the Third Plan period. Th~ _,vh~lesal~ price of coarse rice per maund rose from Rs 26.46 10 1964-60 Digitized by

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to Rs 39.97 in 1009-70, i.e. by 51 per ce11t.23 The high and rising prices of foodgrains naturally adversely affected the rural poor-the landless agricultural labourers, sharecroppers and poor peasants having holdings of less than 1 acre. The urban poor peple were also hurt by the risi11.g food prices. ·The consequent distress of the poor people increased further because of considerable speculation ancl hoarding by traders and large f anners, which accentt1ated grain shortage in the market and pushed up prices. The people resented the rising fod prices in a situation where per-capita income of the _agricultural ppulation decli11ed, or at least failed to improve. It was in this background that the social and economic confrontations of the earlv 1969 broke out and the explosion of 1971 took place. · VII. AGRICULTURAL TECHNOLOGY, INPUT APPLICATION AND PUBLIC INVESTMENT The broad picture of poor productio11 performance and near stagnation in the agricultural sector of Banglaclesh suggests a level of agricultural practices, technology and application of inputs which is itself traditional and backward. This in tum has a depressing effect on the productive efficiency of agriculture. It has been indicated earlier that i11 Ba11gladesh effectiv·e use of water involving flood control and drainage in the sumJiier and rainy seasons and irrigation i11 the wi11ter l1as an imPortant role to play. Within certain limits, grou11dwater development through deep tubewells and wi11ter irrigation through low-lift-pumps have much possibilities. But the extent of knowledge of Bangladesh's hydrolo~ is extremely limited. It has been estimated that because of limited availability of surface water only about 1.3 million acres can be irrigated by about 40,000 low-lift-pumps of two cusecs capacity. As against this potential, the number of pumps has increased f~om 1,367 in 1960-61 to a?~ut 6,600 . .

.

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23 Government of East Pakistan, Planning Departxx1ent, Eco_nomic Sur. . . vey of East Pakistan, 1969-70, p. 20.

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Baneladesh Economc, : An Analr,tkal Study

and the corresponding irrigated area from 32,000 acres to 400,000 acres. Additionally, the area irrigated by WAPDA (Water and Power Development Authority) projects covers 172,000 acres in 1967-68 out of a total command area of these projects of 322,000 acres.24 All these show limited utilisation of irrigation possibilities. Feliiliser is one of the key inputs in agriculture. But the qua11tity of fertiliser used in Bangladesh is meagre. Fertiliser use increased from 65.92 thousand tons in 1960-61 to 226.93 thousand tons in 1967-68, and then to 300.00 thousand tons in 1969-70.25 Nevertheless the level of fertiliser consumption in Bangladesh is much less than that in developed countries and even some Asian countries including presentday Pakistan (Table 5.2). Further1l)ore, beneficial effects of fertiliser use are often frustrated because it is not available at the right time, in the right area and in the rigl1t composition. l11 any programme for raising agricultural output, the availability of improved seed is crucial. In Pakistan in the second half of the sixties, the introduction of imported seed varieties, particularly of wheat and rice, led to significant results. But in Bangladesh under Pakistani rule the t1se of imported IRR! paddy-seed varieties, except in the case of boro cultivation, was largely at the stage of experiment. l11 relation to plant protection also the progress made in Bangladesh is lamentably poor. Thus only about 2.4 millio11 acres were covered by plant protection measures in 1964-65. But this is the situation in a country when because of climatic conditions crDps are particularly susceptible to insects and diseases and even under norrr,al conditio11s tl1ere is a loss of 10 to 15 per cent of crop yield because of pest incidence.26 In each of the above cases progress made in Pakistan is impressive and considerably more than that in Bangladesh. l11 addition one must observe that the volume of public24 S. R. Bose, 1970, op. cit. 25 Government of East Pakistan, Economic Surcey of East Pakistan, 1969-70, Table 28, p. 45. 26 S. R. Bose, 1970, op. cit.

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investment in agriculture and irrigation in Bangladesh is not satisfactory and much less than in Pakistan. Th,1s at current prices public investment in agriculture is Rs 150 million in Bangladesh and Rs 285 million in Pakistan and Rs 210 million and Rs 386 million respectively 1n 1959-60 and 1964-65. To the latter amount one ·must add Rs 910 million spent in 1964-65 on Indus Basin works in \Vest Pakistan. In the former eastern wing of Pakistan public i11vestment was supplemented from 1962-63 by a rural works programme wl1ich was financed through PL-480 wheat supplies.27 This programme had some positive impact on rural employment and income. But its contribution to agricultural production and development is uncertain. All these, however, confirm the traditional nature of agricultural operations and lo,v level of technology. The picture which is brought out is one of extremely limited progress in winter irrigation and absence of Hood control and effective water use in summer and inadequate progress in use of improved seeds, fertiliser and plant protection measures. It is these aspects which explain to a considerable extent the very sluggish growth of agriculture in Bangladesh. However, these factors are closely related to the size and quality of the extension service, financial incapacity of most far1ners to purchase expensive modern inputs, and the risks of crop failure due to natural calamities. But while the importance of these elements cannot be ignorecl, it is mandatory to focus attention on the agrarian structure which operates as a basic constraint on agricultural develoPment. VIII. TWO MORE SALIENT FEATURES Before concluding this chapter two more salient features of the agricultural sector should be dealt with. The first one is that cultivation is carried on a large number of farms of small size. Accordin!?: to the Census of Agriculture carried out in 1960 and covering the year 1958-60, there are G.14 27 Ibid,

p. 145.

BE--8

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Banglarlevh Economy : An Analytical Study

million farms covering a cultivated area of 19.14 million acres.28 This indicates an average farxr1 size of 3.2 acres. Moreover, 51 per cent of the farms are under 2.5 ;;tcr(~s. Additionally, these small farms are furtl1er subdivided into tiny plots scattered all over the village area. Further insight into this aspect is obtained by observing that the Bengal Land Revenue Commission of 1939 estimated 5 acres to be the minimum area to maintain an average family .29 The diminutive size of a farm is additionally emphasised by a comparison of the average farm size in Bangladesh and certain selected countries of Southeast Asia. S.uch a compariso11 has been presented in Table 5.2. The second f eatt,re of basic importance to be noticed is that Bangladesh agricultural economic organisation is characterised by the presence of ,l dualistic excha11ge cc:onomy or, to put in a different language, by the simultaneous existence of the subsistence type of economy as well as market type of economy. The greater part of agricultural production in Bangladesh does not go to the market. It is consumed near where it is produced and frequ~ntly by the grower's family. It is, however, hard to quantify and state definitively the extent of subsistence-oriented production. On the basis of limited materials available, S. R. Lewis and S. M. Hussain have suggested that the agricultural sector consumes about 80 per cent of rice output, the basic crop production, and sells· about 20 per cent _to the nonagricultural sector.30 M. Raquibuzzainan s study on the marketed surplus shows that the owner-far1ners of all holding-size groups sell about 10 per cent of rice output.SI But, whatever may be the precise importance· of the subsistence sector, there is no doubt that agricultural operations in the for1ns of farming 28 See Chapter 6 and particularly Table 6.2 below. 29 Report of t1ie Land Revenue Commission, Bengal, 1940, Vol I, p. 86. 30 Lewis and Hussain, Relative Price Changes and Industrialization in Pakistan, 1951-64, 1967, Table B-3, p. 57. 31 Mohammed Raquibuzzaman, 'Marketed Surplus Function of Major Agricultural Commodities in Pakistan•, Pakistan Development Review. Autumn 1966.

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for home use and nonmonetised transactions predominate over all other forms of economic activities. The above, however, must not be construed to mean that market-and-money relations do not have any significant place in Bangladesh agricultural economy. It is understandable that landless agricultural labourers and poor peasants having low incomes as also the 111>pcr holding-sizitt1latt!d here. It has bee11 revealed that the economy of Bangladesh is a predominantly agrarian 011e in terms of contribt1tion to gross domestic product and patter11 of occupatio11. The total geographical area of the country is approximately 35 million acres. The country suffers from high-po-pulation density and rapid-populatio11 gro,vth resulting in high and increasing pressure on land. The opportunity for cultivating new land is considerably restricted. About 22.46 millio11 acres ,vere cultivated i11 1970-71, the inte11sit~, of crapping bei11g fairly high or, to be specific, 144.5 per cent. Weather, particularly rainfall, pla~!s an 011tstanding role in the productio11 an(I character of crops in Bangladesh. Only t,vo products, rice and jute, dominate the structure of production. Paddy cultivation occupies more than 70 per cent of the cultivated area, while ·32 S.ayee. l.'34.

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Agra;-ian Structure-II

II. MERCANTILE EXPLOITATION For a proper understanding of tl1e agricultural sitt1atis, however, l1ad a savi11gs rate of arot1nd 10 per cent.23 But though a very substantial amount of income accrues to tl1e joteclars, the moneylenders and the marketing intern1ecliaries a11cl they ]1a,•e positive savings, the)' do not invest mt1ch. Tl1e bt1lk of tl1e st1rplt1s extracted Ot1t of the peasant 20 Pakistan Pla11ning Co1nmission, op. cit., p. 13. 21 A. Bergan, 'Personal Income Distribution and Personal Savings in Pakistan', Pakistan, Decelopme11t Review, Summer 1967. See also Sobhan, op. cit., pp. 1:3-14. 22 Ibid. 23 Statistical Yearbook, 1968, Karachi, 1969, Tables 211 and 214.

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Banglode.-,1, Econc,my : An Analytical Study

sector is not tised for improvement of agricultural productive facilities and modernisation of agriculture. According to the estimate made by Bergan, the total annual income of the top 20 per cent of the rural families amounted to Rs 743 crores in 1963-6424 a11d for the decade as a whole in real term it could not have fallen below this magnitude. In view of the rising prices it must have gone up in monetary ter1ns. But private investment in agriculture for the undivided Pakistan was only Rs 5.5 crores in 1969-70, a very good. agricultural year.25 The share of East Bengal is 11ot separately available, but was unlikely to be more than Rs 20 crores in a situation ,vhere West Pakistan,s agriculture · exhibited much higher tempo of modernisation. Eve11 assuming that the entire investment was made 011ly by the top one-fifth of the families in rural East Bengal, the in,,estment rate of this group is less than 3 per cent of their income.26 The small number of low-lift irrigation pumps and other agricultural equipments and the low level of fertiliser use in East Bengal in the last decade27 indirectly confir1n the contention that the upper strata of the rural popultttio11 employ only a very small portion of their income for tl1c improvement of their land, for Hood control, drainage a11d irrigation or for introducing other output-raising inpt1ts a11cl measures. As a matter of fact, the considerably l1igh rates of return from renting-out of land to bargadars, moneylending and trading Qperations involving entanglement of several modes of exploitation have made it highly unattractive to the rural upper-income strata to plough back their gains into investment in agriculture and productive facilities and in the improved methods of production. Instead of such productive investment, their income was wasted and malutilised through diversion to buying-up of more land or mone~'lendi11g or speculative commerce. Furthermore, this behaviour pattern of the dominant rural interests not only has left 24 25

Bergan, op. cit. Pakistan Planning Commission, The Fourth Five Year Plan. 26 N. K. Chandra, op. cit. 27 See Chapter 6 above.

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the mass of small peasa11ts in a11 extremely impoverisl1ed condition, making it impossible for them to invest in agricultural improvement but has also sought to perpetuate the backwardness and near stagnation of the agricultural sector, and the latter in its turn has created a preconditio11 for tl1e thriving of. jotedar-operations, 1noneylending and rapaciot1s trade.28 IV. RURAL POvVER STRUCTURE It is of considerable importance to observe that 11ot 011ly the economic power but also the political power in the rural life remained concentrated in the hands of the joteclarmoneylender-trader combine. It is these exploiting classes who were the chief economic and political beneficiaries of the Pakistani rule and particularly of the basic-democratic system introduced by President A)1ub, who exercised tl1e right to allocate public resources and government finance and distribute patronage in various forms at the rural level of the political structure, and who acted as the mainpraps "the opinion moulders and opinion leaders"29behind the Ayub regime. The basic democrats constitt1ted the electorate for the presidency, the national and provi11cial assemblies as well as the channel of distribution of developmental funds. This rural political elite ,vas drawn mainly from tl1e uppe1· strata of the rural society. Thus on the basis of a number of surveys on the occupational status, landholdings and financial status of the basic democrats elected for 196465 Rehman Sobhan has concluded, "... the basic democrats come from a distinctly superior economic background to the generality of the villagers'',30 Thus of the reporting basic democrats 63.8 per cent own 7 .5 acres and above, and 42.8,5 per cent have 12.5 acres or more. As against this onl~-· 10 per cent of all farmers i11 East Pakistan owi1 7..5 acres 28 So bhan, op. cit ., pp. 67-69. 29 Mohan1n1ecl A yool>, 'Backgrounll an d De velopn1ents', Banelade~T,: .-'\ Struggle for N atio11hoocl, Vikas Publicatio11s, Delhi, 1971 , pp. 12-1:3. 30 Sol>han , op. cit ., p . 97.

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l3er ce11t ow11 more than 12.5 acres.31 The basic democrats' wealth of landed praperty is refiected in his in~e. Thus two-thirds of the basic democrats had incomes of Rs 3,000 and above and 44 per cent had it1co1nes over Rs 4,000. Particularly striking is the fact that tl1e reporting basic de~ocrats improved their fin~ncial status o\·er the five-year penod of 1960-65. Sobhan points out that i11 1956-59 only 54.84 per cent of the basic democrats reported incomes over Rs 3,000. This increased to 66.41 per cent in 1964-65. However, there is absence of adequate information to indicate firmly \vhether the improvement in the financial status was due to the general rise in affluence of tl1e rural upper strata as a class or whether the works programme contributed to tl1e enrichment of the basic democrats as a class.32 RURAL WORKS PROGRAMME

Tl1e economic and political power of the top strata of the rural population has been furtl1er bolstered by the works programme of East Pakista11. The rural works pror.amme, "an American conceived and fi11anced programme ',33 was actt1ally launched in 1961: The basic objectives were to 111ake the farmer productivity conscious, introduce outputr,1isi11g improvements, have various develapme11tal measures including road construction, channel excavation and emba11kments and create employment. G. F. Papanek has acclaimed the works programme as a ''major contribution to eco11omic-develapment techniques which Pakistan has macle''.34 Pakistan government also quite naturally claimecl that the achievements were very much im1)ressive and stati~tical figures were reeled off to support the claims. Bt1t, whatever may be the official claims, it seems that the 0111~- positive impact to speak of was on tl1e employment sitt1ation. Various studies and su1, e)'S unmistakabl)' indicate 1

31 Jbi11 cculJies a11 important position, there is considerable i11ec1t1alit)· i11 the distribution of ownership of land; (b) a sul)sta11tial tJroportion of the total agricultural labour force is for all practical purposes deprived of the cl1ief 1nea11s of prodt1ction; (c) the top Jandholders, i.e. the jotedars, usual!~, remai11 clivorced from the risk ancl responsibility of proclt1ction; (cl) sl1arecrapping i1nplying ki11cl-rent is the predomina11t 111ode of exploitation in tl1e s1}l1ere of procluctio11; (e) there is i11creasi11g ex1}loitatio11 of ,,·,1ge-labour i11clicati11g gro,vtl1 :35 Sol,han. 01>. cit., p . 2:37.

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of capitalist relatio11s, but ,,,age-labour exploitation in tl1e specific context of Banglaclesl1 also contains element of extortion of labour-rent; (f) social, political a11d such otl1er ·'11oneconomic presst1res" are still for1nidable; (g) usuriot1s moneylending is the principal for1n of credit, the sources being the traditional moneylencler, the jotedar-moneylender and marketing intermediaries; (h) millions of unorganisecl, scattered and essentially subsistence-oriented peasant producers are subjected to precapitalist mercantile exploitatio11; (i) the jotedar, the moneylender and the trader are ofte11 the same person or at least always closely linked togetl1er: (j) they occupy a crucial position in the rural political ancl social life; (k) the dominant rural i11terest caucus appropriates a considerable amount of surplus out of the peasa11t sector a11d saves a good portion of it; (1) this caucus, ho,\ ever, makes very meagre productive investments in moden1isation of agriculture and productivity improvements including ap1Jlicatio11 of new inputs; (m) agricultural growtl1 has been extremely sluggish and, in fact, exhibits features of near stagnation; (11) agricultural value-added per head of agricultural population fell sharply during the 1950s whicl1 has not been made good during the 1960s; and (o) the livi11g conditions of the vast bulk of the peasantry and the landless labot1rers have either deteriorated or remained static. Admittedly, there are many significant gaps in Ottr knowledge abot1t these aspects and problems, and it is 11ecessary to u11clertake inte11sive study of these. However, the arguments made above signify on balance the widespread persiste11ce of precapitalist 1·elations of exploitatio11seniifet1dal 1Jroductio11 relations coupled with usuriOt1sniercantile exploitation-marked b)' penetration of capitalist relations of production. It is tl1ese which act as the powerft1l stumbli11g-blocks in the \\ a~ of agricultt1ral modernisatio11 and clevelopment on a broad front. 1-

1

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Foreign and Interwing Trade The pattern of foreign trade of a country reflects the structural features of its economy. In fact, the items of export and import will indicate the stage of econOJI}ic development of a country. An analysis of the trends and patterns of foreign trade of Bangladesh would reveal the basic strength as well as the ,veakness of its economy. It would also suggest if any structural breakthrough has been made in the economy of the eastern wing of Pakistan since its birth twent),five years ago through the partition of India. Before partition, the economies of tl1e areas which later constituted Pakistan and India were interdependent. Conseque11tly, the severence of these well-established relationships by partition, for some time, crippled and disruptecl the industrial, trading and commercial organisations of erstwhile East Pakistan. Before the emergence of Pakistan, East Bengal was an underdeveloped region with a stagnant agricultural econom,, where the industrial base was extreme},, narrow. East Bengal was the world,s largest producer of raw jute with no jt1te mill; the bulk of the product was consumed by Indian jt1te mills dt1ring the prepartitio11 days. After partition, raw iute became the only major export item. And for all manufactured products East Bengal l1acl to clepend on the stipp1)' from outside. In the case of Bantzladesh, the study of foreign tracle ,vill remain i11complete unless the pattern of interregio11al trade between the two ,vings of Pakistan is also exami11ecl. It assumes special significance because Pakistan ,vas com1)osecl of east and west wings widely separated from eacl1 otl1er by over a thousand miles of foreign territory. The mo,·ements of commodities in the form of trade betwee11 tl1e t,vo ,vings ✓

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Bunglculesll Economy : An Analytical Study

of Pakista11 prior to the emergence of Pakistan when botl1 were 1Jarts of a bigger country were practically negligible. Since 1948, the absolute volume of interwing trade went on increasi11g and the relative importance of interwing tracle vis-a-, is foreigi1 trade also increased to a considerable extent. It is interesting to note that geographical, political, social and other factors stood in the way of a total economic integration bet,veen the two greatly dissimilar segments of Pakistan wl1ich obviously created special problems in tl1e field of interregional trade. \Vithin a few years of the birtl1 of Pakistan, the question of discriminatory treatment a11cl econo1nic clisparity l1etween the two wings of the cot111t1: assumed a seriot1s proportion which ultimately led to the emerge11ce of Ba11gladesh. Hence, the study of the de,·elopment of trade relations between a relatively more ancl a relatively less develDped region is expected to reveal certain sigi1ifica11t features of the economy of Bangladesh. 1

1

It should be stated at the outset that our study on tl1e foreign trade of Bangladesh suffers from a limitation. Here we have examined only the problems of balance of tr.) Exports to West Pakistan

86-'.3.4 125.7

979.8 280.6

1,260.3 457.0

Total exports Balance of trade with West Pakistan (X-M) Balance of trade with abroad (X-M) Balance of trade coml>ined

989.1

1,260.4

1,717.3

-162.1

-28.'3.7

-424.5

424.0 261.9

355.0 71.3

41 .1 -383.4

1,053.1 125.7

1,525.0 280.6

CJ 7 ..I:..,. "> 7 _.,

1,178.8

1,805.6

3,229.7

Total imports

West Pakistan: In1ports from abroad (c.i.f.) I inports from East Pakistan Total imports Exports to abroad (f.o.l>) Exports to East Pakistan Total exports Balance of trade with East Pakistan (X-M) Balance of trade \\'ith abroad (X-M) Balance of trade coml,ined

457.0

- --

-

852.8 287.8

616.3 564.3

1,140.6

1,180.6

1,738.7

162.1

283.7

424.5

-200.3 -38.2

-908.7 -625.0

-1,915.5 -1,491.0

857.2 881.5

-

- ~-

Sot1rces: Stephen R. Lewis Jr., op. cit.~ p. 143. (Computed from CSO Bulletin, May 1967 for foreign trade and Economic St1rvey, 1966-67 for interwing trade.)

Table 8.4 gives the overall picture of trade of ;East Be11gaJ during the Third Plan (1965/00.1969/70) period. Here also we ·find that thot1gh East Bengal had a surplus_ balance of trade with foreign countries, in her trade with West Pak 4

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istan, there was a huge deficit. The 11et result was an overall balance of trade deficit. During the Third Plan period, foreign exports of East Bengal increased by 5 per cent annually, from Rs 1,268 million in 1964-65 to an estimated Rs 1,623 million in 196970. On the other hand, imports into East Bengal declined from Rs 1,702 million in 1964-65 to an estimated Rs 1,665 1nillion in 1969-70 leading to a 11egative growth rate. In the first three years of the plan, there was a surplus bala11ce of trade with foreig11 countries; but in the last two years, there was an unfavourable balance of trade. So, during the Third Plan period as a whole, the surplus was marginal. During the Third Plan period, East Bengal's trade witl1 West Pakistan contint1ed to grow at a much faster rate than with foreign countries. During the five year period (1965-70), exports to West Pakistan increased at an annual average rate of 12.5 per cent while imports increased at a rate of 15.5 per cent annually. Total import from West Pakistan during the Third Plan was estimated at Rs 6,952 million. Exports were estimated at Rs 4,012 million. Total trade deficit with West Pakistan dt1ring the plan period thus amou11ted to Rs 2,940 million. The deficit increased from Rs 337 .4 million in 1964-65 to an estimated Rs 8.'.34 million in 1969-70. TABLE

,

8.4:

EAST BENGAL S FOREIGN AND !1.N'l"ER\VINC TRADE

(1965-66

TO

1969-70) (Rs in tnillion)

Foreig11 trade

Year 1965-66 1966-67 1967-68 1968-69 1969-70*

total

Trade with West Pakistan

export

i1nport

l1alance

el.-pOrt

1514.1 1574.7 1484.2 1543.0 1623.0 7739.0

1:328.1 1566.6 1327.5 1850.0 1665.0 7737.2

+ 186.0 +8.1 +156.7 -307.0 -42.0

651.8 7:38.9 784.9 870.5 966.0 4012.1

+1 .8

in1port

balance

1208.6 1324.8 1233.2 1385.2 1800.0 6951.8

-556.8 -5&5.9 -448.3 -514.7 -834.0 -2939.7

* estimated Source: Economic Survey of East Pakista11, 1969-70, p. 22.

\Vhe11 Pakistan came into being, East Bengal \Vas a largely underdeveloped. region with a stag11ant agricultural economy and having virtually no industr)'· The main complaint

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Bangladesh Economy : An Analytical Study

of the eastern wing was that no effort had been made to rectify the inherent structural imbalance of this part of Pakistan; on the other hand, the central economic policy of Pakistan was directed in such a way that inequality between the two wings of Pakistan was widened further in the following years. The unequal and discriminatory treatment meted to East Bengal is quite evident in the figures of the tables quoted earlier. In Table 8.1, we have seen that while East Bengal has consistently earned more than half of the foreign exchange obtained by commodity exports, it has consistently received less than one-third of commodity imports. It is expected that in a developing economy, imports would go on increasing. But it is interesting to note that though there was a rapid rise in the volume of imports ot West Pakistan, East Bengal's share of imports remained more or less stable. This is due to the fact that there was an unequal distribution of foreign-exchange earnings, of imports and of investment resources between the two wings of Pakistan throughout the period. It is significant that though East Bengal had a favourable balance of trade and West Pakistan recorded a growing volume of adverse trade balance with the rest of the world (Table 8.3), West Pakistan continued to import capital goods and intennediate goods to build up an industrial base denying any opportunity to East Pakistan to expand her industries. This may be seen from figures in Table 8.5. The policy of discrimination towards two wings of Pakistan is also reflected in the estimates of fixed investment. Throughout the period of planning, less than one-third of the total fixed investment of the country was spent for the eastern wing and more than two-thirds were utilised for the industrial development of the western part.l The potential for development of even agro-based indt1stries in East Bengal was ignored. As a result, t1nlike \!Vest Pakistan, there was no change in the production structure of East Bengal and the economy remained lopsided as before. Even 1 Del> Kumar Bose antl .,\nil Chatterjee, ' ..,\ Perspective for Economic Developn1ent of Banglaclesh', Econo111ic anc/ Political ,veekly, \'ol. \'II. [';o. 12, 1~2.

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Foreign and Interu;ing Tracie ·r..\BLE

8.5:

AVERAGE ANNUAL IMPORTS OF CAPIT.-\L GOODS PL\.1S )IATEI\IALS

FOR CAPITAL GOODS l~'TO EAST AND \VEST P..\KISTAS: PREPLs\;'IJ A1''D FIBST PLAN PERIODS

(Rs in · million)

First Plan, period (1955-56 to 1959-60)

Preplan period (1951-52 to 1954-55)

:::, .., ~ :-="i::s ~ ~ ;.)

East Pakistan West Pakistan All Pakistan

C C

tlD

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l::s

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109.7

56.6

166.3

31.1

176.,5

92.0 268.5

29.9

... ....

102.4

367.6

68.9

466.4

162.0 628.4

70.1

:)65:)

374.9 159.0

533.9 100.0 642.9 254.0 896.0 100.0

Sot1rce: Stephen R. Lewis Jr., op. cit., p. 146. (Computed from Nun1l Islam, Imports of Pakistan : Grou;tli and Structure. Karachi, 1967, 'fables B-11 and B-12.)

at the end of the Second Five Year Plan (1964-65), tl1e manufacturing sector as a whole contributed only 8 per cent to the total gross product of East Be11gal. Due to lier weak industrial base she had to import almost all of her requirements of manufactured goods. But the stagnation in the agricultural sector also forced her to import huge quantity of foodgrains and other agricultural commodities from outside. Naturally, the policy of eco11omic disparit}· between th~ two wings of the country had its in1pact in tl1e political field. · III. MAJOR DECISIONS ON TRADE POLICY The course of trade in East Be11gal, both i11te!"\vi11g a11d foreign, was obviously influenced b~· tl1e major e,·ents a11d clecisions taken by the Pakistan go,·er11ment related to its · trade policy during the past years ,vl1icl1 ma)' be 11otecl l1ere i11 brief.

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166

Banglmles/1 Economy : An Ane1lr,ticc,l Study

Tl1e first n1ajor decision crucial to trade policy in Pakistan ,vas 11011de"·alt1atio11 of Pak rupee in September 1949, which invol,,ed a serious test of the country's balance of payme11ts. 011 17 September 1949, l11dia decided to devalue her rupee to the same exte11t (30.5 per cent) as the devaluatio11 of the pound sterling. Pakistan did not follow tl1e course and so maintained the par value of lier rupee vis-a-vis the US dollar and other nondevalued curre11cies. The mai11 arguments llehind this decision were that in view of tl1e inelastic supply of exports and relatively inelastic clema11d for imports, the balance of payments was 11ot like1)' to improve as a result of the devaluation. Moreover, it was felt that the no11devaluation decisio11s would have a favot1rable impact on the i11ternal price level and the lowe1· import costs i11 domestic currency of machinery and other capital goods would provide an ince11tive for the mucl1 clesired industrial gro\\ th.2 The polic)' was adq)ted in large part to achieve better tenns of trade witl1 India in the sale of raw jute~ the main exprt item of East Be11gal. The presumptio11 was that the internatio11al dema11cl for raw jute was highly inelastic so that a possible reduction in exports a11d production would actually increase earnings. The result was a virtual standstill of trade between Inclia a11cl Pakistan. East· Be11gal inherited a very great de1)endence on raw jute expo1ts to India. Bt1t jute sales to I11dia receivecl a severe blo,v si11ce India refused to accept the ne,v l)arity between tl1e I11clia11 ancl the Pakistani rupee. The loss of these expo1ts was compensatecl, to some extent, b)· l1igl1er jute exports to overseas cot111t1ies, but by the ver)' 11att1re of the almost monopolistic positio11 of Inclia i11 the world raw jt1te market, the possibilities of sucl1 a diversion were limited. Conseque11tly, reduced jt1te exports to Inclia tendecl to act as a co11straint 011 raw jute prodt1ction ancl tl1us there \Vas a fall botl1 i11 tl1e size of Pakistan's jute . crop a11..

"Tl

Chemicals, drugs and medicines

0::1

fl92700

-

10.42

-

-

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cs.~c::i

C l)

s::

~

c:::

7(-,..)7

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;,

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~ (".I

Sources: (1) Stati:~tical Digest of East Pakistan, No. 2, 1964, pp. 138-39. (2) l'aki.~tan Statistical Yellr B,u,k, 1968, 1>P. 298-309. (3) Eco1101nic Survey of East l'akistan, 1969-70, p. 28.

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Pattern ancl Direction of Trade

173

counted for more than 18 per cent of the total imports from foreign countries. Other principal items of im11ort from foreign cou11tries are all types of machinel)~, metals, transport equipment ancl other manufactures, coal, coke and petroleum products, fertilisers and chemicals, medical and pl1armaceutical products, etc. The pattern of trade between the two wings of Pakistan has been largely deter1nined by their relative levels and patterns of development. The sigiillicantly more diversified and higher levels of industrialisation in West Pakistan is reflected in the importance of manufactured products in the exports to East Bengal. The breakthrough in agriculture in West Pakistan has again allowed export of surplus foodgrains to meet the food deficit in East Pakistan. The important items of import from West Pakistan include foodgrains, raw cotton and cotton manufactures, oilseeds, tobacco, both manufactured and uninanufactured, drugs and medicines, machinery and mill work, cement, etc. It is interesting to note that unlike West Pakistan, the composition of imports in East Bengal had not undergone any fundamental change and for all important itemscapital goods, raw materials and consumer goods (including food grains)-it had to depend on the supply from Ot1tside throt1ghout the period. The impact of import substitt1tion is not at all visible in the overall import trade. In the latest year (1968-69) for which data are available, machinery and metal products accounted for near],, halt of the total imports from foreign countries. Chemicals and drugs constituted more than 10 per ce11t and coal ancl coke abot1t 3 per cent of the total foreign imports. Official data showl that import of in,,estment goods (cement. machinery and equipments and iron and steel) averaged about 48 per cent of total foreign import'i over the first four years (1965-69) of the Third Plan period. The share of these items, ho\vever, sho\ved a do\vn,vard tren(l, In 1964-6.5 (last )'ear of the Second Plan) abot1t 56 per 1 Government of East Pakistan. Planning Departrnent, Economic Surrey of Ca.~ Pakistan, 1969-70 , Ch. IV.

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174

Ba,iglacle.~1, EcononJy : An Analytical Stucly

c:e11t of total imports was accounted for by these items. In 1968-69 their share declined to 49 per cent and is expected to be even lO\ver in 1969-70. On the other hand, the share of foodgrains (rice ,l11d ,vheat) showed an upward trend, risi11g from 5 per cent in 1964-65 to 18 per cent in 1968-69. the ;1verage for tl1e first four years of the Third Plan period being about 14 per cent which is higher than the Second Plan ,lverage of about 12 per cent. The increased import of foodgrains has been necessitated by frequent crp failure i11 the llrovince a11cl slow progress in the agricultural sector. The 11eed for i11creased food imports created a serious drain on tl1e limited foreign-exchange resource and partly accounts for inadequate imports of raw materials to feed the growing industrial sector. So far as the imports from West Pakistan are concernecl, cotton mant1factt1res and raw cotton accot1nted for abot1t 20 per ce11t a11cl 11 per cent respectively of the total i11 the year 1968-69. FooM..

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COMMODITlES

(Rs in '000) 0 -

(3) Economic Survey of East Pakistan. 1969-70, p . 27.

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180

Bangladesh Economy: An Analytical Studu .

1967-68, though in absolute term, the value of raw-jute exports had gone up during the period. In the next year (1968-69), there was a further decline (47 per cent) in the relative share Qf the raw-jute export; and there was also a fall in the absolute level of raw-jute export. TABLE

9.5:

RECORDED EXPORTS RE~EI.YfS

(Rs in m,llwn)

Year (July-June) 1948-49 1949-50 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60

Jute

Jute manufacture8

Tea

390.4 304.4 863.0 1,160.0 532.6 589.5 594.6 007.1 808.5 858.0 789.5 760.4

-

-21.7

-

34.4

3.6 11.3 85.2 101.9 132.8 144.7 223.3

49.0 29.7 48.5 19.5 16.2 46.S

Source: State Bank of Pakistan, The Pakistan Development Review> Vol. I, No. 2, 1961, p . 44. TABLE

9.6:

VOLmlE OF EXPORTS BY PRINCIPAL COMMODmEs

Year (July-June)

1948-49 1949-50 1950-51 1951-52 1952-53 1958-54 1954-55 1955-56 1956-57 1957-58 1958-59 ·1959.00

Jute (000 bales) 6,049 3,459 6,654 4,885 5,274 5,124 5,142 5,684 4,067 4,880 4,086 4,817

Jute manufactures (000 tonnes)

Tea (million lb)

-

-

-

1 10 14

88 -.

73 69 . 136 203

31.29 30.79 23.62 34.13 24.22 23.33 26.03 14.08 21 .03 8.36 10.58 15.76

. Source: cso, Pakistan : The Pakistan · Develo-pmenl Review• Vol. I> No. 2, 1961, _p. 47. •

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Pattern and Direction of Trade

181

The decline in the. quantum of raw-jute ·export ~as .·due to stagnant production of raw jute and increased mill consumption. While the world market of jute and allied fibre expanded, East Bengal's share in the world market continued to decline. This reflects a failure to capture market opportunities . in a fie)d where the comparative advantage lies with East Bengal. It has been officially admitted that production of jute failed to increase and exchange-rate policy followed worked against the comparative strength of jute in the \vorld mar~et. With praper incentive for production and marketing, export earning from raw jute would have continued to expand even after meeting the demand for mill consumption.4 · On the other hand, the relative share of jute.ma_nufactures in the total foreign exports has gone up from 9.3 per cent in 1956-57 to 42.5 per cent in 1968-69. This reflects the growing importance of manufactured goods in the export trade of East Bengal to foreign countries, though the manufacturing export is mainly limited to a few items. . It is also interesting to note that in 1956-57, the export of fish to foreign countries accounted for 2.4 per cent of the total exports. The share was increased to about 6 per cent in 1963-64. But since then there was a gradual decline in the export of fish and in 1968-69 the share of fish export accounted for less than one per cent of the total. This is because fish export was mainly directed to India which was suspended during the Indo-Pak war of 1965. Export of leather which s~owed encouraging perfor1nance, increased from Rs 40 thousand in 1956-57 to Rs 75 million in 1968-69. However this was achieved partly at the cost of raw hides and skins the export of. which declined from about Rs 23 million in 1956-57 to almost nothing in 1968-69. Export of other manufactured goods remained insignificant mainly because of inadequate development of . industries in the eastern wing. The items of East Bengal's export to West Pakistan (Table 9.4) show that the expansion of industrial base of East Bengal has taken place on a limited scale on the basis of natural 4 Ibid, p. 24.

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182

Bangladesh Economy : An Analr,tical Studu

advantages. As a result, a few items of manufacturing goods were also exported to West Pakistan. Apart from the traditional items like tea and jute manufactures, the two new industries like paper (including newsprint) and matches were develaped in the eastern wing of Pakistan which accounted for nearly 90 to 100 per cent of the total productive capacity of Pakistan. Naturally, these manufacturing items gradually assumed importance in the total exports to West Pakistan. As a result of the expansion of these new industries, the relative shares of tea and jute manufactures in the total exports to West Pakistan had gone down between 1955-56 and 1968-69, though in absolute terms the value of these exports had increased considerably. Growth of both these exports slowed down during the Third Plan period. In 1964-65 export of tea amounted to Rs 185.4 million which rose to Rs 257.0 million in 1968-69, while its share in total exports declined from 35 per cent to 30 per cent over the period. Exports : Jute manufactures rose from Rs 104.9 million to Rs 123.8 1· lion, or by 18 per cent but its share fell from 19 per cent to 14 per cent. During the period as a whole, the export of paper and match products recorded a substantial improvement both in absolute and relative terms (Table 9.4). During the Third Plan period, the export of paper to West Pakistan increased from Rs 85.9 million in 1964-65 to Rs 109.5 million in 196869; but its share to total exports declined from 16 per cent to 13 per cent. The export of · matches increased from Rs 26.2 , million in 1964-65 to Rs 42.6 million in 1968-69 though its· relative share remained unchanged. Since the expansion of the industrial base of East Bengal was extremely limited, no significant change was visible in the structure of export and import of East Bengal which occurred in the case of West Pakistan. In West Pakistan, through the rapid growth of the manufacturing sector, substantial changes too~ place in the· industrial structure and the structure of product use which led to striking changes in the composition of foreign tra~e. This is quite evident in the import substitution of some important items and in the diversification of export composition.

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Pattern and Direction of Trade

183

In F.ast Bengal, the deliberate plicy of discrimination and unequal beatment pursued by the central Pakistan government in the field of imparts and licensing prevented any largescale expansion of the manufacturing sector. Nurul Islam in his study.> observed that the application of the static CQllcept of comparative ad,"antage placed East Bengal in a n11mber of fields at a disad,~antage in te1 of current costs because the basic social and economic O\·erhead facilities such as roads, trairu .......tion and communication facilities, supply of pawer and skill, etc. were yet undevelped so that the existing cost ratios of various industries in East Bengal did not re8ect their long-nm relative efficiency vis-a-vis similar indusb"ies in West Pakistan. This initial disadvantage tended to have cumulative effects. Xew indusmes in the private sector concentrated in West Pakistan with all its ad,•antages and also with its nearness to the seat of the gm:emmeot which ;idministered the commercial and industrial licensing of imports as well as the control of capital issues. As a result, East Bengal remained relatively less industrialised compared tQ West Pakistan. As late as in 19.57, East Bengal's share in largescale manufacturing industry, as revealed in the Census of Manufac.-turing Industries, was very low. It had 18 per cent of the total number of establishments ctNered in the Census of 19-57, and shared about 30 per cent of their a,·erage dail~· empl~·ment and 26 pa- cent of their gr~ ,·a1ue of products respecti\·el~·The share of East Bengal in industries like basic metals, electrical and other machinen· and ffxJt\vear was Jess than 5 per cent each of the total gross output in Pakistan. The shares in rubber and metal products were 15 and 21 pet cent respectively. In nonmetallic minerals the share was 13 per cent and in textiles, 24 per cent. In chemicals and chemical products, the share was 26 per cent. The differences in the scale and pattern of industrialisation in the two wings were reflec-ted in their trading patterns. Due to natural advantages, several raw material-

,,as

s Nurul

Islam, 'Some Aspects of lnterwfng Trade and Tes11n of Trade in Pakistan', The Palcidan Deulop•teat Becler.c, \·ol. Ill. So. I. 196'3.

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184

Bangladesh Economy : An Analytical Study

oriented industries like jute manufacturing and pa~ei- products were developed in East Be~gal. But an overwhelming proportion of the output of many major bra:q.ches of industry originated in West Pakistan with the result that with increases in the scale of production, many such prod~cts tended to replace imports from abroad and were exported to the eastern wing. As a result, even for the supply of consumer goods like cotton fabrics and cotton yarn, sugar, boots and shoes, cigarettes, fertiliser, drugs and medicines, East Bengal had to depend on West Pakistan, though due to long distance and high transport costs, the prices were relatively high . . Thus the underdeveloped character of the foreign trade structure continued in East Bengal throughout the period. The items of import reflect the weakness of the industrial base of the country. And the export structure also indicates the inherent weakness, i.e. heavy dependence on a small number of export items in which the share of manufacturing industries is very small. We hav_e already noted that in 1968-69, raw jute accounted for ·47_4 per cent of the total value of exports to foreign countries and the share of jute manufactures ,vas 42.5 per cent. In the world export of raw jute, East Bengal's share was as high as 61 per cent in 1970-71 and in the world export of jute manufactures, East Bengal's share was 45.5 per cent in 1970 compared to India's share of 51 per cent.6 At the beginning of the sixties, East Bengal's share in the world export of fute manufactures was much less. During the last decade, East Bengal has gradt1ally gained ground at the cost of India.7 But the overwhelming dependence of East Bengal on the export of these two items has to be viewed in the context of the shrinkage of world jute market. The principal use of jute is still as a packaging material, and its use in this area has been ~reatly affected by new technological devices such as bulk handling as well as by COIIipetition from alternative packaging materials made out of synthetics. 6 Statistical Year Book of European Jute Industry, September, 1970. 7 Administrative Staff College of India, Hyderabad, Survey of. India's Export Potential of· Jute and Jute Pro.duels, Vol. III, Section B. Commerce, 26 June, 1971.

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Pattern and Direction of Trade

185

II. TERMS ·oF TRADE In a developing country, the terms of trade assume special importance because they offset the country>s import capacity as well as the balance of payments position. The commodity terms of trade indicate the relative unit prices of commodities for exports and imports. The income terms of trade measure the total purchasing power of total exports and overall payments for total imports. The income terms of trade give a broader view and deal with the more strategic variables (i.e. availability of foreign-exchange resources) than the commodity ter1ns of trade. Since most of the underdeveloped countries depend on the export of primary commodities, the prices of which fluctuate considerably, they face serious difficulties in respect to their export proceeds. On the other hand, they have to pay higher prices for manufactured goods and other necessities which constitute the main items of their imports. Consequently their terins of trade with foreign countries tum adverse. Till midfifties, raw jute and tea were the two main items of export of East Bengal. Table 9.7 gives the figures of unit values of raw jute and tea from 1949-50 to 1963-64. It will be seen from this table that during the three-year period of 1949-50 to 1951-52, there was a consistent rise in the export price of raw jute as a result of which the ter1ns of trade showed general improvement. This improvement resulted partly from Pakistan>s nondevaluation decision and partly from the exceptional conditions created by the Korean war boom. Thereafter, however, there was an almost steady deterioration in the unit value of exports front year to year. The export price index of raw jute fell by 50 per cent from fiscal year 1951-52 to fiscal year 1952-53. The recovery took place in the year 1955-56 and a considerable improvement was noticed up to 1957-58. Again there was a decline in the unit value in the .,vears 1958-59 and 1959~60. In 1960-61, scarcity conditions of raw jute and consequently exceptionally high raw-jute prices led to a reversal of the declining trend in the unit value of export and recorded a hundred per cent rise in one year.

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186

Bangladesh Economy : An Analytical Study TABLE

9.7 :

UNIT VALUE OF PRINCIPAL EX.PORTS OF EAST BE.'llGAL

Year (July-}une)

1949-50 1950-51 ' 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64

(1949-50

Raw fute (Rs per bale)

150.1 181.5 2 the achievement of selfsufficiency in food is not difficult. This possibility was admitted even by Mahbubul Haq, one of the principal economic r,olicy-makers under President Ayub, who wrote in 1963, 'If proper steps are taken, the eastern wing is destined to become the granary for the whole of Pakistan.,,! Perhaps most crucial from the point of view of economic viability is that Bangladesh is the world,s largest producer Qf high-quality raw jute. So far as the mineral resources are concerned, Bangladesh has good-quality 9.34 million million cubic feet of natural gas, with high methane content, which can play a very important role in the industrialisation of the region; goodquality coal reserves of 1,600 million tons which, according to Pakistan goveJ1o.:rrient,s official document2, though involving problems of deep mining requiring heavy investment, can meet not only the domestic requirements but can also be exported; 2 lakh tons of white clay; 20 million tons of limestone suitable for use in cement manufacture; soda ash, sugar, paper and steel production; and radio-active elements in the sands along the ocean beach at Cox's Bazar. Till now no oil has been struck, but the prospect of finding oil cannot be ruled out. Despite the presence of these resources, it cannot be denied that Bangladesh is poor in mineral resources. But it should be evident frOIIi above that the country is not as poor in mineral resources as is often thought to be. Furthermore, in the seventies the paucity of mineral resources and raw materials is not an insurmountable constraint on industrialisation. and economic develC>pment. Many of the most advanced countries like Japan and Italy have achieved high level and very rapid rate of economic ublic agencies in the for1n of commercial profits. (d) Along with such elements of compulsion, the state may also make t1se of tl1e exchange relations with agriculture, i.e. by commercialisation of the subsistence sector through provision of material incentives. For this purpose,. price incentives and increasing supplies of consumer goods produced b)' tl1e nonagricultural sector will have to play important role. (e) An additio11al powerful instrument for achieving a command over a substantial portion of the economic surplus bv the state is the institutio11alisation of the sources of rural creclit. With the nationalisation of all banks in Bangladesh tl1ere is no technical hurdle in converting all existing noninstitutional n1ral debt into state bonds implying that the indebted cultivators will repay tl1e loan with much lower interest to the state and the creditors will be given a bond at a low interest rate. For the future, the institutionalisatio11 of · rural credit will mean that the cultivators will be assured of an expanded Bow of cheap credit. . .

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Prospects of Industrial Development .

The economy of Bangladesh, like other developing eco11omies, requires state initiative to sta.rt the process of in• dustrialisation. The al)sence of anv ., such initiative by . the Govemme11t of Pakistan had led to industrial backwardness of Ba11gladesl1 and also to wide regional disparity between the t\vo wings of Pakistan. As we have noted i11 a11 earlier chapter, emigrant entrepreneurs from India clt1stered arou11d Karachi ancl availed themselves of the state patronage to develop industries in and around Karacl1i. \Vith the emergence of a free and sovereign Bangladesh, it can be reasonably ho1)ed that its government will assign top prioritj· to tl1e question of i11dustrialisation. The problems that have to be solved are : (i) What shot1ld be tl1e rate of growth of industrial production? (ii) ,vhich li11es of i11clt1Stl)' should get priorit~r and what should l>e the techniques used? It \Vould be .presumptuot1s to attempt an a11swer to these questions in tl1is cha1Jter. ,ve ca11 however make an exercise on tl1e basis of certai11 assumed objectives of economic polic~' a11d make some tentative suggestions which wot1ld re1nain valid so long as the ol1jectives do not change. Con,strai11ts imposed by the availability and the reliabilit~r of d,1ta sl1oula alwa,,s be borne in mincl.

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Bangladesh Economy : An Analytical Study

I. PROJECTED RATE OF INDUSTRIAL DEVELOPMENT Let ~s first have a look at the past record. The followi11g table gives the annual aver~g~ of production covering the preplan and the three plan periods. 1 'A'ttLE

12.1 ·:

'

PRODUC'l'ION BY SECTORS IN EAST PAKISTAN

(Rs in million at 1959-60 factor cost) Annual average . productio,,

1950-51 to 1954-55

Agricl1lt11re

8,648

Largescale industry

1:3 5

1955-56- to 1959-60

1960-61 to 1964-65

1965-66 to 1969-70

8,605 (-0.5)

10,104

11,383

(17.4)

( 11.2)

:3 24

701

1,061

(141.5)

(116.4)

(51.3)

14,107

17,480

20,243

(4.4)

(23.2)

(15.8)

Gross domestic . proc.luct

13,508 .

Sot1rce : Economic Survey of East Pakistan, 1969-70. Figures in brackets sho\v percentage increase over the previous period.

The table shows a, deceleration of growth rate of inclustrial production and of gross domestic product. Betwee11 the Second and the Third Plan periods, the annual gro\vth rate of domestic product has been 3.2, and that of agriculture 2.2. In an earlier chapter \Ve projected a gro\vth rate of GDP at 6 per cent per year. How fast sl1ould different sectors grow to secure this growth rate? In the Third Plan period, agriculture, largescale industry and other sectors contributed 56, 5 and 39 per cent respectively to the gross domestic product. Tl1e growth rate of the sector other than agriculture and largescale i11clt1stry ,vas 3 per cent per year. If we assume tl1at this sector will continue to grow at this rate and that there will be a 5 per cent annual growth rate in agriculture, largescale industry will have to grow annually at 41 per ce11t to secure an overall growth rate of 6 per cent per a1111um. Digitized by

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Prospects of Industrial De-celopment

221

l11 the initial years however sectors other than agriculture and industry will grow faster than 3 per cent. There will have to be a very rapid growth of transpo1t and commt111ications and construction. If a 6 per cent growth rate is projected i11 these sectors, the required growth rate in largescale industries will be 17 per cent per year, which is 7 per cent higher than the growth rate in the Third Pla11 period. · Securing these rates of growth in different sectors will 11ot l)e eas)' · The most difficult as well as the most important problem will l1e organisation and management. For historical reasol'\s Bangladesh has not evolved a broad sh·atum of local entrepreneurs and the government therefore will ha, e to con1e forward in a big way to promote ind11stries by providin~ not only finance, but also tecl1nical and ma11agerial advice. 111 the first stage of industrial develpment, stimulus to existing industries will come from tl1e following sources: (i) import substitution, (ii) export promotion, (iii) governme11t investment, mainly to repair the devastation of war. l11 the second stage, as national income increases, there will be two more sources: (iv) consumption induced bv gro\vth of income, (v) investment, both autonomous ancl i11dt1ced. 1

II. THE FIRST STAGE Prod11cts ,vhich were used to be imported from \Vest P,1ki~tan will become scarce in the first stage because of ressation of supply. Those indt1strie.,s which cari· produce these

good.s with local resources will be able to expancl very ra1)idlv. ·Excess demand will immediatelv be felt in food. Table 12.2 shows the ratio of import from West Pakistan to clol-nestic nrod11ction of food {_!fains in Bane-Jadesh. Tl1e tal)le shows that even if the availal1ilitv of fo0rl ,,.-ere to remain at . levels . of 1966-69 and if. Ban{!ladesh ,vere ~ot to increase import of food~ains from countries otl1er than \Vest Pakistan, there l1as to be an immediate Digitized by

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222

Bangladesh Economy : An Analytical Study TABLE

12.2:

lte111s

PRODUcno:,,i A~'l) IMPORT OF RICE AND WHEAT

Doniestic

Total

production

i1nport

Im.port as p.c. of

I n1port from W. Pakistan domestic as p.c. of prodt1etio1l domestic production

Rice (000 tons) 4:32 -'308

5 3

,:3

236

:') ...,

1

92

647 712 884

1,115 1 :):') 8 961

9,482 11,05G 11,252

1,079 1,020 1,120

11 9 10

9,424 10.998 11,160

1966-67 1967-68 1968-69

....:,

,vheat (000 tons) 1966-67 1967-68 1968-69

58 58

,--

•

82 29 93

Total, foodgrains (000 tons) 1966-67 1967-68 1968-69

4 4 3

•

Sot1rce: Based on clata

i11

Econon"liic Survey of East Pakistan, 1969-70.

i11crease of food production by 3-4 per cent to make u1J for the loss of imports from W. Pakistan. Cement was an important import item of Bangladesh. The an11ual import of cement in the Third Plan was Rs 71 million of which nearly 59 per cent came from \,Vest Pakista11. As we have noted in an earlier chapter, a cement factory with a capacity of 300,000 tons was in an advanced stage of completion at the end of the Third Plan. The estimated production of cement in 1969-70 was 72,000 to11s. Hence there is a possibility (?f a rapid rise in cement production in coming years. However cement manufactt1re ill e11tail impo1t of clinkers. _ There is a large possibifity of import substitution in cd•tton textile industry. The annual import of va111 a11cl cloth during Third Plan was Rs 280 millio11 of which Rs. 268 million came from \Vest Pakistan. The diffi.ct1lt,, of making llP this gap lies in the scarcity of s1Jindle capacity and also Qf the supply of raw cotton. Import substitution in · cement and textiles will require i1nports of machinery, clinkers and raw cotton. Increase , ,1

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Prospects of Industrial Development

of food production however need not entail, at least in the initial stage, largescale imports of agricultural inputs. Much of the services required as inputs in agriculture can he perforn1ed by peasants themselves if they are pr0perly organised. For instance, the manpower of Bangladesh can be harnessed to build up dams, bunds, canals and drainage facilities. This will have an immediate effect on production. Government can also set up research institutes which will evolve high-yield and disease-resistant types of seed. Educating the peasants in the use of superior technology will also be an investment yielding good results. Fertilisers, tubewells and other agricultural implements may have to be imported till they are produced at home. In any case, in the immediate future, a four per cent increase in food production to substitute imports from West Pakistan is perfectly possible with local resources, provided appropriate organisational measures are undertaken. Most important organisation~! measures may be ent1merated as follows : (i) Mobilising the rural manpower to build up and extend infrastructure and communal services like tanks and \veils, flushing and drainage, bu11ds and dams, roads, schools and village hc>Spitals. (ii) Providing the peasants credit and marketing facilities. This can be clone through strengthening the credit a11d service cooperatives and building of warehot1ses. (iii) Extensive propaganda of the use of su1)erior technology. (iv) A price polic~, that will be favourable for increased agricultural production . •

Most important factor in inducing agricultural gro\vth is to create among the peasantrv an urge to increase pro7Jects of Industrial Decelopn1ent

il1dustries. Those goods ,vhich have a.. large agricultural co11tent should receive priority. A11 analysis of interindustry flow in Pakistan, 1960, 1·eveals that the ratio of agricultural i11put to total output was 49 pe1· cent in modern a11d 94 per c.:ent in traditional food manufacturing sector. Hence a policy of encouraging traditional food manufacturing will contribute much to the growtl1 of income and emplayme11t in rural areas. Husking of paddy, crusl1ing of sugarcane a11cl oil seeds, baling of raw jute and milk processing should be ·d one in the rural areas. Government should of course i11crease the productivity of these industries by providi11g cheap power, credit· facilities ~nd technical advice. The policy of -modernising the traditional manufactt1ri11g sector by providing electricity, gas, transport to rural areas 1·equ1res massive investme11t in rt11·al co11st1uetio11 l)rO·g ramme. In the first stage of development rural constrt1ction n1ea11s only the repair of l1ouses a~d transport system that was damaged i11 the war. l11 the second stage, tl1e se11ding the electricitv and gas to tl1e villages will be -the 111ajor item in constn1~tion. Road bt1ilding a11d develO]_)me11t of water transport sl1ould also receive priority . . It should be remembered hO\vever -that i11 rural co11st1uction programme of the seco11d stage, nonmonetisecl t1tlay will l)e mucl1 less than what it ,vas in the first stage. _M oreover this tJrogr,1mme will be fairly capital intensi,,e and the capit,11 out1111t ratio will be higl1. l11ves~ment i11 t1rban clevelopme11t or i11 manufacturi11g i11clt1st1ies produci11g goods for urban consumptio11 will reqt1ire relatively .Jess capital arid t)1e c~tJital output ratio also ,vill l)e lower. This is because urban areas ru·e already developed to so1ne extent and modem ma11ufacturi11g sector is also developed and a given amount of investment i~1 this will ~:ield a greater output tha11 a11 eqt1al arriot111t of in, estment i11 1ural areas or 111ral ind11stries. _ This may create a tem1)tation to divert resources f~om rural to urban clevelo11ment. Tl1ere l1ave been countries ,vhere a higl11,·-deve1opecl and s01)l1isticated urba11 sector coexists witl1 ·a ve1,, back,vard a11d stagi1a11t agrict1lture. T11e res11lt of st1c11 clt1alis1n is overcrowdi11g of t1rba11 arec1s 1

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228

BangladeJa Economy : An Analytical Stud!J

b~· rural people \\·ho lead a miserable existence in slums. Henc-e, even at the cost of higher capital output ratio, rural c:onstruction programme has to he pushed through. Howe,-er a high c:apital output ratio in the rural construction ,,-ill l:>e offset b~: higher productivity of agriculture and traditional manufacturing and the 0\--erall ratio ma~, not • nse.

ln\-·estme11t in the second stage of develoPment shoulcl also remo,·e the majr bottlenecks of industrialisation. Two such bottlenecks are scarcit,· of mineral resources and of skillecl manpo,ver. Geological prospecting ancl technical educ·ation should therefore ,l..e taken up on a priorit~~ basis. In an age of science and technol~· ]imitation of natural resourc:es is not an insurmountable obstacle for industrialisation. They may be clisro,·erecl. Even if the~· are not, the output from imprted natural resources can be substantiall~r increaseorted goods in the country a11d all such efforts sl1ould be st1bsiclised. Bangladesh, being a country of scarce resources, i1nport-substituting activities should be decided t1po11 after a careft1l study of relative costs a11d benefits and on the basis of the principle of optimum all0cation of resources and planned investment decisions. Not being e11clowecl ,:vitl1 a varietv of natural resources adequate for its needs, it ,viii have to depend on skilful develoPment of the foreign trade to make up for the deficiencies. . Tl1e growth potential of certain important sectors will t1ltimately redt1ce imports through import-substitution. It a1>1>ears tl1at an improved base for agriculture can help to recluce agricttltural imports substantially. H11ge quantity of foodgrains import may be gradually reducecl if serious atte1n1)ts are made to achieve selfsufficiency in this respect. Tl1ere is also enough scope for the extension of area under st1!!arcane. Apart from seeds of high-yielding variety and clr'aina!,!e and irrigati011, the breakthrough in agriculture 11eecls the support of agro-i11dustries like fertilisers, pesti1

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235

F1J1eign Tracle-.\·eu; Perspectii;e

t'icles, pt1mpsets, tubewells, agrict1ltural impleme11ts at1cl equipments for irrigation. lmpo1t-substituting activities i11 tl1ese fielcls will have a tremendous impact 011 the over,111 strategy of develoPment. The otl1er types of industrial activities which might have a .substantial impact _in reduci11g imports are the expansio11 cJf the existing productive· ijapa~il:y• in cotti1 textile, sugar, c·t·ment, vegetable oil, cigaretw:··and other industries. The clev_elopme11t of e11gi11eering indu,s tries would help to meet tl1e gro,vi11g irn1Jo1t reqt1irements of machi11ery ancl metal. 1Jroducts, trans1Jort equipme11ts, electrical goocls, etc .. There is enot1gl1 sco1Je for tl1e domestic production of drugs a11d ,111cl phar111,1cet1ticals ,vl1ich are no,v bei11g imtJOrtecl. The ft1ller t1tilisatio11 of natt1ral gas will l1elp t recluce tl1e imt)rts of f ltcl a11cl cl1e1nic.·c11s. Tl1e ex1Ja11sio11 of tl1e oil refi11ery c,.11Jac·it~· ,vill. raise tl1e supply of petrochemic,11 1Jroe huge ancl varied .. India ca11 ]>la,, a11 i1nrortant role in ft1lfilli11g tl1e task of restoratio11 ,111cl revival of tl1e econom,, of Banqladesh. And in tl1e, 1)rr>ccss I11clia11 econom:' ma~· also be benefitecl. I11 the immediate f11t11re India can do a lot to help the ,vork of reconstn1ction of the Bangladesh economv and also i11 filling the gap which has been created as a result of the severance of trade relations between Bangladesh and West Pakistan. as well as some otl1er countries of the world. A comnioditv j?rant of Rs 25 crores and a foreien-exchange· loan of £ 5 million bv India are aimed at meeting immediate 11rge11t 11eeds of Bangladesh. One-year tra~e agreement of· :\·larc·h 1972 between the two countries is also bc:1secl 011sl1(>rt-term prio1ities. Digitized by

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Trade-·~.;eu; Perspectic;e

241

I11 the longer run, Indian assistance can help Bangladesh to transform the base of her economy into a industrial one and also to break the stagnation in the agricultural sector, especially to achieve selfsufficiency in respect of foodgrains. Ba11gladesh will need to expand capacities of the existing industries like textiles, cement, sugar and fertilisers to meet her o,vn requirements. Indian industries should be able to deliver most of the equipments in this concern. In its import-substituting activities, Bangladesh would require various types of capital and intermediate goods. Industries in India can be of great help in setting up of new industries or expansion of tl1e existing ones. India can supply her ,vith machinery from her engineering indust1y. Import of machinery and spares from India ,vould be economic to Bangladesh because of its location and relatively low wages in India compared to advancecl economies. I11dia is faced with the problem of excess capacity in a number of industries, particularly in heavy and meclium engineering industries. Supply of capital a11cl inte11nediate goods to Bangladesh would help the growth of i11dustrial production in India~ · India may be interested in the develpment of a numb£r of industries i11 Bangladesh whose products can be of use to it. Expansion of industries like newsprint, paper and paper p1·o' face the probl~m of huge trade deficit with India. This · is ·because, in corttrast to its unlimited and •variecl requirements, it ,vill be able to offer ohly ·a few items to India~ As we have already 11otecl the Iong~term solutio11 • of the problem lies in the success of the import-substih1t• ing activities :ancl diversification · of· export items ·tl1rot1gh the ·expansion of the · country's , indL1strial · base. r · We have · alreadv noted · that rin Jan11ary 1972 India J1as sa11ctio11ed a·commodity grant of Rs 25 cr0res to Bangladesh · fof ·cove1ing the more immediate _11eeds ~01· the expeditious rec~very of· its eeonoruy. ·A · fureign 'exchange loan of-·£ 5 million · (approximatelv Rs 13.5 ~rores )- has · also · bee11 sanctioned to Bangladesh for enabling it to meet its 1t1~ent forei~ exchange requirements. . A list of commodities and services has ·also been framed. The conimoclitv ]ist' ·inclt1des ·the following i,t ems: · cnide oil, petroleurrr'"prod11cts~ '·fertilisers, . sui)ernne yam, Stt~ar, salt, baby food. cement, steel and steel products, cl1etrlicals. dn1gs and med~cines, power generation and tr~1,1sniissi()l1 eq11ipment, vehicles ancl engines ·including f('rr~: • e11.j!1nes. . \Vitl1 a ,,ie,v to 111akini speed)r Sttp_plies, it l1as ,1) ~ 1.~11 cleciclecl tl1at the SltpJ)l_\' of crt1c1e a11cl · 1~etrc)let1m })1:or 011e year a11d its working will be reviewed after six 1i1011ths. U 11der tl1e agreement, there will be a three-tier ·t ra,1e bt•twee11 tl1e two countries: (i) border trade regulated l>y 1Jer1nits; (ii) ru1Jee trade up to Rs 25 crores on each side; ,\11cl (iii) non1-upee tracle against payment in sterling imllorts. On border tracle, the agreement says that special pern1its ,vot1ld l>e issued to persons living in areas witl1i11 16 km of the land customs frontiers. The trade is beit1g regulatecl to prevent smuggling and also to ensure that the border trade enters for tlie essential needs of tl1e rur,1l }leo1,le 011 botl1 sides of the border. The carriage of gooc]s sl1all be free from import, export and exchange control restrictio11s as \veil as c,1stoms dttt)' ancl customs fo1 malities. lT11cler the agreeme11t, India l1as agreed to export to Banglaclesl1 cement (Rs 4.5 crores), raw tobacco (Rs 10 t:rores), cotto11 textiles (Rs 25 1,lkl1s), cotton yarn (Rs 1.5 crores),. t'Oal (Rs 4 crores), asphalt (Rs 1 crore), stone boulders,. ltllrtl ,,·ood, soft ,vood, lime and limest011e, etc. (Rs 1 crore),. l1ooks and periodicals and records (Rs 20 lakl1s). movies (Rs 15 lakhs), a,-itn·eclic and unnni medicines (Rs 25 lakhs),. et,veen the t\vo countries on the l>asis of equality ancl mt1h1al be1~e6t, recognising that the comn1on people of 1,oth countries should be the beneficiaries of close cooperation behveen the t,vo governments in the fields of tracle ana development, A,vare that this ol>jective can best be secured by organising trade l, enveen the two co11ntries on a state-to-state basis as far as possible, have agreecl as follows : ARTICLE I

The t,,·o governments recognising the neecl and requirements of each other in the context of their developing econonlies undertake to explore all possil>ilities for expansion and promotion of trade beh\'een the two cot1ntries on the basis of mutual advantage.

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Banglade.sl1 Eco,,o,nu : An Analytical Study r\RTI CLE Il

The t,,·o governn1ents agree to an interi111 tracle arrangement as set out in schedule "A' attacheY either of the t,vo governn1ents in orcler to facilitate frontier trade. (1J) .i\.clvantages and privileges ,vhich are or tnay l>e granted by either of the t\Vusiness centres, schools and colleges ancl vital commt1nication links including bridges and culverts were also (lestroyecl cat1sing a serio11s blow to the economic infrastructure of the ne,v state. 1'here ,vas perhaps not a single family or· establishment which escaped the ,vrath of the Pakistan army• .

The 1nagnih1de of the n1isery can l1e gauge0ut 2 crore (lisplacecl persons 11eeded to be provided \vith were free 11&tion for months to save them from imminent death. Tbev • also to l>e providecl with shelter, clothing, medicines anq other essential st1pplies for their sttrvival. Loss of employment for a vast number of people shook the ver)' founclation of the co11ntry•s n1ral economy. It ,vas on the del>ris of such colossal destruction that the Ministrv • of Relief ancl Rehabilitation eml>arkecl t1pon the enormous task of social and economic rehal>iJitatio11 of aln1ost the ,,·hole population. The immediate task ,vas to l>ring l>ack one crore evact1ees from India and provicle then1 ,vith foocl, shelter, n1edical care ancl other relief. Similar arrangen1ent hncl to l>e made for t,vo crore people inside Bangladesh who had l>een u1>rootecl from thei.r homes ancl l>ecame refugees in their own cot1nt11·. Despite hea"'Y· odds, the lllllk of the refugees from India wa.,; brought back \\ ilhin a short tin1e through 284 transit points. 1

Thd nli11istry has so far spent nearl'.\· 80 crore ta1ca in the shape of hrn.1se-bttilcling grant, cash 1-elief, assistance for education and housin~ fur the economic rehabilitation of the affected nullions. The government also distributed free one crore 68 lakh maunds of food. The relief goods. cash money and foodgrains ,vere distril>uted through the relief committees OPdivisional headquarters and at some other important places into automatic systems. Telegraph Service

Before the lilJeration, there ,vere one hundred-line telex exchange at Dacca and t,vo thirty-line telex exchanges at Olittagong and Khulna. The Khulna telex exchange was, however, destroyed by the occupation army before their surrender. It is now proposed fo instal about eight thousandline telex exchanges in different areas of the country. Also a large number of leased teleprinter circuits ,vill be provided to government, semigovernment ancl commercial agencies. MERCHA!IIT N AVY

\Vith deed in country imports

a ,vide open warm-water sea at her command, Bangladesh is ina happy position to develop a ,veil-organised merchant navy. The is also in need of such a navy to carry her large exports and withot1t depending on foreign liners.

Althot1gh Pakistan developed a sizable fleet of 71 me~ant ships, mostly out of the foreign exchange earnings of the the11 East Pakistan, at the titne of liberation Bangladesh ,vas left with no ocean-going vessels. The lJarbarous Pakistani army, before surrender, destroyed not only roads, bridges, railway tracks and carriages but also severely damaged a large number of inland vessels. Bangladesh government took the decision to nationalise the shipping and set up the Bangladesh Shipping Corporation. •

To fill the iminediate vacuum, the corporation entered into one-year agreement ,,ith its Indian cot1nterpart to take the assistance of Indian shipping for foreign trade. The Indian Shipping Corporation -also agreed to train about 50 enginee1ing navigation personnel.

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Appendixes

263

Future Plan

The Bangladesh Shipping Corporation proposes to acquire during the First Five-Year Plan period, i.e. 1973-78 14 second-hand cargo vessels, 11 new cargo vessels and 3 new tankers. The acquisition of these vessels will involve an investment of about 12 crore 40 lakh US dollars.

Courtesy :

GovERNMENT OF BANGLADESH

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Index Adamji, 31 Afghanistan, 79 Agrarian structure, absentee landlords, 119-20; moneylenders, 150-51; . distril>ution of income, 151; distribution of land, 130-33; distribution of live stock and ploughs, 133; jotedars, 121-22; permanent settlement, 118-21, 123; semi£eudal characteristics, 12837; tenancy and sharecropping, 11921, 135-37; wage labour, 137-42 Agricultural development, 79, 201-

2; growth rate, 16-17 mechanisation, 214; mobilisation of surplus, 215-18; structural reorganisation and, 203-10; technology 2CY7, 210-15 Agricultural production, area cultivated, 210; farm size and productivity 206-

7; irrigation, 111-12; technology, 202, 207, 210-15 Agriculture, income, 106-7; investment in, 85; commercialisation, 115; coope~atives, 146, 148;