Bhutto Era - Seminar

Seminar In Economic PolicyThe Bhutto Regime (19711977)
Presented By:
Floyd Fernandes
Std 14196
Zulfikar Ali Bhutto
Zulfikar Ali Bhutto (1928-1979), Pakistan's president

and then prime minister, mobilized his country's first
mass-based political party around a socialist
ideology
After completing his high school education in Bombay, he
proceeded to the University of California at Berkeley from
which he graduated in 1950 with a Bachelor of Arts degree
in political science. At Berkeley he became interested in
socialism and delivered several lectures on the feasibility
of socialism in Islamic countriesa theme which would
dominate his party's manifesto 20 years later
The PPP
Manifesto of Pakistan Peoples Party prepared

"Islam is our Faith, Democracy is our Policy,
Socialism is our Economy, All Power to the
People". October, 1966
Bhutto and his party came to rule by
clamouring socialist reforms for the poor and
deprived classes of the state. Rotti, Kapra aur
Makkanwas there frequently enchanted
slogan.
Background
Bhuttos economic policies were influenced by

socialist ideas and promises to the removal of
feudalism.
The main step in order to reform economic
system of Pakistan was the adoption of
process of Nationalisation. Which was
launched in early 70s when Bhutto came to
power. Land Reforms, Labour Reforms,
Banking system and finance corporations were
the main reforms in his era.
Economic Growth
Bhuttos economic policies were more illiberal than

those of his predecessors and his nationalization was
said to have a major cause for a downward trend.
During the five year period, economic growth as

measured by the data on GDP was 4.16% per annum
Average annual growth rate of agriculture during the

period was 2.4% which can be attributed to the floods
and drought with major crops
Major Highlights- Of
Bhutto Regime
The Economic Loss of East

Pakistan.
The 1973 OPEC price increases
played havoc with Pakistans
import bill and BOP
deteriorated.
Worldwide recession (19731975) which affected
Pakistanis exports.
Recurrent domestic cotton
crop failures and floods in
1973, 1974 (along with pest
attacks), and 1976 affected
Pakistan main exports.
The Devaluation of
Pakistani rupee by
120% in May 1972.
Responsible for
capitalizing on the
opening up of the
Middle East.
Agriculture SectorLand Reforms 1972
Land Reforms 1972

The philosophy behind the Bhutto reforms
were based in social and democratic leanings
of the PPP.
In March 1972, Bhutto gave a speech and said
that his land reforms would:
I.
II.
III.
IV.
V.
Effectively breakup the iniquitous concentrations of landed wealth.

Reduce Income disparities.
Increase production.
Streamline the administration of land revenue.
Lay foundations of a relationship of honor and mutual benefit between land
owner and tenant.
Agriculture SectorLand Reforms

1972
The manifesto of the PPP laid the premise for

this action stating
The breakup of the large estates to
destroy the feudal landowners is a
national necessity that will have to be
carried out through practical measures

1972
Key Features
I.
Ceilings on land holdings i.e. 150 acres irrigated, 300

acres unirrigated or equivalent of 12000 PIUs + 2000
PIUs for tractor and tube well owners.
II. No compensation to landowners.
III. Land would be redistributed without charge to landless
tenants.
IV. Outstanding dues on and acquired in the 1959 reforms
were written off.

1972
Results
I.
II.
The resumed land was less than that if 1959, only 50,548
persons benefitted from the redistribution of 308,390 acres
during 1972-78.
Only 1% of landless tenants and small owners benefitted by
the measures.

1972
The efficacy of the

reforms can be judged
by:
From the 1959 reforms, 6% needed to
be redistributed
Balance
= 67,271 = 6%
Area resumed
1,022,927
While 39% of the area resumed
under 1972 reforms is still held by
the government, despite presence
of large landless cultivators.
Balance
= 185,307 = 39%
Area resumed
481,244

1972
Issues
The ceiling of the land was defined in area and
PIUs, and the landowner could retain the
larger.
( Produce Index Units- is a method of assessing revenue of landholdings and is
dependent on changes in prices, cropping intensities and patterns, irrigation
etc)
The problem of defining the ceiling in PIUs, was that their values remained
unchanged, while almost everything affecting their value had drastically
changed in most areas of the Indus basin.
The result was that with 1200PIUs one could get

away with 400acres in Punjab and 480 acres
in Sindh, instead of (150/300 acres ceiling
cap).
Industry & Trade
The PPP in its election manifesto had promised the nationalization all basic
industries and financial institutions.
The manifesto stated:
1. Those means of production that are the generators of industrial
advancements or on which depend other industries must not be
allowed to be vested in private hands.
2. All enterprises that constitute the infrastructure of the national
economy must be in public ownership.
3. That institutions dealing with the medium of exchange i.e. banking and
insurance must be nationalized.
The Economic Policies of Bhutto

Government rested on the premise that
the control of leading enterprises was to
be in the hands of the state.
The Nationalization
Program
The first phase of the nationalization
took place in the large scale
manufacturing sector, essential in the
capital and intermediate goods industry.
There was public take over of 31 large
firms in 10 basic industries, which were:
Industries include:
a) Iron & steel
b) Basic metal industries
c) Heavy engineering
d) Heavy electrical industries
e) Petro-chemical industries
f) Cement industries
g) Public utilities & power generation
h) Transmission and distribution
i) Gas & oil refineries
The Nationalization
Program
The nationalization program was later

extended to the vegetable oil sector and then
cotton ginning and rice milling.
The nationalization of banks and insurance
companies was next, it was a critical assault
on the link that had built up between
industrial & financial sectors of the 1950s.
The link had been one of the causes of economic
concentration that became a political issue in
1960s.
The Nationalization
Program
A closer examination of the banking sector reveals:

1. At that point in time, of the four largest banks in Pakistan, only one was state
controlled, while other three were owned by industrial families such as the
Habibs, Saighols and Adamjees.
2. The four banks monopolized 75% of total deposits and two-thirds of earning
assets.
3. Apart from the these private banks, there were four others owned by Dawood,
Fancys, Sheikhs and Haji Habib- these seven private sector banks owned by
business houses accounted for 92% of deposit.
A SBP report in 1970 revealed that only 88 accounts in Pakistan had
access to as much as 25% of the total bank credit, most of these were
Directors of the banks themselves.
The SBP was unambiguously clear that nationalization of banks perse
could ensure a more equitable distribution of banks resources
between people & regions.
Economic Policy Key

Features
1. The devaluation of the Pakistani rupee by 131%,

removed in one stroke the subsidy the
industrialists had received in the earlier period
because of the overvalued exchange rate.
2. This reform , with the increase in procurement
prices of agricultural goods (which went up by
about 100%) made a deliberate attempt to alter
the pro-industry , anti-agriculture bias of the
previous growth strategy.
3. The Export Bonus Scheme which was a key feature
of 1960s were abandoned.
Economic Policy Key

Features
A major happening that has to be kept in mind is

that, East Pakistan was lost..
Why is that important??
1) 50% of West Pakistan products were exported to
East Pakistan.
2) 18% of imports came from East Pakistan.
Hence new markets had to be found to

compensate for this loss of market.
Economic Policy
Impact
1) Exports in the 1972/3 increased by 153% over the

previous year and manufactured exports grew by 19%
in the 1973/74 year- according to the Asian
Development Bank.
) This would be direct resultant of the devaluation of the
rupee which encouraged exports.
) Also there were favorable demand conditions for
cotton textiles.
Economic Policy
Impact
2) Agriculture output also rose and this was

attributed to higher support prices of wheat,
rice, sugar and timely and adequate supply of
essential inputs.
3) Availability of credit also played a vital role in
the improved performance, after tightened
control of banking system, more credit was
available to the export sector and small
farmers.
Bust of Economic
Boom
The economic boom of 1972/3 and 1973/4

seemed to be fairly short-lived and was
attributed to the;
Rebound of domestic demand
Worldwide commodity boom.
The world recession after 1974 considerably
slowed down demand for Pakistani exports:
The Bad Luck Factor
The economy
suffered after 1974.
The figure shows a
number of events
that took place
outside the control
of government that
were largely
responsible for the
poor performance of
economy after 1974.
The Bad Luck Factor
Oil crisis
1. There was a very large increase in the price of imports
following oil price rise in 1973, which resulted in
inflation close to 30% in 1973/74
The Bad Luck Factor
Oil crisis
2. The oil price rise had began to affect the gains made
from the devaluation and exports, and in one go wiped
out the positive balance of trade from 1972/3
3. Oil imports rose from US $ 600m in 1972/3 to US $

225m in 1973/4
The result of the huge rise in oil prices was an
international recession that was not in control of the
government.
The Bad Luck Factor
Floods & Pest attacks.

1) In five years of the Bhutto government, floods and
pest attacks damaged crops severely, putting
pressure on prices and affecting industrial
production.
2) The failure of the cotton crop in 1974/5 came at a
time when there was a surge in international prices
and hence Pakistan was not able to exploit the
situation to its advantage.
3) 1976-1977 saw the worst floods devastating large
cultivated land.
Inflation
High Inflation was experienced during Bhuttos

regime
Imported inflation
The international Oil prices hike in 1973-74 and

prices of fertilizers also increased
Import cost of petroleum has increased by 300%
Domestic economic policies
There was an increase in currency circulation

(deficit financing) during 72-76
Inflation
Mohsin S. Khan of the

IMF writes
a good part of the
increase in earlier period
(of the Bhutto era) was a
result of the oil price
shock in 1973/74. If
these two years are
dropped from the case,
then average rate of
inflation in 1970s falls to
less than 10%
Subsidies
Large subsidies were given on:
Wheat
Efforts were made to keep wheat prices relatively low and
procurement price was increased from Rs. 0.5 in 1969 to Rs. 1 in
1975 which was 100% increase
Fertilizers
Large direct subsidies on fertilizers and pesticides were given for
plant protection
Energy
Oil import bill was rising up although Gas prices were maintained at
low level to encourage use of an indigenous resource. But incentives
for increased production were not attractive and there was great
dependence on imported energy.
Imports & Exports
1) In May 1972, the government took steps to abolish

the import licensing system, as well as the multiple
exchange rate system and the export bonus scheme.
2) The import of all luxury items was banned.
3) The devaluation of the rupee- which resulted in
increase in exports.
Viqar Ahmed & Rashid Amjad comment on the import
policy :
Except for a few items reserved for industrial users, all
registered importers could obtain licenses for any
number of importable items
Other Reforms
Consequences of
Labor Reforms
Labor reforms were introduced by the
Government in February 1972
It guaranteed to workers:
Speedy and just settlement of disputes
Fair share in profits
Participation in management of
industry
Bonuses
Better Housing , Health and Medical
facilities
Labor laws applicable to organization of
10 employees extended to the
enterprise employing 5 persons
the Reforms
These reforms provided relief to labor but
production didnt increase.
Due to the reforms workers indulged in a
series of strikes and lock-in which hit
production in the poorly managed newly
nationalized heavy industries.
Labor could not digest the newly imposed
labor laws.
The erosion of business confidence hit
investment which declined across industrial
sector leading to rising unemployment.
The new labor policy led to indiscipline and
militancy, which hurt the development of
modern industry.
Other Reforms
Educational
Health Reforms
No health scheme could
succeed because the common
man did not have the means
to meet the cost of drugs
To achieve this goal Drug act,
1972, was enacted which
prohibited the manufacture
and import of any drugs under
brand names shift to generic
drugs to avoid soaring prices
of brand named medicines
Reforms
Bhuttos socialistic reforms

extended to the areas of education
and health, with great implications
for masses.
Bhutto nationalized all the

educational institutions which
adversely affected the quality of
education.
There was hardly any increase in

the proportion of national
resources allocated to education.
Conclusion
Bhuttos era was the mix of socialism and capitalism altogether which led to economic
distortion
The Bhutto era is said to be the dark era for the economic development of Pakistan
1) Government policy did not help much either
- While the organized labor felt that it had greater right to share in the industrial
produce, industrialists fear more lock-outs and outright nationalization.
- Entrepreneurs were demoralized and did not invest.
- Capital and capitalists fled overseas.
2) The key causes of low growth in the mid 1970s were possibly
-Extremely adverse weather cycle.
-International recession.
It was clear that economy and industry were faced with severe crises, no matter what the causes
may have originally been.
Thank You!

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Seminar In Economic PolicyThe Bhutto Regime (19711977)

Zulfikar Ali Bhutto

Zulfikar Ali Bhutto (1928-1979), Pakistan's president

Manifesto of Pakistan Peoples Party prepared

Bhuttos economic policies were influenced by

Bhuttos economic policies were more illiberal than

During the five year period, economic growth as

Average annual growth rate of agriculture during the

The Economic Loss of East

Agriculture SectorLand Reforms 1972

Land Reforms 1972

Effectively breakup the iniquitous concentrations of landed wealth.

Agriculture SectorLand Reforms

The manifesto of the PPP laid the premise for

Agriculture SectorLand Reforms

Ceilings on land holdings i.e. 150 acres irrigated, 300

Agriculture SectorLand Reforms

Agriculture SectorLand Reforms

The efficacy of the

Agriculture SectorLand Reforms

The result was that with 1200PIUs one could get

Industry & Trade

The Economic Policies of Bhutto

The nationalization program was later

A closer examination of the banking sector reveals:

Economic Policy Key

1. The devaluation of the Pakistani rupee by 131%,

Economic Policy Key

A major happening that has to be kept in mind is

Hence new markets had to be found to

1) Exports in the 1972/3 increased by 153% over the

2) Agriculture output also rose and this was

The economic boom of 1972/3 and 1973/4

The Bad Luck Factor

The Bad Luck Factor

The Bad Luck Factor

3. Oil imports rose from US $ 600m in 1972/3 to US $

The Bad Luck Factor

Floods & Pest attacks.

High Inflation was experienced during Bhuttos

The international Oil prices hike in 1973-74 and

Domestic economic policies

There was an increase in currency circulation

Mohsin S. Khan of the

Large subsidies were given on:

Imports & Exports

1) In May 1972, the government took steps to abolish

Bhuttos socialistic reforms

Bhutto nationalized all the

There was hardly any increase in

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