Saturday, February 20, 2010

A laudable initiative by Yusuf H Shirazi

The News
Thursday, February 11, 2010
Yusuf H Shirazi

The “Aman ki Asha” initiative of the Jang Group and the Times of India group is indeed laudable. It is a step in the right direction. The people of India and Pakistan have long aspired for peace. However, the realisation of this ‘Asha’ is not possible without the two governments sharing. Peace, and thus the welfare for the people of the subcontinent, lies in political, economic and social harmony between the two countries.

Whichever way one may wish to interpret the history of the two countries’ independence, in the present situation it is only political, economic and social harmony which can bring peace between the two countries.

While India has been a democracy since gaining its independence from the British, Pakistan has witnessed dictatorship for half its existence. Pakistan has thus been vacillating between dictatorships and political governments. The founding fathers, first Jinnah and then Liaquat Ali Khan, died soon after the creation of Pakistan. Hence, tragically, they could not oversee the promulgation of a constitution nor develop the three pillars of government – executive, legislative and judiciary. The result was that the political, social and economic development of Pakistan has been topsy-turvy.

On the other hand, India has developed into the largest democracy of the world. While the Indian constitution remained intact, Pakistan’s constitutions were abrogated time and again. Unfortunately, the judiciary too endorsed their abrogation, under the infamous “law of necessity.” By abrogating the constitution in the Maulvi Tamizuddin case, Chief Justice Munir set a dangerous precedent. This allowed his successors to also justify martial law under the nonsensical “law of necessity.” The course of this country may well have been different but for Justice Munir succumbing to political pressures. India went on developing politically, economically and socially. Pakistan meanwhile struggled through a variety of civilian and army rules.

India started with a better economic framework in terms of industry, agriculture and services. Pakistan, however, inherited just one textile mill – Delhi Textile Mill Lyallpur (now Faisalabad) – and continued to be basically an agrarian economy. India had an engineering industry, among others, and was exporting steel even in those days. India continued with Nehru’s philosophy of localising of investment, production and export as a means of GDP growth and employment. Pakistan, on the other hand, had a weaker political and socio-economic structure. While Pakistan followed the developed world’s dictum of liberalisation, privatisation and deregulation, India continued to protect its economy through trade barriers. Pakistan thus became the victim of globalisation, which was the developed world’s mechanism for development.

The economies of India and Pakistan can benefit from each another. Trade with India may be in the interest of Pakistan, because India is a market of more than one billion people as against Pakistan’s 170 million. So Pakistan will have to harmonise its economy with India’s, and vice versa: otherwise, Pakistan will be the loser.

India’s rupee-dollar parity, for example, is Rs45 against Pakistan’s Rs85. In India, sales tax is five to seven percent, and only in a few states is it as high as 12 percent. The sales tax in Pakistan is 15 to 18 percent. Corporate tax in India is less than 20 percent, as against 35 percent in Pakistan. This is not to mention the presumptive tax at about six percent, whether the income is liable to tax or not. In India, there is no such tax at all. The socio-physical infrastructure cost in India is two-thirds that in Pakistan.

India does not rely on foreign loans and credits – it does not borrow from the IMF, whereas Pakistan is subject to the IMF’s strict and severe conditionalities, sometimes at the cost of fulfilment of socio-economic objectives. India also relies on large-scale industries as against Pakistan’s focus on small- and medium-sized enterprises. India’s exports per month are equal to Pakistan’s annual exports. Indian foreign exchange reserves are close to $300 billion, as against Pakistan’s $15 billion, which have been recently inflated due to Pakistan’s IMF loan arrangement.

As for the dismantling of all imports and export barriers between the two countries, India does not permit import of products that are locally available. Industrial policies need to be dovetailed with local priorities, so that employment, technology transfers are generated and foreign exchange is saved. India follows this religiously. The reverse is the case in Pakistan. As in India, the Malaysian experience shows that as long as a country has sufficient reserves, an industrial policy can be formulated that simultaneously promotes export-based industries, nurtures import substitution industry and protects strategic industries. Industry and especially hi-tech manufacturing industry can be nurtured and promoted to become globally competitive.

There is revenue shortfall and unemployment in Pakistan. Further, actual inflation is above 15 per cent, much higher than in India. The remedy lies in industry, manufacturing, in particular. In India, the basic industry is now one of the top tax generators for the government. The Indians did it by focusing on manufacturing and value-addition, and not packaging or assembly as in Pakistan.

Inconsistent economic policies in Pakistan have discouraged investment, production, export and employment. The Pakistan policies need to be catered to harmonise local aspirations. The remedy, as evident in India’s success, lies in industry. A balance must be struck irrespective of external pressures. Reliance on these policies would be in the larger national interest and the socio-politico-economic sovereignty of Pakistan.

All this is a prerequisite to “Aman ki Asha.” Without this any such endeavour would be a pipedream, a desire unfulfilled. If Pakistan becomes the architect of its own policies rather than have them imposed on it by the developed world, the peace initiative will indeed lead to not only political harmony but also socio-economic harmony between Pakistan and India. For we surely have inherited the same or similar culture.

Soon after the creation of Pakistan, Jinnah was asked, if Hindustan is attacked, what would Pakistan do? Jinnah was quiet for a moment, and then said, Pakistan will support Hindustan. Why, he was asked. Jinnah said, “Blood is thicker than water.”

The writer is the founder/chairman of the Atlas Group of companies. Email: yhs@

Tuesday, February 16, 2010

A story of incompetence (Taxation)

Huzaima Bukhari and Dr. Ikramul Haq

The Federal Board of Revenue (FBR) is in for criticism for inefficiency and indiscipline. It has failed on all fronts: collection targets, widening of tax base, countering tax evasion and avoidance, recovery of arrears, voluntary compliance, reform process and what not.

At the end of the five-year Tax Administration Reform Project (TARP), the tax-to-GDP ratio dipped to 8.2 percent from 10.6 percent. The borrowed funds of millions of dollars were ruthlessly wasted. The standing committee of parliament on finance must conduct a thorough probe in the matter and seek the assistance of tax experts to determine the amount of loss caused to national exchequer by the FBR stalwarts during the last two decades.

Despite an expensive media campaign, FBR could not make 25 million potential taxpayers to file tax declarations by the extended date — 25 January 2010. The majority of non-filers are rich and mighty bureaucrats, corrupt politicians, and unscrupulous businessmen. FBR has not only failed to tap the actual tax potential — not less than Rs4 trillion — but is also guilty of shifting tax burden from the rich to the poorer segments of society. According to FBR, on admission, 1,916,300 income tax returns and statements were received from July-January of the current fiscal year (2009-10) as compared with 1,797,000 returns and statements in the same period of last fiscal year (2008-09). Total number of income tax returns received up to 25 January 2010 is only 755,671, the rest are statements under section 115(4) — last year 642,777 returns were received — indicating an increase of 112,849 returns. According to the FBR Press release as of January 25, 2010, FBR has received 16,281 corporate sector income tax returns as against 14,903 returns in the same period of last fiscal year, projecting an increase of 1,378 returns.

Firms — registered and unregistered — filed just 41,863 returns. Salaried persons filed 114,495 returns for tax year 2009 as against 119,759 last year showing a decline of 5,264. Non-salaried individuals filed 583,032 returns compared to 481,961 filed last year. Salary certificates received are 18,828 as against 20,745 filed last year. Number of employees covered in statements under section 115(4) are 1,053,708 this year as compared with 1,055,954 last year. Number of importers who filed their statements is 12,262 whereas some 11,510 importers filed their statements last fiscal year. By January 25, 2010 some 8,473 exporters filed their statements as against 8,050 exporters in the same period of last fiscal year. Some 13,332 retailers having up to Rs5 million annual turnover filed their statements during July-January 2010 period of this fiscal year as compared with 18,272 retailers in the same period of last fiscal year. 581 retailers having over Rs5 million annual turnover filed their statements this year as against 830 such retailers in the last fiscal year. 24,378 contractors and suppliers filed statements during this year as against 24,030 during the last year.

It is admitted by FBR that even after "great efforts" less than 2 million Pakistanis have filed income tax declarations for tax year 2009. FBR has failed to implement law even in Islamabad as out of 43000 commercial and residential rental properties in Islamabad, only 7000 owners are filing returns. In Pakistan, the number of mobile users alone, who pay more than Rs100,000 as annual bill, is about 25 million. Why have they not been compelled to file returns? FBR is taking credit of extra 119,300 declarations filed this year. However, it is completely silent about its failure to expand the tax net — we have at least 25 million persons earning taxable income, but who are not filing tax declarations.

For a long time now, FBR has been apologetic (specifically before the IMF and the World Bank) that total income tax payers (referring to registered only) in Pakistan are just 2 million in a population of 170 million. This is a myth. The reality is that since July 1, 1992 all commercial electricity consumers (including about 3.2. million retail outlets in urban areas), irrespective of whether their income is chargeable to tax or not, are paying minimum income tax of Rs60 per month.

The total number of persons earning interest on bank deposits is not less than 30 million. They pay 10 percent mandatory withholding tax irrespective of their quantum of income. Total number of mobile and land-line telephone users, subjected to withholding tax, in the country, is in excess of 60 million — yet FBR claims that our tax base is narrow. The reality is that FBR is incompetent as a result of which it has failed to book/register a majority of these taxpayers. Had it been done, we could today have boasted of nearly 25 million registered taxpayers. Even a petty village shopkeeper (whose total income is much below the minimum taxable limit of Rs100,000) is paying tax as high as Rs720 per annum. On the contrary, big absentee landlords, earning millions by merely leasing out orchards/lands, are not paying even a single penny as personal income tax.

Out of total population of Pakistan, 43.1 percent are below the age of 15 years. The overwhelming majority of them will not have taxable income. Rural labour of 40 million earns meagre income. Thus, the total income tax paying population having taxable income of Rs100,001 can safely be around 25 million. The FBR is not only taxing all of them but even many of those whose incomes fall below taxable limits. The poor are paying not only indirect taxes but also income tax at source under various provisions of the Income Tax Ordinance, 2001 — section 148 to 156A, sections 234 to 236. Thus in reality the people — except the ruling trio — are over-taxed. In return they get nothing.

It was the duty of FBR to allot National Tax Numbers (NTNs) to all those who paid tax under sections 148,149,150,151,152,153,154,155,156, and 233, 234 and 235 of the Income Ordinance, 2001. Had the FBR just issued notices for filing of return to all commercial electricity consumers, mobile and land-line users (paying bill of Rs100,000 or more) and vehicle owners, today we would have over 25 million registered taxpayers. The FBR did not bother to prepare a database of such persons though millions of rupees were spent (rather wasted) on so-called automation.

FBR is guilty of criminal negligence in not taxing persons having taxable income, but extorting money from many who earn below taxable income. It has been misreporting the figures regarding income taxpayers in Pakistan. Its performance is abysmal in achieving a satisfactory tax-to-GDP ratio. It is just thriving on withholding taxes and voluntary payments — constituting 92 percent of total collection. The contribution of field officers [collection on demand through investigation or audit] is just 8 percent of total collection proving beyond any doubt how unproductive this organisation is.

The small business houses and salaried persons, already heavily taxed through withholding tax mechanism, are victims of highhandedness. It is high time that the FBR should put its own house in order and tax the rich and mighty tax evaders.

The writers, tax lawyers, are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS).

FBR version:

According to FBR, it has finally decided to bring all the persons earning taxable income in the tax net through its tax intelligence system. The Chairman of FBR referred to various proposals such as:

Tax legislation will be introduced for installation of electronic cash registers at the retail outlets. Prime Minister has agreed to provide free of cost electronic cash registers to retailers to document their sales.

Political support/will is requested for taxing black economy and brining informal sector into the tax net. Most of the housing schemes are involved in selling of files of plots. There is proposal to tax transfer of plots through sale of files that would be instrumental in generating additional revenues.

Under new Value Added Tax (VAT) regime retailers having annual turnover of Rs7.5 million would be registered—only essential food items and life saving drugs would remain exempt and 15 percent VAT would be imposed on all other goods from July 1, 2010.

The professional service providers e.g. doctors, lawyers, engineers and architects would also be brought under VAT from July 1, 2010. The implementation of the broad-based VAT would generate around Rs150-200 billion in next fiscal year. The revenue generation from VAT implementation would reach to around Rs600 billion in coming years.

The importers, wholesalers and big retailers are paying Rs125 billion, which is below the actual potential. In most of the cases they deposit withholding tax collected from the consumers and do not declare their actual income, thus presumptive tax regime will be abolished.

FBS restructuring bill may be approved soon

Tuesday, February 16, 2010
By Israr Khan

ISLAMABAD: Parliament will soon approve a draft bill for restructuring and reorganisation of data collection organisations, which is aimed at making them more responsive to national requirements with increased autonomy and credibility, sources say.

The bill will establish Pakistan Bureau of Statistics (PBS) by merging Federal Bureau of Statistics (FBS) with Agriculture Census Organisation (ACO) and Population Census Organisation (PCO). The new body will have seven members — three from the government while four from the private sector.

Official sources told The News the restructuring bill had already got federal approval and would now go to parliament for final approval.

The restructuring of the statistics body had been due for the last several years, but pressure from the International Monetary Fund forced the government to step up efforts in that regard, a source said. It is expected that the World Bank will assist the government in the restructuring process.

The Statistics Division arranged a briefing for senior officials of the attached departments including FBS and PCO about the restructuring and reorganisation of the federal statistics system.

Speaking to the officers, Muhammad Uris Jumani, Deputy Director General of Statistics Division, said parliament was in the process of approving the draft bill.

“The government has approved restructuring of the federal statistics system to make it more responsive to national requirements with increased autonomy and credibility through merger of Federal Bureau of Statistics, Population Census Organisation, Agriculture Census Organisation and technical wing of the Statistics Division into a new autonomous body called the Pakistan Bureau of Statistics,” he said.

Jumani said the Statistics Division planned to hold such briefings in the provincial headquarters in order to introduce the new body.

He said main objectives of restructuring were to make the data collection system more relevant to national needs and to ensure capacity building, career planning of professional staff, upgrading of skills, fair use of resources through pooling of human and material resources and better coordination between different data collecting agencies.

Pakistan Bureau of Statistics will have an apex body namely the Governing Council with three government and four non-government representatives.

A National Users Council comprising data users will be formed to give advice on priorities for collection of statistical data in order to achieve efficiency and prompt results.

Provision has been made for release and dissemination of data by the statistics authority while protecting secrecy of individuals, firms and institutions.

The draft law also provides for establishment of a statistics fund to ensure financial autonomy to the bureau. Protection has been provided in the draft law to existing employees of the bureau in terms of service and they will be governed by the Civil Servants Act 1973 and its rules and will continue service on same terms and conditions.

Every person or employee will have the right to opt for work in the bureau as a civil servant or under new rules and regulations to be prepared by the management of PBS.

Statistics reveal stunning increase in poverty

World Bank’s Task Force on Food Security says 40pc Pakistanis living below poverty line

Tuesday, February 16, 2010
By Ikram Hoti

ISLAMABAD: Statistics reveal stunning increase in poverty in Pakistan impacted by the prices of energy and food in the past three years.

These happen to be the worst years as far as the poverty situation in the country is concerned, data reveals.

The Federal Bureau of Statistics data updated for the Centre for Poverty Reduction and Social Policy Development (CPRSPD), Planning and Development Division, shared with The News indicates an upswing in the headcount poverty ratio for 2008-09.

The steep increase in the prices of petroleum products, electricity and natural gas as well as food items (especially flour, sugar and meat) began in 2007, while the situation worsened in 2008 with global increase in POL and commodity prices.

The financial meltdown followed as industry could not cope with the rising energy prices triggered sharp slowdown in growth and high inflation.

This situation impacted Pakistan’s economy generally and the poor households particularly, as the report indicates.

The government is yet to make this report public after its preparation is formalized and the relevant officials in high places approve its launch.

The News obtained salient figures from this report revealing that the increase in food and energy prices since late 2007 compelled the government to launch a household income and expenditure survey for assessment of poverty increase and vulnerability of the countryside and city-slum majority.

Survey to make such assessment got delayed for inexplicable reasons but the reports based on a 5-year old assessment got regularly updated for the federal cabinet’s appraisal.

The updated Planning Commission’s Interim Report based on 2004-05 poverty head count number of 23.9 percent put the increase in poverty at around 6 percent for the year 2008-09. The newly updated figures say this ratio must go as high as 29.9 percent.

The World Bank’s Task Force on Food Security had put the ratio at 29.2 percent in 2004-05, 33.8 percent in 2007-08 and 36.1 percent in 2008-09. Such estimates placed 62 million people of the country Below the Poverty Line (BPL) in 2008-09.

The new assessments say at least 20 million people might have joined the previous headcount on BPL population.

The poverty increase situation thus stood as follows: 22.3 percent of the population in 2005-06 to between 30-35 percent in 2008-09; now this population is beyond 40 percent.

The data is explained in a manner that the increase in BPL population in the rural areas is more tragic as people lost their small holdings to inflation and overall expenditure per family unit increased by more than 20 percent in the past 3 years.

Though the increase of inflation-hit population in the urban areas remained more pronounced, the net impact was far lower than in the rural areas.

More than 50 percent of the urban workforce underwent decrease in actual wages viz a viz inflation.

The high food prices undermined the government efforts for poverty reduction as food price hike severely eroded poor households’ purchasing power.

This situation indicates a serious risk of massive school dropouts at primary levels while fresh enrolments would also be on the decline.

The poorest households are compelled to spend more than 78 percent of incomes on food and other most essential expenditure, while health and education are tragically compromised areas.

Industrial competitiveness through quality

By Shaukat Hussain

The World Trade Organisation (WTO) is an international organisation established to supervise and liberalise international trade. WTO’s function is to ensure that trade between different countries flows as freely as possible, without any barriers.

The three technical partners, ISO (International Organisation for Standardisation), IEC (International Electrotechnical Commission) and ITU (International Telecommunication Union) have formed a strategic relationship with the WTO, to promote a free and fair global trading system. The political agreements reached within the structure of the WTO require reinforcement by technical agreements. ISO, IEC and ITU, as the three principal organisations in international standardisation have the complementary scope, the framework, the expertise and the experience to provide this technical support which is called ‘quality infrastructure or technical infrastructure,’ which leads towards global market growth.

The WTO since its existence in January 1995 imposes technical barriers to trade (TBT), to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. However, the agreement also recognises countries’ rights to adopt the standards they consider appropriate, for example, for human, animal or plant life, for the protection of the environment or to meet other consumer interests. In order to ensure safe production of food and animal products, a separate agreement on food safety and animal and plant health standards, the Sanitary and Phytosanitary Measures Agreement (SPS) sets out some basic rules. It allows countries to set their own standards, but it also says that regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life/health. Both these agreements of TBT and SPS rely upon efficient functioning of the technical infrastructure, to support the exchange of products worldwide. Therefore, metrology, standards, testing and quality through recognised accreditation system are essential elements of technical infrastructure. Quality infrastructure refers to all aspects of metrology, standardisation, testing, and quality management (MSTQ) or standardisation, quality assurance, accreditation and metrology (SQAM).

In the quality infrastructure system, accreditation plays a very vital role. It is a formal confirmation that a body is competent enough to perform certain tasks. It builds confidence in the work of testing laboratories, certification and inspection bodies, and facilitates mutual recognition of certificates, in addition to promotion of trade. The Asia Pacific Laboratory Accreditation Cooperation (APLAC) was initiated in 1992 as a forum for laboratory accreditation bodies in the Asia Pacific region. Its primary aim was to establish, develop and expand a mutual recognition arrangement (MRA) among accreditation bodies in the region. The International Laboratory Accreditation Cooperation (ILAC) is an international cooperation of laboratory and inspection accreditation bodies formed to help remove technical barriers to trade. The ultimate aim of the ILAC arrangement is the increased use and acceptance by industry, as well as regulators of the results from accredited laboratories and inspection bodies, including results from laboratories in other countries. In this way, the free-trade goal of 'product tested once and accepted everywhere' can be realised. The International Accreditation Forum, Inc. (IAF) is the world association of conformity assessment accreditation bodies and other bodies interested in conformity assessment in the fields of management systems, products, services, personnel and other similar programmes of conformity assessment. Its primary function is to develop a worldwide program of conformity assessment, which reduces risks for businesses and its customers by assuring them that accredited certificates may be relied upon. The achievement of this MRA is not an easy task. There are only two accreditation bodies in the South Asian Association for Regional Cooperation (SAARC) region, four in the Organisation of the Islamic Conference (OIC) countries, and only fifty one countries have this status in the world. Pakistan National Accreditation Council (PNAC) achieved this status on 21st May 2009. In addition to this, the Ministry of Science and Technology (MoST) has the entire essential quality infrastructure, which is necessary for competitiveness of industrial products. The infrastructure includes institutions like the National Physical and Standards Laboratories (NPSL) to provide accredited metrology services to industry and testing laboratories, Pakistan Standards and Quality Control Authority (PSQCA) to formulate and disseminate standards for the local industry and other stakeholders, and Pakistan Council of Scientific and Industrial Research (PCSIR) to provide internationally recognised testing services to the industry, regulators and consumers.

Though the impact of quality infrastructure seems invisible, it is however imperative because without it the world economy cannot possibly move forward. Quality infrastructure is necessary for eliminating technical barriers to trade. It thus plays a key role in integrating the trading partner countries into the international trade system.

The appropriate operation of quality infrastructure ensures benefits to various stakeholders as given below:


(a) Helps to demonstrate conformity of their products according to the requirements of the relevant standards.

(b) Provides a marketing tool to the business industry.

(c) Assist in overcoming technical barriers to trade by fulfilling the regulatory requirements of the importing country.

(d)Reduces product liability, if applicable in the intended country.

(e) Increases the confidence of industrialists through an assurance to produce high quality products.


(a) Provides an assurance to regulators and government departments that they are using reliable testing, certification and inspection services.

(b) The products in the market are assumed to be tested by competent institutions of quality infrastructure. Therefore regulators have to select very few samples and it reduces the cost of market surveillance.

(c) Public, private and multinational companies can establish testing and inspection organisations duly verified by the national quality infrastructure. It reduces the burden on the government sector to establish laboratories and inspection bodies, and it serves as a de-regulation tool as well.


(a) If the product has been tested by a competent institution of quality infrastructure, then it reduces the risk of it being of poor quality, hence quality Infrastructure is the source of a reliable service.

(b) The product purchased by consumers is worth the money and it is assured to be of top notch quality.

In order to provide awareness and training on technical quality matters, there is no such recognised institution in Pakistan. For this, certain steps should be taken, such as to start training courses in universities on quality infrastructure related activities in consultation with the Ministry of Science and Technology (MoST). A training program for the interpretation and implementation of specific international agreements, like SPS, TBT and its linkage with quality infrastructure may be introduced at the university level in consultation with the Higher Education Commission (HEC) and Ministry of Science and Technology. Public sector universities should be encouraged to launch laboratory proficiency testing programs in Pakistan. At this particular time period, even a single accredited laboratory scheme would be very helpful. A pool of trainers and consultants should be prepared. Last but not the least, there is a dire need to develop a strong linkage between the industries and quality infrastructure institutions so that our industries may benefit from the worldwide recognised quality infrastructure, which would definitely provide them a competitive edge in the global market.

Gas price hike and the common man

By Syeda Majeeda Aqeel

Recently the Oil and Gas Regulatory Authority (OGRA) increased the price of gas sold by gas utilities to different consumers with effect from January 1st, 2010. OGRA issued two notifications; first on 31st December 2009, which was somewhat dubious to consumers, so the authority came up with another notification on January 8th, 2010 in suppression to the previous one. In its first notification, the authority did not include minimum charges (the charges for being connected to the gas supply) to the consumers (i.e. domestic, commercial, industrial, CNG stations, cement, WAPDA and KESC power stations etc.), so minimum charges to be paid by consumers were added in the second notification. The said price hike was to increase the revenue of Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGC) as the global lenders demand from the government to keep the revenue of the two gigantic gas distributors at a certain level.

According to the notification, minimum charges for domestic consumers are Rs.128.15, while the commercial units are bound to pay Rs2189.28 per month. The commercial units include clinics, cinemas, laundries, barber shops, tea stalls, milk shops, bakeries, cafes etc. Similarly, the industrial sector is made to pay Rs12893.23 as minimum charges per month. While the CNG stations, cement, independent power producers (IPP) and captive power plants would pay Rs16,982.44, Rs18,087.77, Rs11,206.98 and Rs12,893.29 respectively. There was a total increase of Rs3000 in the minimum charges paid by consumers as compared to the June 30th, 2009 notification. (As shown in the table)

OGRA also fixed the price of natural gas sold by Pakistan Petroleum Limited to WAPDA’s gas tribune power station, located at Guddu, at Rs380.41 and Rs369.97 per mmbtu, respectively.

This increase of 18 per cent has come as a shock to the end users who happen to be the masses in all cases. Commercial, industrial and transport sectors quickly pass on the price hike to the common man. Domestic, industrial and transport sectors mainly consume more than 90 per cent of gas supply.

Transport sector consumes gas in the form of CNG, as a fuel. Pakistan has the world’s highest number of CNG vehicles i.e. over 2 million, and has the maximum number of CNG refueling stations i.e. 2,941 as of July 29th, 2009. The main reason is because gasoline (petrol) prices in Pakistan are the highest in the region. So during the recent years, our transport system has switched over to CNG, putting great pressure on this meager gas resource. Discouraging use of this source of energy through price hike is a foolish idea, especially when oil prices have started escalating again. The current CNG crisis in Punjab and in NWFP is handled through restricted supply which is not a long term solution.

Due to lack of effective planning and timely rectification, the gas sector is on the verge of collapse and if the ongoing decision to suspend gas supply for two days a week is not withdrawn, then the import bill of oil will swell, as CNG is presently replacing at least 3.7 billion liters of petrol per annum which is again a burden on the already huge budget deficit.

The industrial sector is the second largest sector of Pakistan’s economy in terms of output and employment. However, due to many factors both domestic and external, presently the sector is passing through a terrible period, and this decision is worsening the already fragile sector. The sector has already been destabilised by the weakness in domestic demand, excessive power shortage, structural problems, deterioration in law and order situation and decline in external demand emanating from the global recession. In this situation the suspension of gas supply to industries for two days a week is beyond one’s imagination. Non availability of electricity and gas has destroyed the industrial base and the government is not dealing with this particular crisis efficiently, rather it is playing the role of a silent spectator. The industrial area, which is the hub of production, is facing huge losses as a large number of industrial units have stopped production.

In order to tackle with the problem of gas shortage, the government is on its way to implement a risky project of Iran-Pakistan-India (IPI) gas pipeline. IPI, being a doubtful starter entails huge economic and political costs to the country. This project will benefit the seller Iran and the buyer India chiefly. Although Pakistan will be able to purchase 750 million to one billion cubic feet of gas per day, the project can be dicey due to the fact that Pakistan has a fragile relationship with India. The Iranian request clearly made on India’s demand for a guarantee by Pakistan to ensure uninterrupted gas supply to India is unreasonable. This should not happen in order to safeguard our interests.

Within a short time period, the change of autocratic government to the democratic one has caused havoc to the general population. Be it natural gas or CNG, the higher authorities have vested interests to extract maximum financial gains with little or no concern for the average man, who is suffering the most.

Our country is blessed with precious natural gas, but unfortunately due to mismanagement it is being wasted in the form of gas hoarding or theft. During the last financial year, SNGPL and SSGCL recorded a revenue loss of more than three billion rupees, as per OGRA’s annual report.

If squandering of gas is not checked immediately then the entire reserve will deplete within the next few decades, leaving nothing for the coming generation. Special emphasis needs to be laid on the exploration and development of the resource and this can only be achieved by attracting local and foreign investment in this sector, which has a huge potential.

Minimum charges paid by each sector

(In Rupees)

Sector 1st Jan 2010 1st July 2009

Domestic 128.15 108.78

Commercial 2,189.28 1,856.80

Industrial 12,893.23 10,935.13

CNG stations 16,982.44 14,403.25

Cement 18,087.77 15,340.65

IPP 11,206.98 9,504.74

Captive power plants 12,893.29 10,935.13

Notification issued by OGRA

Food security in great peril

By M. Zafar Haider Jappa

The recent emergence of food insecurity hit hard the whole developing world in general and the South Asian states in particular. Food security is a human right of every citizen. The UNís Food and Agriculture Organisation (FAO) defines it as, ìaccess by all people at all times to the food needed for an active and healthy life.î The most recent crucial event on food security was held in Rome one month before the climate summit. Like the Copenhagen Climate Accord of December 2009, the World Food Summit held in November 2009 faced a serious blow when the Food and Agriculture Organisation (FAO) failed to win a clear pledge from the industrialised nations to commit $44 billion a year to help poor nations overcome food shortage.

According to the Food Security Risk Index, USA, France, Canada and Germany are top most secure in food production and distribution. On the contrary, Angola, Haiti, Mozambique, Congo and Zimbabwe happen to be the most insecure in food production. In recent past food situation started deteriorating in 2003 when the world commodity market registered a shortfall in grain up to 105 million tons. In 2007-08 wheat nosedived to a shortfall of 16 million metric tons alone, owing to a shift in the priorities of the worldís leading producers of wheat like USA, Australia and Canada in favour of maize to meet bio-fuel needs.

A sharp spike in food prices sparked riots in some 60 countries with varying intensity and widespread hoarding. The food scarcity also prompted rich food importing countries, like Saudi Arabia to snap up farmland in developing countries to meet future food needs.

Although article 38 of the Constitution of Pakistan explicitly guarantees the right of food to the people, however it has attracted little attention of the policy makers since its promulgation. The abrupt spike in the prices of food items in the wake of 2008 clearly exposed one fact that Pakistan will never meet the targets of the Millennium Development Goals (MDGs) within the time limit. The situation in the other South Asian economies is also not so different. Poverty is rather compounding and the plight of the vulnerable segments of the society is painting things worse. WFP has revealed that during the year which ended in March 2009, the number of persons deemed insecure had risen to 77 million from 60 million in the previous year. Prior to the recent food shortage, only Pakistan was the net food importing developing country (NFIDC) in the whole South Asia as per the data of World Trade Organisation (WTO). Now except Bhutan all other economies of the region fall in the category of NFIDCs. Sri Lanka has been listed as one of the ìhungerís global hotspotsî by the WFP although it has a high literacy rate, low unemployment level and modernisation of farming sector. Other hotspots include Afghanistan, Bangladesh, Chad, North Korea, Somalia, Sudan and Zimbabwe.

In Pakistan wheat and rice are the two main food crops. Since we have no exact figure of the total population of the country, hence actual requirement of the country against both these items cannot be ascertained. This is the reason we are just following guess work to quantify and identity national targets for food production. Except 2000-04, Pakistan has been importing wheat. Wheat is lost while harvesting, threshing, cleaning, drying, milling, storage, processing, cooking and consumption. Although owing to some inbred problems in decision making and implementation, achieving food self-suffice is next to impossible in Pakistan in future, but it can be materialised by taking some innovative steps. We will have to determine the bare minimum area for food cultivation before the construction mafia swallows the whole fertile grassland of the country. Poverty is widely distributed in the many mountainous parts of the country where communities are small and scattered. The rugged terrain, fragile ecosystems, and a recent scourge of climate change make cultivation difficult. Lack of access to services, markets and innovative means have contributed to chronic poverty in these areas. Owing to the spillover effect it has affected the rural way of life and compelled urban migration.

According to the International Fund for Agriculture Development (IFAD), a majority of rural people in Pakistan are poor because of unequal land distribution. A few large landholders own a disproportionate amount of land. More than 4 million family farms have plots of less than 5 hectares, and 25 per cent of all farms consist of less than 1 hectare. At present about 50 per cent of farmers own and operate their farms, while 26 per cent are tenants. Sharecroppers who work on lands belonging to large-scale farmers, are often in debt to their employers.

WFP undertook two exercises to measure the level of food security in Pakistan, once in 1998 and then in 2003. The worrying fact was that the rural population in food surplus provinces was found insecure owing to population pressure and resultant rise in food items. The situation was aggravated by the post harvest losses.

FAO (2009) suggests, for all the economies of South Asia, the share of agricultural sector in their GDPs has steadily declined since 1990. For the period of 1985-2005, the average annual rate of growth of yields of cereals in South Asia has been increased at decreasing rates except for Pakistan. It was ñ1.41 per cent in 1985 but soared to 3.98 per cent in 2005. For India it was 4.17 per cent in 1985 that reduced to .63 per cent in 2005. This enlightens the change in governmentsí priorities over the time period. One of the main reasons is the massive diversion of fertile lands into construction activities, which has slowed down cereal production in the region.

In South Asia, India realised the importance much earlier when it disbanded feudal system in 1949 and in 1955 passed Essential Commodities Act by gaining control over production, supply and distribution of essential food goods to ensure fair distribution of food grains at reasonable prices.

In Pakistan, the Pakistan Agricultural Services and Supplies Corporation (PASSCO) was established in 1973 under the federal government and tasked to procure wheat and other agricultural commodities, determining support prices, ensuring adequate supplies in provinces deficit of food and maintaining strategic reserves in the country. Till 2006 India and Sri Lanka have been net exporters of food but owing to the adverse effects to its cropping patterns because of climate change might compel them to import food for the myriad millions in next 10-15 years.

It is vital for countries to cooperate in the following areas to overcome the chronic issue of food : (i) innovations in the development of new varieties, hybrids and breeds especially in cereal (ii) management of water and natural resources (iii) new methods such as remote sensing and Geographic Information System (GIS), biotechnology, weather and flood forecasting, disaster management(iv) technology exchange - exchange of germplasm; exchange of variety and breed, crop and animal husbandry practices (v) capacity building through development of human resources and regional facilities (vi) regional programmes for plant and animal trans-boundary pests and diseases control (vii) harmonisation of policies and actions like relating to protection of plant variety, bio-safety protocols, biodiversity and indigenous knowledge. (Vii) Minimising post harvest losses (ix) Indus Basin Treaty between Pakistan and India needs to be revisited. But this is only possible if India and Pakistan dispel their mutual fears cropped up of centuries old animosities and broken trust. In Pakistan, $179 million have been spent inclusive of government of Pakistanís contribution in food security. Furthermore, the USAID programmes have invested $134.4 million during 2008-09. USAID has been the largest contributor to provide food to the IDPs of Malakand, Bajour and Waziristan. The Planning Commission of Pakistan has recently reported that if the yield potential of the medium and small size farm sector is achieved, food shortage can be overcome and be converted into surplus. Poverty generates food insecurity. Poverty is spread by lack of education, poor political will, poor access to health services, fragile infrastructure, low level of regional integration and vulnerability to environmental degradation, and deterioration of the natural resource base. The ongoing international financial meltdown and climatic change have caused addition of almost 10 million people among vulnerable to the bare minimum food need and nutritional requirement. The FAO Director General Mr. Jacques Diouf expressed his views that ìhungry people are a serious potential source of conflict and forced migration. This scourge is not just a moral outrage and economic absurdity, but also represents a threat for our peace and security.î

Food importing countries, including Pakistan and India must be pragmatically cautious of such a scenario. Commitment like that presented by FD Roosevelt after the world economic depression needs to be replicated in this region as well, and now is the time to do so. On food security we can no longer afford sluggishness and a consistent public policy is a guaranteed solution.

Coal power plant a viable solution to the energy crisis

Pakistan’s economic development and prosperity depend on how successfully
the country ensures abundant supply of reliable and affordable energy. If the energy
problem is not tackled effectively, the population’s sufferings will increase

By M. Osman Ghani

Since ancient times use of energy has served as an integral part of human life and their prosperity. As population was increasing, the demand for energy was also expanding. It was the discovery of electricity and extensive use of fossil fuel that led to the industrial revolution and that steered advancement of science and technology, culminating in enhanced level of socio-economic prosperity, better living conditions, better health and human happiness. The role of energy still remains as a vital ingredient for rapid socio-economic development. The per capita consumption of energy indicates socio-economic prosperity of any country. It is also a criterion to distinguish between an advanced and a poor country. Any nation willing to pursue rapid socio-economic advancement must assign priority to the development of this vital factor.

Energy development, broadly meaning increased provision and use of energy services, is an essential part of enhanced economic development. Advanced industrialised societies use more energy per unit of economic output and far more energy per capita than poorer societies, especially those still in the pre industrial state. Energy use per unit of output does seem to decline over time in the more advanced stages of industrialisation, reflecting the adoption of increasingly more efficient technologies for energy production and utilisation, as well as changes in the composition of economic activity. And energy intensity in today’s developing countries probably peaks sooner and at a lower level along the development path than was the case during the industrialisation of the developed world. But even with trends toward greater energy efficiency and other dampening factors, total energy use and energy use per capita continue to grow in the advanced industrialised countries, and even more rapid growth can be expected in some developing countries as their incomes advance. The fact that expanded provision and use of energy services is strongly associated with economic development leaves open how important energy is a casual factor in economic development. Development involves a number of other steps besides those associated with energy, notably including the evolution of education and labour markets, financial institutions to support capital investment, modernisation of agriculture, and provision of infrastructure for water, sanitation, and communication. This is not just an academic question; energy development competes with other development opportunities in the distribution of scarce capital, and in the allocation of scarce opportunities for policy and institutional reform.

Energy use increases as more economic sectors develop and more channels for flows are opened. Economic diversity, as measured by the number of economic sectors using energy and the equitability of flows between them, generally increases. As diversity increases the efficiency of generating output with a given amount of energy also increases. Development capacity, the product of system energy throughput the diversity of flows, is a measure of the potential system output and is calculated for selected countries. Capacity changes overtime are shown to relate to changes in economic output in selected countries. Two distinct development strategies become evident, one which promotes energy use and the other which emphasises diversity and the sustainability of each.

Sustainable human development is people-centred development. It generates economic growth and equitably distributes the fruits of that growth. It empowers people, expands their choices and opportunities, and involves them in decisions that shape their lives. For the United Nation Development Programme (UNDP), sustainable human development means focusing resources on four key areas; eradicating poverty, increasing women’s role in development, providing people with income-earning opportunities, and protecting and regenerating the environment. Initiatives in the energy sector are an important means to achieve sustainable human development. After all, as countries develop, their energy needs evolve and expand. And, the production and consumption of energy has a tremendous impact on economies, environments and industrial development. Energy should, therefore, be taken into account in any development strategy.

Due to acute shortage of electricity and other forms of energy, and their rising prices, Pakistan has been experiencing a slowdown in its economic activities. Major negative impact is being experienced by its industrial sector and international trade. Energy availability in Pakistan in all its form has declined or at least remained stagnant during 2008-09, and due to the ever increasing demand, the energy situation may deteriorate in the current fiscal year. Like previous years, the major sectors affected will be the manufacturing sector and exports. It should be noted that Pakistan’s exports during July-December 2009 declined by 3.2 per cent, while India’s grew by 9.3 per cent in December 2009. Poor power supply, along with the circular debt burden has been singled out as one of the prime reasons for dismal performance of the manufacturing and agriculture sectors. The future economic development and human prosperity of Pakistan squarely depends on how successfully it ensures the abundant supply of reliable and affordable energy. If Pakistan fails to tackle its energy problem effectively, then its population’s sufferings will increase.

The impact of power shortage is quite visible not only in the form of slowdown in economic growth, but in the form of severe suffering of the people. Moreover, continuous increase in petroleum, oil and lubricant (POL) products and utility charges are only adding to their suffering. Increase in energy prices is immediately reflected on higher transportation costs and price hike of essential consumer items. On the other hand, to fill up the revenue gap and to meet the conditionality of major donors, the government is sometimes compelled to increase the utility charges.

The question that the people of Pakistan generally ask is, how long will they have to wait to see the nation prosper, especially when, in our corruption-prone society the gap between the have and have not is widening day by day, and when the number of people living below the poverty line is also dangerously increasing? Economic stagnation and the rising poverty level, however, can be effectively addressed by rapidly improving the dilapidated infrastructure system, energy availability and human indicators. We have repeatedly heard optimistic news such as the country having the largest coal reserves, and that it can meet its energy demand for more than a thousand years. It has hydro potential of 40,000 MW, mostly unutilised; it has huge potential of renewable energy, including at least 20,000 MW wind power etc. The time is just right to do something about this. Because of resource constraints and other problems, we cannot do everything that we need or want to do. But, we can start with a few projects that will take less time and would be easy to accomplish. One such project is to exploit the huge coal reserves of Thar, with the cooperation of some friendly countries like China. Pakistan and China enjoy exemplary friendly ties, which have not only sustained but, in fact, have expanded becoming deeper and deeper. Pakistan, being its closest friend may ask China to cooperate in the rapid and comprehensive development of Thar Coal for adequate power generation. Coal supplied the vast majority (70 per cent) of China’s total energy consumption requirement. Over the time, China has gained the required experience and expertise for hazard-free production of coal electricity, and Pakistan can benefit from its expertise and help. It may be noted that China was interested in various energy sector development projects in Pakistan including the following:

(1) Collaboration in exploiting the Thar coal and its use for power generation.

(2) Proposal for setting up an oil refinery in Gwadar, along with oil storage and patro-chemical complex.

(3) Proposal for setting up an oil pipeline from Gwadar to Kashgar.

(4) Examining the feasibility of installing additional nuclear power plants in Pakistan etc.

It is estimated that coal consumption of the entire world will increase by 49 per cent from 2006 to 2030, and coal’s share in world energy consumption will increase from 27 per cent in 2006 to 28 per cent in 2030. Of the coal produced worldwide in 2006, 62 per cent was shipped to electricity producers, 34 per cent to industrial consumers, and most of the remaining 4 per cent to coal consumers in the residential and commercial sectors. In the electric power sector its share may decline slightly, from 42 per cent in 2006 to 40 per cent in 2020, and then increase to 42 per cent in 2030. Pakistan, being an energy deficient country can no longer neglect this precious gift of God in the form of Thar coal.

Remittances and economic development

Remittances are a source of economic wellbeing for a large number of families of expatriates living in home countries and also lead to economic growth through consumption and development, where the state and banking sector play a key role in channelizing the remittances for productive economic activity

By M. S. Qazi

It is a known fact that after 9/11, the state of Pakistan’s remittances changed drastically. These increased gradually from almost $1.0 billion to $7.81 billion by the end of last fiscal year. During H1 FY-10 their amount was $4.531 billion, displaying an increase of $891.07 million or 24.48 per cent over the same period of last fiscal year. According to an optimistic estimate remittances would increase to around $9.0 billion by the end of current fiscal year, nearly half of the amount of projected exports. Major contribution in remittances is from expatriates working in UAE, UK, Saudi Arabia and a few other countries.

How is one to estimate further growth of remittances, in the light of economic slowdown in nearly all the countries where expatriates are concentrated, and the government’s expectation for further increase in them during the next few years? The government of Pakistan (GoP) conscious of the positive effects of remittances on an economy and poverty alleviation, a few months earlier launched PRI (Pakistan Remittances Initiative) to streamline flow of remittances through commercial banks and official channels, against illegal transactions through hawala system, with a focus on doubling the remittances within five years.

Remittances are a global phenomenon and their impact is more pronounced in South America, the Middle East and South Asia. Some economists consider remittances as a ‘development resource’ at par with domestic savings and foreign investment. On the contrary, a few IMF economists after carefully analysing their effect on economic growth and development, particularly in the long term perspective did not find any significant impact. This is because many countries, including Pakistan have not developed the required expertise and financial institutions to directly channelize the remittances towards increasing economic growth and development. The IMF study further revealed that, “a negative relationship between remittances and growth was found.” This observation is quite pertinent with reference to the recent boom in remittances and economic growth in Pakistan.

Despite such diametrically opposite views, remittances are a source of economic wellbeing for a large number of families of the expatriates living in home countries and also lead to economic growth through consumption and development, where the state and banking sector play a key role in channelizing the remittances for productive economic activity. Remittances are not risk free; they create excess liquidity unless it is mopped up in the banking system and concerted efforts are also made by the government to tone down fiscal deficit. Otherwise, they are likely to lead to higher inflationary pressures and create other fiscal and monetary distortions.

It was estimated that in 2008 more than $325 billion remittances were transferred worldwide through official and banking channels. According to an analysis during the past ten years, inflow of remittances to developing countries on an average amounted to one-third of their export earnings. In recent years, they became at par with the foreign direct investment (FDI) in developing countries and during the period of global financial crisis have performed much better than FDI. In Pakistan, FDI during first five months of current fiscal year have declined by 52.0 per cent compared to corresponding period of last fiscal year, but remittances have increased by around 22.0 per cent during this time, as compared to the corresponding period of last fiscal year.

The global financial crisis, which triggered in late 2008, certainly did negatively affect the flow of remittances. Recently added element was the fallout of the Dubai World. With particular reference to Pakistan and other South Asian countries, according to a World Bank (WB) report titled, Global economic prospects 2010; crisis, finance and growth in developing countries, “remittances inflows- a cushion for the region could fail to recover in the event of a prolonged global recession or a jobless economic recovery potentially coupled with tighter immigration controls.” Contrary to fears expressed in the report, inflow of remittances to Pakistan has been on the increase during past two years. The remittances increased to a record high level of $7.811 billion during FY09, compared to their inflow of $6.451 billion a year earlier. According to the SBP, “the monthly average remittances for the July-December 2009 period came out to be $755.17 million as compared to $606.67 million during the corresponding period of last financial year registering an increase of 24.48 per cent.” This is being attributed to a number of factors that include return of some of the expatriates, diversion of remittances partially from informal to formal channels, increased outreach of the banking sector because of the Pakistan Remittance Initiative (PRI) under which transfer of remittances is facilitated within 24 hours, and posting savings in the homeland country considered to be more secure than elsewhere.

According to the report, “South Asian countries are projected to benefit from stronger inflows of remittances which should boost private consumption and support growth particularly in Bangladesh, Nepal, Pakistan and Sri Lanka. Conflict ridden countries like Pakistan, Afghanistan and to a lesser extent Nepal, are expected to face more moderate growth as political uncertainty and fighting continues to disrupt economic activity.” South Asia’s growth is projected to firm up from 6.0 per cent in 2009 to 7.0 per cent in 2010 and further to 7.4 per cent in 2011. The region’s fiscal deficit is projected to continue to exceed its pre-crisis deficit of 5.7 per cent recorded in 2007. Pakistan has problems on account of containing fiscal deficit, inflation and boosting growth that need to be addressed.

The boom in the level of remittances is not occurring for the first time, though the amount remitted during last fiscal year and expected remittances during current fiscal year will be the highest ever. During the past two years economic growth slowed down. It touched a low level of 2.0 per cent during last fiscal year (FY09) but remittances were at a record high level of $7.811 billion. In the current fiscal year, an inverse relationship between high remittances and low economic growth will be reflected. The economy is projected to grow at 3.0 per cent, whereas remittances are expected to grow to around $9.0 billion. During the past five and a half years (including H1 of current fiscal year), remittances worth more than $32.0 billion became a part of the money supply in the financial market. However, they landed mostly in stocks, real estate and domestic consumption. In addition to this, national savings scheme (NSS) and commercial banks had their share. The financial market witnessed excessive liquidity that was diverted towards boosting consumption through consumer financing. There was hardly any concerted effort to divert a major chunk of remittances towards manufacturing, agriculture or agro-based industries either by the government or by commercial banks.

Lack of any concrete strategy to divert part of the remittances towards productive economic activity and a greater stress on consumption had a threatening effect on weak supply side of the economy. It resulted in developing inflationary pressures that was further aggravated because of expansionary fiscal policy of the government, soon after coming out of the IMF bailout package by end of 2004. In 2008, prices of essential commodities and food items hit new peaks. The cumulative effect of all these factors pushed the inflation to a record high of 25.4 per cent in August 2008. With respect to utilisation of remittances there is hardly any change. An amount of $9.0 billion received as remittances, if converted into domestic currency would mean Rs765 billion. Where would such an enormous amount of money end up? This is an important question that needs to be addressed by managers of the national economy. Huge remittances are a big national asset for a country, as they help in alleviating poverty, shoring up foreign exchange reserves and improving the current account. However they contribute little towards development because of shortage of significant expertise in channelising them towards productive economic activity. It is up to the managers of the economy to make the best use of remittances as a development resource. PRI is meant only to double the remittances in five years. The need to move beyond this limited objective is too obvious to be highlighted.

The water crisis and its implications

The factors responsible for the reduction in water supply include increase in population, climate change, lack of construction of water reservoirs, and misplaced use
of the Jhelum and Chenab rivers by India under the Indus Water Treaty (IWT) of 1960

By M. Sharif

According to the World Bank (WB) and Asian Development Bank (ADB), Pakistan is one of the most “water stressed” countries in the world; it is likely to face an acute water shortage over the next five years due to lack of water availability for irrigation, industry and human consumption. A WB report states that water supply in Pakistan has fallen from 5,000 cubic meters per capita to 1,000 cubic meters in 2010, and is likely to further reduce to 800 cubic meters per capita by 2020. Contributory factors consist of increase in population, climate change, lack of a solid vision to construct water reservoirs, and misplaced use of Jhelum and Chenab rivers by India under the Indus Water Treaty (IWT) of 1960 that has resulted in reduced flow of water to Pakistan. The water crisis has two dimensions. First is the distribution of water among the four provinces, particularly between Punjab and Sindh. The second is between Pakistan and India arising because of utilizing water from Chenab and Jhelum rivers. The first problem basically arises from the second one.

India got the right to fully utilize water from the three eastern rivers; Ravi, Bias and Sutlej, while Pakistan was to utilize water from the three western rivers; Indus, Chenab and Jhelum under the Indus Water Treaty (IWT). India was also permitted limited irrigation of 1.343 million acres (2.85 MAF) from western rivers. Water for Pakistan was not quantified. However, it is implied in the treaty that India is not to exceed the specified limit for water utilization. If India continues with its current strategy of building dams on Chenab and Jhelum rivers, then there would be serious implications for Pakistan’s agriculture and national security. It would aggravate the already strained relationship between the two countries, which is due to the unresolved Kashmir issue. A very strong perception exists in Pakistan that India in its quest to utilize water from Chenab and Jhelum rivers and is not fulfilling its obligations under the IWT. It wants to constrict the flow of water to Pakistan. This strategy has a hidden political agenda to create scarcity of irrigation water that would hurt Pakistan’s economy and agriculture sector in between 10-15 years. The national interests of both the countries would be best served if India honoured its commitments under the IWT. But, is India ready to address Pakistan’s concerns or wants to safeguard its own interests by violating the IWT that could lead to worsening of relations between the two countries?

The water crisis at the national level exists due to the following reasons:

(a) In the past, the public leadership did not succeed to develop a consensus on construction of huge water reservoirs, particularly the Kalabagh dam that could have addressed many of the power and water problems which are being faced today.

(b) Provinces are in dispute over their respective share of water under the IWT, with particular reference to utilizing water for Kharif and Rabi seasons through link canals managed by the Indus River System Authority (Irsa). Irsa has stopped satisfying Punjab, Sindh and Balochistan provinces over distribution of irrigation water for current Rabi season because of 34.0 per cent shortage of water, primarily due to construction of Baglihar dam on Chenab. Water supply would be further constricted because of planned construction of Basrur multi-power project, Siwalkot dam, and Pakot Dul dam on Chenab river by India. Unless resolved it would continue to be a recurring problem.

(c) The Sindh Assembly has demanded scrapping of hydropower project on Chashma Jhelum link canal, a key project for the Punjab government. There is a strong perception in Sindh that the project would constrict flow of water to the province and hurt its agriculture as well.

(d) Punjab is accused of stealing 16,000 cusecs of water between Taunsa and Guddu, from 2nd to 4th Feb, 2010. The Punjab government claims that system losses are to blame for the water that has disappeared.

Pakistan is facing numerous challenges including poverty alleviation, high food inflation and food security for a population of more than 180 million that is likely to swell to 250 million by 2050. These challenges could only be addressed adequately if the agriculture sector that presently contributes 21.5 per cent to GDP growth, and employs 40 per cent of the country’s workforce performed well. The fears of the Sindh province have to be dispelled by the federal government and the Punjab government with respect to honouring its right to water. Each province is to be provided sufficient amount of water, without any reservations from any quarter.

Coming to the water crisis between Pakistan and India, it prevails due to the following reasons:

1.India has embarked upon the construction of a huge network of water storage facility, the national river linking project at an estimated cost of $120 bn likely to be completed by 2016. It includes construction of Basrur multi-power project, Siwalkot dam and Pakot Dul dam on Chenab, in addition to the already constructed Baglihar dam.

2.The Baglihar dam’s construction enticed India to reduce water supply by 0.2 MAF, which is having a negative impact on the production of wheat crop. It is estimated that because of water shortage, it would be difficult to meet the target of producing 25 million tons of wheat. There is likely to be a shortfall of around 2-3 million tons.

3.India is building the Uri power project (240MW) and Kishan Ganga power project (330MW) on river Jhelum. A 22 kilometer long tunnel is to divert Neelam-Jhelum water for Kishan Ganga power project, which threatens Pakistan’s 930 MW Neelam Jhelum project.

The short term implications of the water crisis are already visible. The level of distrust between Sindh and Punjab is increasing. IRSA is facing difficulty to resolve water disputes between them. The meeting held on 4th Feb to resolve compensation of 0.4 MAF of water previously allowed by Sindh and Balochistan to Punjab, open Chashma-Jehlum canal to meet Punjab’s requirement for additional water and the 16,000 cusecs of water theft between Taunsa and Duddu ended up without any positive results. The water dispute can only be resolved if the provinces show maturity, as they have shown in resolving the National Finance Commision (NFC) award. The resolution of technical matters related to the downstream flow of water needs to be tackled through a centralized telemetry system that can measure water flow at around two dozen points, where its discharge takes place. Such a system was established in early 2000s at an enormous cost, but it hardly functioned. It should not be difficult to restart the system, but care should be taken that vested interests do not subvert functioning of the system.

Water dispute between India and Pakistan is of a larger dimension and can be resolved only if it is de-linked from politics between the two nations. The most important point in this respect is that India, being an upper riparian state has a greater responsibility towards resolving the quarrels within the framework of the IWT. This is for one simple reason that the root cause of the problem lies in lack of implementation of the IWT in letter and spirit by India. It has not been sharing technical information and data related to flow of water downstream with Pakistan, and is not agreeing for inspection visits to India by Pakistani teams, whenever required. Using water from the western rivers beyond a permissible limit of 2.85 MAF is a clear violation of the IWT. This can be resolved if India promptly shares water flow data and agreed to inspections taking place, as laid down in the treaty.

Recently, a three-member Indian delegation headed by the Indus Commissioner visited Pakistan. The commission agreed to resolve the water dispute within an agreed timeframe. The matter was earlier raised at the highest level between the Indian Prime Minister, Manmohan Singh and Pakistani President, Asif Ali Zardari during their meeting in New York on the side lines of the UN General Assembly session last year. Manmohan Singh had assured the president that, “his country is seriously committed to our (Indus) water sharing treaty.” India needs to stand by its commitment. It should not disrupt or reduce the flow of western rivers, share technical information with Pakistan on water projects that it plans to construct on the western rivers’ side and respect the rights of Pakistan as a lower riparian state. The two states need to implement the water dispute resolution mechanism of the IWT in the larger interests of regional stability and well being of the people.