The economy of Pakistan is largely agro-based. According to Economic Survey of Pakistan 2015-16, this sector alone contributed 19.8% to GDP. About 42.3% of labour force is employed in this sector and the rural population of the country largely depends upon this sector for livelihood. It is also to be remembered that Pakistan, at present, is the sixth most populous country in the world and falls within the category of lower middle-income countries.
In Pakistan, like many developing countries, there is a sharp difference between urban and rural life in terms of literacy rate, labour participation rate, per capita income, purchasing power, health and other facilities. For instance, in Pakistan during 2015-16, the literacy rate of people of 10 years and older was only 60% with sharp differences between urban and rural areas and between males and females. It was only 51% in rural areas as compared to 76% in urban areas. Female literacy rate too is much lower in urban (69%) and rural (38%) areas as compared to male literacy rate of 82% and 63%, respectively. As compared to urban population of 77.93 million, the rural population is 117.48 million (Economic Survey of Pakistan 2015-16).
Likewise, household incomes for the urban middle class have continued to rise, while the rural poor people see their incomes declining as the average incomes in urban areas are much higher to those in rural areas.
The wide divide between rural and urban areas in important socioeconomic indicators, particularly rising per capita income, is the greatest challenge before the economic policymakers in Pakistan. The lower and declining incomes in rural areas suggest that the benefits of rising income and aggregate GDP growth have not been shared equally between urban and rural areas of the country.
One of the reasons for the rising unrest and deteriorating law and order situation in the country maybe the rising inequalities between rural and urban areas. Rural areas are deprived of better infrastructure and employment opportunities, better education and healthcare facilities, marketing system for agricultural produce exploited by the middlemen, etc. The purchasing power in these areas is considerably lower than that in urban centres. Such differences are dangerous for the unity of the federation.
So, understanding the causes of these rising inequalities is fundamental to devising policy measures that can allow to minimize these differences and to ensure sharing benefits of growth equally. As rising inequality between rural and urban areas reflects a lack of economic opportunity, it may also limit the growth potential of Pakistan’s economy by making investment environment unfriendly for investors.
During last 3-4 years, there has been a significant decline in support prices of farm products, especially rice, potato, maize and sugarcane. As almost the entire rural population depends on agriculture for survival, the decline in support prices, and in farm products, has further decreased their incomes. Therefore, the income gap between people living in urban areas and their rural counterparts has increased.
How to reduce rising income inequality between urban and rural areas?
There may be more than one ways to achieve this objective. As Pakistan’s economy is largely agro-based, so enhancing agricultural exports will help push prices of farm products up. So far, Pakistan’s exports are highly concentrated in a few and low value-added products of cotton, textile, leather, rice, sports goods, etc. Therefore, diversifying exports of agricultural products with more value addition and with increased market access will help to enhance the income of rural people.
At the same time, within so-called employed labour force in agriculture sector, there is a significant portion of disguised unemployment that is contributing to low productivity of this sector. Therefore, shifting unemployed or underemployed agricultural workers to manufacturing or services will also increase the relative productivity of agriculture, raising the income of those who continue to remain dependent on agriculture, and particularly of the lowest earning workers.
Reducing tariffs on imports will also reduce the inequality as the rural people with low purchasing power will be able to substitute cheaper imports for more expensive domestically produced consumption. For this purpose, however, policy of tariff reduction may be adopted keeping in view comparative advantage and also the tariff policy of the exporting country against Pakistan’s exports.
Another area is to educate and to provide necessary skills to rural people that will help in sharing growth benefits equally between urban and rural areas. One area that requires education and skill is farming practices. So far, majority of farmers in the country are employing traditional methods of crop cultivation, livestock rearing, fish farming, etc. The incomes of rural people can be increased significantly by replacing traditional farming methods with high tech-methods as used in most of the developed countries. Strengthening dairy farming in rural areas has the potential of increasing rural income manifold. Despite being bestowed with good quality land, abundant water resources, sufficient labour, it seems strange that Pakistan imports sheep in bulk from Australia. This also shows how poor the provincial governments’ policies are.
The government policies regarding labour wages are crucial for redistribution of income within rural people. Without such policies, the landholders will continue to get the larger share of growth at the expense of the labour force that will get the lower wages thus generating further inequality within the rural people. Though the inequality between landholders and labour class is fundamental, it can be narrowed down by effective income redistribution policies such as fixing the wages in proportion to growth and then effectively regulating it. Second, taxation of agricultural income can also be used as a fiscal instrument for income redistribution.
Women are less empowered in rural areas though overall picture is also not so rosy, as extremely low female labour participation and literacy rates indicate. Therefore, empowering women in economic decision-making and encouraging their participation in economic activities with better human resource development, as is happening in the urban areas to some extent, will definitely improve and enhance overall income of the rural people.
Marketing system in rural areas is also highly lopsided; with large share of profit going to the middlemen. Since rural people are not literate enough to understand the markets, they usually depend on the middlemen to sell their produce. The government needs to develop a robust marketing system to minimize the role of middlemen. Secondly, the government should build infrastructure and create small industrial zones to provide the rural populace with more and more employment opportunities. Linking rural areas with urban markets through good roads will also increase returns to farmers as time of transportation of goods to markets will be reduced and there will be minimum chances of agricultural goods’ decay.
The cost of credit also remains very high in Pakistan. There are explicit as well as implicit costs associated with bank credits. To increase rural incomes and to prevent turning loans into bad debts, extending credit to rural community at low cost and providing them with training on how to use credit for profitable ventures is crucial.