How to reduce injustice in Pakistan.
By: Tarique Khan Javed
President, Overseas Pakistani Investors Forum.
                           Dated 11th Nov 2008

An unjust society from beginning:
Areas now comprising Pakistan has always been an unjust place. Strong and powerful have always exploited the weak in a very crude and inhuman manner. While the poor intoxicated by heavy doses of philosophies recommending to accept their ordained fate, have kept quite and suffered.

The Muslim and Mughal Rule were very cruel in which the masses were left at the mercy of Munsubdars, who could exploit as he wanted. No title to land was ever given and people used the land at the will of the Munsubdars. Those who defied and did not pay the demanded taxes were killed and their cattle’s , wife, children were sold to recover the unpaid taxes.

When the Britishers came they extracted a very heavy tax driving  30 millions to starvation and death. Their efficient and relatively honest tax collectors gave them more than their needs which they transferred to UK to make UK the greatest economy of the world. However for the first time Britishers gave Title deeds to the people and right to sell their land and eventually also reduced and rationalized the taxes. However their self interest and the purpose of staying in the country did not allow them to do much justice to the people. They earned USD 8,000 billion in 190 years of Rule and left us at the mercy of new local Rulers. 

Post independence:
The new Rulers with their much weaker moral training and lifting of British check and balance, made huge amount of money and shifted them to Swiss and other offshore Banks. While Government was deprived of potential taxes and thus became indebted, tax collectors, policy makers, businessman, land lords  became big depositors of international Banks. With the help of maximum indirect taxes and inflation poor were denied any opportunity of getting out of poverty trap.

The Land reforms which were introduced in India was not applied in Pakistan, by the Ruling party Muslim as it was controlled by Land Lords and Sardars. Common man was not invited to join the party and no grass root network was created and  democracy never got hold in Pakistan.

Thus Army took over without any resistance and ruled as long they wanted. Army and establishment spread lies and misinformation against democratic leaders to discredit democratic process to perpetuate their rule and people easily got into their trap. Army to justify huge and increasing expenses posed India as an imminent threat to Pakistan’s existence and lured people to think that they will capture Kashmir soon. Again their propaganda machine was so strong that ordinary Pakistani was brain washed into accepting these lies.

A new country with extra ordinary economic growth record:
 (1947-1972)
At the time of its birth all leading economist of the world including Gust (who later joined Pakistan Planning Commission) declared that the country could not survive for more then few months and would be forced by economic condition to rejoin India. To every ones surprise Pakistan not only survived but attained such growth rate which was unseen at that time 

Soon after giving up India and Pakistan Britain Pound become very weak and was devalued by 30%. While India followed Pakistan refused to reduce the value of its currency. At that time 60% of Pakistan's export was to India thus it meant that India was forced to pay 30% more for essential imports like Jute and Pakistan's export income jumped. Before India could find alternative source of Jute Korean War erupted thus creating a shortage and increasing the price of Jute further. The extra ordinary FX income during 47-54period provided a substantial FX reserve for the country .Which it decided to invest in industrialization process particular import substitution industry. The incentive provided were such that within a short span of time a whole range of domestic industry sprang up from none at the time of independence. The rate of growth in GDP during this time was on the average 10-15% a record growth rate for all times.

In 60's Pakistan paid attention to Agriculture sector and started the Green Revolution which led to high growth rate of 10-15% in this sector as well and by 1970 Pakistan was able to triple its Agricultural production from what it was in 1950.

The economic growth model followed by Pakistan between 1947- 1971 encouraged concentration of resources in fewer hands in order to have high rate of savings and reinvestment led to widening the gap between "haves" and "have not". So called 22 families became owner of large chuck of the newly produced wealth which led to social movement calling for re-distribution of national wealth.

Ayub’s Martial law- first challenge to status quo:
With such a weak democratic base it was not possible to challenge the Army when it first imposed Martial Law in 1958.  However the new Ruler Ayub Khan introduced the first Land Reform in 1959 restricting maximum land holding to 500 acres irrigated and 1000 unirrigated. This resulted in resumption of 1,022,927 hectars of land out of which 955,656 were distributed; benefiting some 186,555 families.

This made people realize that an Army Officer coming from humble family background, was more interested in their well being than the so called politicians.
This perpetuated Army Rule comfortably till 1971 and did not allow democratic institutions to get hold.
Popular uprising under Bhutto-second challenge:
Taking clue from Ayub’s popularity following Land Reform, when Bhutto started his bid for power he promised Roti, Kapra and Makan. He raised his voice against the imbalance which was created in the Country as 22 leading business families amassed huge wealth while the common man remained poor. He promised to distribute wealth by taking it away from both Businessman and Land Lords. 

This underlying demand led to the winning of Peoples Party. In  1972 as promised in PPP manifesto, big industries, banks and insurance Cos were nationalized and  Land Reform was introduced calling for reduction in maximum ceiling on landholdings to 150 acres irrigated, 300 acres unirrigated. No compensation was paid to landowners and land was redistributed without charge to landless tenants cultivating resumed land. Total area resumed was 481,244 hectars out of which only 295,937 was redistributed benefiting some 71,501 families,  185,307 hectares resumed land remained undistributed. While the impact of nationalization was widespread and it changed the investment climate and city radically, the impact of Bhutto’s Land Reform was rather limited. So he attempted another reform of 1977 calling for reduction in land ceiling to 100 acres irrigated and 200 acres unirrigated. This proved to be the last straw the well entrenched Land Lords got together with Mullah and in the name of Islam over threw Bhutto and invited Army to Rule. Zai ul Haq suspended implementation of Land Reform Act 1977, after taking a Fatwa declaring such repossession and distribution Un Islamic.  He introduced medieval Islamic Laws which created lot of tension in the society and patronized militancy by Mullahs while fighting Soviet Union in Afghanistan with the help of West. This transformed a peaceful and tolerant society into a blood thirsty and unhappy society where killing each other on the basis of small differences became a norm.

After 11 years of Zai Rule unto August1988 limited and controlled Civil Rule was allowed up to Oct 1999, when once Army took over and Ruled up to Feb 2008. During this period no progress was made on providing justice to the people and Land Reform was forgotten. Heavy dose of inflation and indirect taxes kept eroding peoples purchasing power and therefore any apparent increase in their income was taken back and they continued to remain poor. During this period rich became richer as they paid little taxes.

Economy did well during the period and in particular after 9/11 thanks to massive American Aid and huge remittances by Overseas Pakistanis. Stock Exchange rose from 1,500 levels to 15,000 and country’s foreign exchange reserve touched USD 17 billion. Substantial consumer lending by Banks increased Car, Motor cycle, House hold goods and Mobiles sales many fold and gave an impression of UN precedence prosperity. Bank lending from 2001 to 2008 was equal to all lending since independence.

Dec 27, 2007 uprising, the third challenge to status quo:
Between July 1977 and Dec 2007 common man of Pakistan kept his eyes focused on Banazir Bhutto for some relief. She came to power twice but on pre conditions and tied hands, she could not do much for the poor except providing some jobs.

By Dec 2007, when chances of her victory in up coming election looked bright, expectation of people rose very high. Thus when on 27th Dec she was assassinated people could not take it any more. They came out in frenzy and destroyed as many symbols of rich as they could. They burnt expensive cars and Banks and brought the whole country to a halt for several days.

Rich realized it was a close call, before full blown revolution leading to lot of bloodshed and reorganization of society. Army for the first time appreciated the power of the people and decided not to confront and take a sideline.

As a result for the first time in its history genuine democratic set up has come into being after Feb 2008 election.
However the democratic government found its hands tied up not by Army or Establishment this time, but by international and domestic unfavorable economic conditions. Oil and food shortage pushed the prices to record heights, further straining already huge budget deficit, caused by excessive civil and military expenses, in the wake of low collection of taxes.  Inflation has touched 25% level in recent months and a great number of people are staving.

Challenges to new Government:
Cumulative inflation since 2004 estimated at 70% without corresponding devaluation of currency has led to:

a) Erosion of purchasing power of common man.
b) Increased imports and decreased exports.
c) Increasing trade deficit.
d) Increasing interest rate,
e) Decline in currency value.
f) 40% decline in Equity market and its suspension.
g) Flight of capital.
h) Reduction in FX reserve from USD 17 billion to 6.5 billion.

Leading the country on verge of default in coming days, unless bailed out by IMF.  While IMF is likely to insist on:

a) Radical reduction in civil and military expenses.
b) End of all subsidy.
c) They may also appose the modest Banazir Fund for the poor.
d) Devaluation of currency.
e) Increase in interest rate.
f) Improve tax collection by bringing structural reforms.

All this has paralyzed the new Government. They do not known what to do. People wait for some relief however the Government is not in a position give any relief other than Banazir Fund and leasing of Katchi Abadis in cities like Karachi.

Possible responses by new Government:
Desperate situation demand desperate measures and I suggest the following:

1) Increase Tax collection from Rs 1 trillion to 5 trillion:
Based on tax collection record during British Rule when huge surpluses were earned and sent to UK it is easy to see that our tax collection has dropped substantially since independence. This was mainly due weak moral base of our Tax Officers and checks and balances as it existed in pre independence time. If there is no hope of find honest officers locally and foreigners would not like to come under the given circumstances. The only option left to increase the tax collection substantially is by tendering out the Tax Collection system to private Cos. That is giving out Tax collection to a private Group on a fixed amount of say Rs 3 to 5 trillion compared to current collection of Rs 1 trillion.

2) Cut Civil and Military salaries and parks by 50%.
A revolutionary cut in Government expenses is imperative. Sighting the low collection and incoming  restriction on further borrowing from SBP, Government must either reduce the number of Ministers and Government employees including that of Armed forces, by say half or reduce their salaries and parks by half. This should also apply to MNA and MPAs. If they do not like their new salaries; they may resign. The Country can not pay them well by starving the common people. 

3) Redistribute land to give relief to poor in rural area.
PPP Government owes to the people of Pakistan and souls of their Leader an obligation to implement the 1977 Land Reform Act. In this they will find active support of MQM and ANP.

There can not be any better time for its implementation and there is no excuse what so ever for delay. Except as the critic say, the Party is run by Land Lords, Jagirdars and Sardars and why they would agree to reduce their holdings and influence.  To prove critics wrong; rank and file of PPP should demand that the unfinished agenda of their Leader be implemented.

PPP has no excuse this time as Army is on the sideline and all important Offices are held by them. If  they  fail to do so this will be great betrayal of trust posed by the poor. Since the last Benezir Bhutto’s Government people have been waiting for the PPP government to come again and relief their suffering. If PPP fails this time the consequence for it as a party will be disastrous.

4) Reduce indirect tax on items used by common man
1) Remove all Sales Tax on Electricity and Gas.
2) Remove Oil and Gas development surcharges on Petrol, Gas, Diesel and Furnace oil.
3) Remove all custom duty on:
a) Edible oils (between  9,000 to 16,800 per metric ton)
b) Sugar 10%,
c) Salt-20%,
d) Pencilline-25%,
e) Bandages 20%,
f) Cigarates-35%,
g) Wine and Beer-90%

and all other  items used by the common man. All sales Tax and Excises duties on these items can also be removed.  This will immediately bring down prices of these items and provide relief to the poor.

5. Tax the rich heavily
The lost revenue could be recovered by imposing equitable tax on large houses according to size, shops according to size, cars and motorcycles depending on CC, heavy  taxes on all luxury goods etc. Such taxes will help reduce the apparent gap between rich and poor and calm the society.

6. Sell all Armed Forces Land in cities
All Military installations in the cites must be moved to remote areas and all Military Land in the cities be auctioned. If done so such a large amount of cash can be generated that all our Internal and External Debt may be paid of and a major expense of Rs 250 billion be saved to be invested on social sector or giving tax breaks to people like mentioned above.

7.Adopt a zero inflation policy to protect the poor.
Government has promised not to borrow from SBP from 1st Nov 2008. To protect the poor the democratic government should make this a cardinal principle not be compromised at any cost. With increase in money supply linked to actual growth of economy the inflationary pressure will ease overtime and lead to zero inflation.

8) Let Pak Rupees find its equilibrium market level
The cumulative inflation since 2004 conservatively estimated at 50% implies that our FX rate against US Dollar should be 93 (62x 150%) to bring equilibrium in our economy. Without it the exports will suffer while imports would look cheap leading to widening trade deficit.

9) Open stock market and let it fall to its equilibrium level:
As a consequence of the inflation the deposit rates have moved upto 14%. Therefore the return on our equity market has become unattractive at current levels.  A return of 14 on deposit implies PE ratio of 100/14 =7.14. In order to beat this; the Equity market must have a PE ratio of 6. In order to get that ratio our market should fall more.

The fall from 15700 level to current 9,180 is justified. At current level PE is 7.22. To reach the level of 6 the market will need to drop to 7,628 level.  This will mean a further drop of 16.91% from current level.

Once we reach the level of 6 Pakistani market would look attractive to foreign investors. At that level we shall perhaps beat other countries and become one of the cheapest markets. Provided they also do not fall further.

Currently countries with better PE ratio than Pakistan are:
 Thailand - 6.12, Oman -6.23, Italy S&P 6.78,UAE DFM -6.84, South Africa All shares -7.03 and Malaysia Composite 7.07.

10. Ease the tension in the society by restoring pre 1977 conditions.
Go ahead and repeal all laws including Hadood ordinance, which have curtailed the personal rights of Pakistanis and created tension in the Society.

11. Make peace with India and open all old trade routes.
 Make peace with India; with some adjustment in Kashmir borders, to concentrate energy on poverty alleviation and developing our part of Kashmir. Recent opening of two trade route  in Kashmir is the model which is needed to be adopted in Punjab and Sindh as well. In Punjab Sailkot and Kasur trade route need to opened as soon as possible.  More may be considered.  Similarly in Sindh three to four trade routes may be opened to alleviate poverty in area like Tharparke where Nager Parker was an important trading post. After Pakistan trade continued on lower scale upto 1965 but after it died down and added to the poverty of the people in the area. Such opening will provide major relief to the people of Sindh as they will be able to travel to India inexpensively. Given the large Rajhistani and Gujrati communities in Sindh this will give a big boost to Thar as people will transverse it for travel to India.

Other points which may be considered are Musafir Khana, Rahim ki Bazar, Gadro and Vira Wah. These were natural trading post in the past.

12. Fast track SAFTA implementation.
SAFTA agreement under SAARC calls for free trade between members by 2013. However the challenge for the  new  government is to fast track this to 2010.

13. Energize and expand  SAARC movement.
To  gradually build a common market from Afghanistan to Burma. With such ease of movement that borders will not mean much. To be followed by a common currency.

14. Remove all barriers to the working of market forces of demand and supply.
Adopt a small government attitude and let market forces play their role. Only ensure that no Group is able to control and market to make extra ordinary profit and all market participants are provided equal playing field.

15. Introduce death penalty for taking bribe as is practiced in China.
Introduce very harsh property confiscation law for people found guilty of  taking bribe or involved in making money by illegal means. The law should cover property in the name of all dependents like wife and children.

16. Remove all existing laws governing industry and commerce
Introduce a simplified code or conduct drafted in consultation with concerned parties to root out corruption and harassment by different government agencies.

17) Create two Free Economic Zones in each Province.
Such zones should have their own simplified laws and provide one window service to investors. Like China these zones would become powerful economic engines of the Country and absorb surplus labour and alleviate poverty.

18) Create one additional Province in each existing Province
 Also relocate the Federal capital to a more central location. The new Provincial capitals should also be in central locations.

19) Restore 5% right for Locals in the natural resource taken out from their Area
This right was granted by the Act of 1935. Such right is still available in India and Bangladesh. The denial of this right after discovery of Sui Gas is the root cause of Baluchistan problem.

20. Absorb all  FATA and PATA into Pakistan by adopting Baluchistan model..
After 9/11 Pakistan is left with no choice but to absorb FATA and PATA into Pakistan and apply the same security arrangement as in existence in Baluchistan.

21. Create a Federal Mortgages Agency, with special eviction powers
 Agency  to refinance property development.  Such an Agency transformed USA after its creation in 1954. The present standard of living in USA would be unthinkable without such Agencies. Such Agencies can raise unlimited funds from the International market.

22. Start a mandatory Saving Scheme for Overseas Pakistanis.
Linked with Passport renewal. Such as scheme can generate some USD 4 billion annually and provide support to Pakistan. It can also secure the future of Overseas Pakistanis, who otherwise end up spending all their savings on consumption items.

23.Let Iranian oil come
Look other way and let the cheap Iranian oil flow into the Country unhindered, to save foreign exchange and reduce inflation.

24. Make people understand Quran
Government should insist on reading of Quran in Urdu before Arabic. Also compel rendering of translation of Ayats in Urdu after prayers. Based on my observation in Holland, I predict that terrorism and extremism based on religion, will vanish for ever within the next 30-40 years, with this master stroke. This will also substantially improve the moral character of the people and reduce corruption in private and public life.

25. Introduce working hours in line with Islamic teachings
Which will entail start of days work within an hour of Fajar prayer? This will save lot of energy and promote healthy life style.