96 Annexure II
ANNEXURE II
RURAL INDUSTRALIZATION∗
ECONOMIC LOGIC AND INSTITUTIONAL
REQUIREMENTS
Introduction
Since the crop sector still abs the majority of Pakistan’s
population, there is a commonly held view that the key to the
employment problem lies in accelerating agricultural growth.
While faster growth of crop output is desirable on a number of
grounds, the analysis in this Study shows that the crop sector
cannot be expected to absorb more than 25 percent of the
estimated increase in Pakistan’s population over the next decade.
In the absence of a major policy intervention, there is of course. A
trend towards concentration of growing population in large cities.
However, given the prohibitive cost of even basic amenities in
large cities, and extremely high cost of employment generation,
the present trends of urbanization are not sustainable from an
employment perspective. This study argues that t lie critical role
of employment generation and population absorption will have to
be Performed by a new rural industrialization drive, i.e., the
non—crop sector in the rural areas, focused on a set of growth
nodes located in the smaller towns of Pakistan.
The present study examines first the existing trends in
population growth Ii and urbanization, then presents a critical
appraisal of the employment issue as it is dealt with by the
NCA and the Planning Commission. Section III presents the
results of our estimates of labour absorption capability in he
crop sector over the period 1988 to 2000. In Section IV trends
in labour absorption in the non—crop sector are indicated and
in Section V analysis based on existing field survey data is
presented to explain the paradox of localized labour shortages
∗
this annexure is drawn from Akmal Hussain: Rural Industrialization: Economic
Logic and Institutional Requirements, Paper presented at the International
Conference on: Agricultural Strategic for the 199s, Pakistan Association of
Agricultural Social Scientists, Islamabad, 7-9 May 1991.
This Paper is based on earlier research done for the ILO/ARTEP by the author,
which was an input into the National Manpower Commission Report 1990.
96Annexure II 97
at peak seasons in agriculture in a “labour surplus” economy.
In Sections VI and VII a detailed set of recommendations are
made regarding the operational aspects of a policy to induce
rural industrialization.
I. TRENDS IN POPULATION GROWTH,
URBANIZATION AND THE IMPERATIVE OF
INCREASING LABOUR ABSORPTION
IN AGRICULTURE
PEPAC has generated three alternative forecasts of population
by the year 2000, based on he Cohort—Survival Model which
consists of a simulation of the real determinants of population
growth. i.e., births and deaths, using the 19$ I census agestructure
and (he 1976 PGS age-specific fertility and
mortality rates) The resultant forecasts are as follows:
i) If there is no change in fertility and mortality rates
or mutually compensatory changes, then I lie
population in the year 2000will he 147.7 million
ii) If CFR decline from the current 41 / 1000 to
30.3/l000, population in the year 2000 will be 133.9
million. . However, if (more realistically) fertility
decline occurs only after a significant decline in
infant mortality, the resultant population will be
143.3 million.
iii) The highest estimate (most realistic?) of 150 or 152
million is based on the assumptions of under—
enumeration in the 1981 census, substantial return
migration from the Middle East and permanent
settlement of Afghan refugees in Pakistan.
If we use a population estimate of 143 million (ii
above), then at present rates of urbanization (4.7 percent per
annum) the urban population by the year 2000 is estimated at
56.7 million. The urban settlement pattern suggests that the
increase in urban population would be concentrated in the
large cities.
The question that now arises is, if there is no major
policy intervention to increase labour absorption in
agriculture, are existing urbanization trends sustainable? The
9798 Annexure II
answer is apparent from (lie fact that at current infrastructure
standards, the costs of population absorption in the urban
areas is 6 times the cost of rural population absorption. This is
because of (lie greater need for road access to houses, piped
water supply and sewage disposal. Estimates of resource
requirement of absorbing the expected 57 million urban
population of the year 2000 at minimum current standards,
even on the basis of a highly optimistic GDP growth rate of
6.9 percent per annum, turn out to be three limes the resource
availability over the period2
. Thus, by the year 2000, as much
as 60 percent of the urban population could be living in inservice
localities (or Kachi Abadis) compared to about 25
percent today.
It is in the context of this grim Prospect of a serious
resource constraint in providing the minimum conditions of
civilized life to the projected urban population, that the policy
imperative of increasing labour absorption in the rural sector
manifests itself.
II. TRENDS IN EMPLOYMENT AND THE
ISSUE OF RURAL LABOUR ABSORPTION
The National Commission on Agriculture (NCA) in its
Chapter on Manpower and Employment acknowledges the
paucity of the database in these words:
“Employment implications of (he projected course of
agricultural development are difficult to estimate.
Available labour force statistics are weak and subject
to some doubt, which therefore permits little scope for
an analysis of past trends and relationships3
.
It is not surprising that the data base on rural employment and
labour absorption in agriculture is weak. (This can be said for
most developing countries.) However, what is surprising is
that the National Commission on Agriculture made no
attempt to work on the existing data to draw analytical
conclusions. It could have used the labour force surveys, the
census data and WAPDA data to do so. Yet, it merely brushes
aside this task. What is worse is that the NCA then proceeds
to make a number of heroic assertions that were politically
98Annexure II 99
comforting at the time, but served to sweep the problem of
rural employment under the carpet of “agricultural growth For
example, in referring to the Green Revolution phenomenon
the NCA report says: “..... The growth of the cultivated
acreage required more labour, even if the amount of labour
per hectare and per individual crop was declining. Also, the
larger volume of cm (put requires more labour tot harvesting,
transportation to the market and post harvest operations....
These employment gains may have exceeded the negative
impact from the shift in tenancy and associated demand for
labour.” (Emphasis mine.)4
The fact that total output (luring the 1970s period was
increasing especially in a situation where labour requirement
“per hectare and per individual crop was declining” does not
constitute adequate grounds to conclude that the overall
employment effect during (lie Green Revolution period
“may” have been positive. The net effect on employment
(whether positive or negative) can only be determined by
comparing a quantitative estimate of increased labour demand
associated with increased cropping intensity and post harvest
operations on the one hand, with the reduced man clays per
acre requirement for each operation associated with the n ion
of different product ion, harvesting and post harvesting
operations on (lie other. In the absence of quantitative
estimates of the impact on labour demand of- changes in
cropping patterns, cropping intensities, and - mechanization
of farm operations, the NCA conclusion that the overall
labour demand during the Green Revolution period “may”
have increased is more a cry of hope than a scientific
assessment.
In sharp contrast with the NCA treatment of the
employment issue, the Planning Commission exercise for the
Seventh Five Year Plan at least in its overall employment
projection is based on empirical data and is also analytically
sound. However, even the Seventh Five Year Plan document
does not have much to say on the issue of rural labour
absorption apart from a few general observations.
Assuming no significant change ii the labour force
participation rate, the Planning Commission estimates an
99100 Annexure II
annual increase in the labour force seeking domestic
employment during the period 1988-1993, to be 3.3 percent.
(This includes an estimated 0.4 million net returnees from
abroad during the same period.)5
Based on a preliminary exercise of sectoral
employment elasticity with respect to real output, the
Planning Commission estimates an overall employment
elasticity of 0.4 during the period 1988-19936
. The following
Table 1 indicates labour force and employment projections
based on this elasticity estimate.
The table shows that open unemployment is expected
to increase from 1 million in I 988 to 2.4 million in 1993.
Apart from open unemployment the major from which the
problem manifests itself in Pakistan (as in many other
developing countries) is under-employment. The Labour
Force Survey (LFS) suggests that in 1986—87 under
employment affected 10.5 percent of the labour force. The
Planning Commission indicates that if a more strict criterion
of full employment is used then upto one-third of the labour
force needs more regular additional work.
At existing trends, even to maintain open
unemployment at existing levels, i.e., in order to absorb the
new entrants to the labour force (luring the period 1988—
1993, ii would require au impossibly high growth rate of GDP
of 8 percent. Alternatively, at a projected growth rate of 6.5
percent per annum over the period the employment elasticity
would have to be increased to 0.5 percent. This would require
a major new effort at a carefully formulated employment
policy with an effective implementation mechanism. At a
strategic level the new Employment Policy would have two
interrelated dimensions: (i) increasing the labour absorption
capacity of the rural sector. This is clearly necessary in a
situation where the infrastructure Cost of population
absorption in I he urban areas is six times greater than in rural
areas; (ii) the rapid development of small-scale industries and
associated infrastructure in small towns linked with the rural
sector. The emphasis on small—scale industries within a new
Employment Policy is necessary in view of the fact (hat the
100Annexure II 101
cost of au additional job in the large—scale manufacturing is
80 times the cost of a job in the small-scale industry.
III. TRENDS IN LABOUR ABSORPTION IN
THE CR01’ PRODUCT SECTOR
111.1 A Note on Method of Calculation
i. I have attempted to estimate changes in labour absorption
capability of the crop production sector under two
different policy packages:
Policy I in which
a) The growth in the number and size of tractors during
1988—2000 follows the same trend as that observed in
the earlier period.
b) Mechanized harvesting does not become a major factor
in agricultural production at the all Pakistan level.
c) The potential For 38 MAF of additional irrigation at
the farm gate through improved delivery efficiency and
usable ground water resources is realized. Through
such a policy it is assumed that crop production sector
would grow at a compound rate of 3.7 percent per year
during 1988-2000.
Policy II would involve slowing down t lie growl h of
tractors to 50 percent of the rate observed during I 968-75,
ceteris paribus.
ii. In estimating labour demand the agriculture census figures
for cropped acreage under each crop for irrigated and
unirrigated acreage respectively were combined With
labour coefficient estimates for each crop for irrigated and
unirrigated areas respectively, obtained from WAPDA
XAES data.7
iii. The estimate of the overall increase in labour absorption
in the C1O sector associated with a trend growth rate of
3.7 percent per annum in Policy I, takes account of the
labour displacement effect of tractorization ion winch in
this estimate is assumed to follow past trends. In the
estimate for Policy II the negative effect of tractorization
on labour demand is reduced because of the assumed slow
down of the pace of tractorization.
101102 Annexure II
iv. The estimates of the labour displacement of tractors are
based on detailed crop-wise agriculture census data,
tractorized and non-tractorized area under each crop and
finally monthly labour requirements data for each crop
obtained from WAPDA XAES data. It is interesting that
my estimate of per tractor gross labour displacement
through this method comes to 3,842 man day per year, i.e.
10.53 full-time labourers. This estimate is remarkably
close to the World Bank Sample Survey results reported
by MeInerney and Donaldson.8
They estimate the gross
labour displacement effect per tractor to be 11 full-time
labourers. The increase in labour demand over the period
is a net effect resulting from the positive effect to
increased yields and cropping intensity on the one hand
and negative effect of tractorization on the other.
v. Having estimated the net increase in labour demand over
the period in terms of millions of man days per year, this
figure is then translated into the number of households
that can be absorbed in crop production through additional
labour demand. This is done by estimating the number of
man—days of paid labour required to sustain a household,
on the basis of minimum expenditure necessary on
household food, clothing, etc., and prevailing real wage
rates. The conversion figure comes to 225. 11 man days of
work required to sustain a household. The number of
households expected to be additionally absorbed in the
crop sector is easily converted into an estimate of
population absorption by using the census figure of
average agricultural household size (6.5).
111.2 Analyzing Results
The table shows that if a 3.7 percent growth rate of
crop production is maintained over the period with associated
increases in cropping intensities and yields, then in spite of
the existing- trend of tractorization, a net increase in labour
demand of about 292.3 million, man days per year by the end
of this century can be expected. This means an increase in
absorption of households of around 1.297 million, or a total
increase in population absorption of 8.4 million in the crop
sector over the period.
102Annexure II 103
The increase in labour absorption in the crop sector
increases substantially to 1.6 million households or 10.4
million people, if the pace of tractorization is slowed down
through withdrawal of subsidies, tax exemptions and cheap
credit facilities.
The most important conclusion that emerges from
these labour absorption estimates is that over the next decade
the crop sector cannot be expected to bear the brunt of
absorbing the projected population increase. Even with
optimistic projections of labour absorption capability, the
crop sector can absorb between 8 to 10 million additional
people out of a possible population increase of over 30
million people between now at the end of the century.
Therefore, if sustainable levels of urbanization are to be
avoided, attention will have to be given to the lion-crop
activities in the rural areas. These include livestock, social
forestry, off-farm activities such as chicken hatcheries, fruit
and food processing, cold storage, construct ion,
infrastructure and rural industrialization.
IV. TRENDS IN LABOUR ABSORPTION IN
NON-FARM ACTIVITY IN THE
AGRICULTURE SECTOR
The following Table 3 provides an estimate of
increases in non-farm labour absorption (luring the period
1988-2000. The figures have been estimated by applying the
WAPDA XAES ratio of non—farm to l employment. This
ratio was applied to my estimate labour absorption in the crop
sector, for each policy package to get estimates in terms of
man-days per year. These were divided (in each case) by my
estimates of man—days per year required in to sustain a
family with a standard of living just on the poverty line and
with real wage rates prevailing in the rural sector in 1975. The
resultant figures were multiplied by the Agriculture Census
figure of the number of family members per non-farm rural
household. It is important to point out that my estimates of
non—farm population would be subject to the biases inherent
in a ratio that assumes as temporally constant the relationship
between the farm and non-farm sector. Apart from this
weakness the non-farm population absorption figures are
103104 Annexure II
dependent on the farm absorption figure. i.e., the possibility
of autonomous economic activity such as rural industries is
not taken into account.
Table 3 shows that associated with the expected
increase in labour absorption of the crop sector, an increase in
absorption of about 2 million people can be expected in the
non-farm agriculture sector. This points to the Fact that a
mere increase in crop product ion cannot he expected to
generate an adequate economic activity in the non—farm sect
or Autonomous initiatives may be required (such as rural
industrialization), if the potential for labour absorption of the
rural sector is to be realized.
V. AGRARIAN CHANGE AND THE
COMPLEXITY OF THE LABOUR MARKET:
A PRELIMINARY HYPOTHESIS
V.1 The Simple Analytics of Agrarian Change
and Demand for Farm Labour
I have shown elsewhere that in Pakistan’s agriculture
there is a tendency towards polarization in farms and farm
area, i.e., over time the percentage share of farms (and farm
area) at either end of the size class scale tends to increase,
while the percent age share of the medium size class tends to
decline. This observed polarization phenomenon is essentially
induced by I lie tendency of in any large landowner to resume
for owner cultivation some (through not necessarily all) of
their land formerly rented out In tenants. Since the medium
size class contains a much larger proportion of tenanted area
compared to any oilier size class, generalized land resumption
has a greater impact on medium size class then on the small
size class. Consequently, when size distribution of farms (and
farm are) at different points in tune (1960, 1972 and 1980) are
compared, the underlying process of land resumption for
owner cultivation on large farms manifests itself in the form
of polarization. The process of polarization in the size
distribution of farms is likely to affect labor demand in the
following way:
104Annexure II 105
a) Labour requirements on different size classes of farms
have proportions of hire labour because of differences
in proportion organization. Thus, for example, small
farms fulfill a lower proportion ob their labour
requirement with hired labour compared to medium
sized farms due to a relatively greater propensity of
small farmers to use family labour. On the other hand,
large farms while they use virtually no family labour
have a greater propensity to replace human labour with
machines over time in an attempt to establish greater
control over the production process and reduce risk.
An important reason for labour displacing
mechanization on large farms is that with multiple
cropping there has been both an increase in the
frequency of peak season demand For labour as well as
a constriction in the time period available for
performing labour operations at peak season. As a
result of the latter, for a given quantity of labour a
larger number of labourers are required. This generates
two types of pressures on the Farmer to mechanize: (I)
due to imperfections in the labour market the fanner
often finds it difficult to hire a large number of
labourers quickly, (ii) the Farmer faces an acute
supervision problem due to the difficulty of mobilizing
a large number of labourers to perform work tasks to
his satisfaction. During my field visits I found that the
persistent explanation of large farmers for
mechanization ion was not so much “high” wages of
farm labour but the difficulty of getting hold of them in
lime and then ensuring that they get the job done
“satisfactorily”.
b) Polarization in the size distribution of farms could
affect employment also because differing man days per
acre are required on farms of different sizes. This
effect will occur to the extent that there are differences
between size classes of farms with respect to: (i) the
percentage of cropped area devoted to crops with
relatively higher labour requirement in each agri-
105106 Annexure II
climatic zone, (ii) cropping intensities, and (iii) crop
yields per acre.
Micro survey data suggests that in some regions of the
Punjab the above-mentioned factors result in a lower man
(lays per acre requirement at either end of the farm size scale
that in the medium size class.
It appears then, that given the propensity of small
farmers to use family labour rather than hired labour, and
given the tendency of the large farmer to adopt labour
displacing mechanization, a polarization in the size
distribution of Farms is likely to dampen the growth rate in
the demand for hi red labour. Moreover, in some regions
variation across size classes in cropping patterns, cropping
intensities and yields per acre may be such as to further
reinforce this dampening in the growth of labour demand
resulting from the polarization phenomenon.
V.2 The Inverse Switching Hypothesis
In Pakistan’s agriculture there is an overall supply of
employable labour in excess of labour requirements in terms
of cropped acreage under each crop under existing
technologies. Yet, at the same time, localized labour shortages
are observed during peak seasons in certain areas: The
obvious reason for this paradox could be the bunching of
demand for labourers at peak seasons in a situation of
imperfect labour mobility. The imperfect labour mobility
could be due to inadequate information available to the labour
regarding the precise time and place of job availability on the
one hand and poor transport facilities with in the rural sector
on the other.
Yet, here could be a more complex set of interactive
factors, which may he accentuating the paradox of localized
labour shortages within an overall situation of excess supply.
These factors may he located in the changing composition of
the agricultural labour Force with increasing weight of tenants
seeking supplementary wage labour relative to pure landless
labourers. At the same time landowners may be responding
by adjusting systems of production organization, which
106Annexure II 107
involve tied labour supply. These interactive Factors may be
leading to what one can call INVERSE SWITCHING of
production technique in Pakistan’s agriculture:
i. Landowners may refrain from complete resumption of
rented out land and hence from moving into a “fully
capitalist” labour process in an attempt to keep tenants
as a source of tied labour.
ii. At the same time. l who may be experiencing
“spurious” labour shortages in proximate areas due to
reduced labour mobility resulting from (I) above, may
be mechanizing munch Faster than is warranted by the
overall supply of employable labour.
The combined died of (i) -and (ii) would be that for a
given level of labour demand in terms of in an (lays/year)
there would be a lowering of demand for permanent hired
labourers, thereby creating a push factor for pure landless
labourers to move into the cities looking for jobs. As the pure
landless labourers migrate into towns there would be a further
change in the composition of the agricultural labour force
towards tenant-labourers. (i.e tenants who seek wage
employment as a source of supplementary income.) This
changing composition of the agricultural labour to force
would serve to further intensity tendencies (i) and (ii) above.
While considerable research based on new surveys
would be required before we can accept or reject the inverse
switching hypothesis. Yet, there is some indirect data
available to illustrate that such a hypothesis is worthy of
being tested systematically.
In a survey of the homeless population of Lahore city.
conducted in October 1987, we discovered that of the in rat
migrants who had moved into Lahore less than two years ago.
a much larger proportion were landless labourers, Compared
to those who had migrated to Lahore city over 10 years ago10.
An important study11 by Noman Majid based on a
Field survey in rural Sind offers illustrative evidence that
while a situation of excess labour supply exists at the
provincial level, there could possibly be labour shortages in
the peak months of November and April at a more regionally
disaggregated level. For example, Majid’s estimates of the
107108 Annexure II
annual labour time available with the employable population
of each district of Sind was greater than his estimate for the
total tasks completion time requirement for the year as a
whole. Yet, when tasks completion time requirement
disaggregated to the district level, Majid interestingly enough
found that in 6 out of 14 districts of Sind the task completion
time requirement was in excess of 30 days, given the
employable labour force available. These districts where a
labour shortage at peak season could occur are Badin.
Sanghar, Khairpur, Shikarpur. Larkana and Jacobabad. It is
interesting that when the districts of Sind are ranked
according to Road Density, three of these (list rids (B ad in,
Shikarpur, Jacobabad) have a rank at the lower end of the
scale. This indicates that high labour demand at peak season
in a situation of poor transport facilities, could create
localized labour shortages.
Majid suggests that there may be a tendency for
landowners to simultaneously overcome the risk of peak
season labour shortage and high wage rates (in case of
employing permanent hi red labour).12 This optimization
strategy is manifested in the retention of some part of their
land by landowners who are engaged -in owner- cultivation
on part of their land. This allows a source of tied labour
supply, which can be hired ii and when required. The field
survey evidence of Majid indicated that amongst landowners
reporting owner-cultivation in the ownership size class of
over 1000 acres, 80 percent of the landowners have rented out
as much as 50 percent of their owned areas to tenants.13 At the
same lime, their field survey data suggests that landowners
may be adjusting their tenancy contacts to enable the landlord
to take crucial decisions regarding production and marketing.
For example, 88 percent of the landlords in their sample were
taking input decisions, 83 percent were taking crop decisions,
and 100 percent were marketing the cash crop of their tenant
farm.14
The survey evidence of Majid suggests that the joint system
of product ion organization (i.e., owner—cultivation
combined with tenancy) allows the landlord the advantage of
a tied labour supply while also enabling him to determine key
108Annexure II 109
management decisions on the tenant farm. Consequently, a
“pre-capitalist” from of production organization may not
switch into a specifically capitalist form, because the former
has been restructured in the service of capital accumulation.
VI. RECOMMENDATIONS
This study has so far shown that given the expected
increase of Pakistan population by another 30 million people
over the next II years, and given the prohibitive cost of
population absorption in the urban sector, tapping the
potential for labour absorption in the rural sector has become
an urgent policy imperative. My estimates of the maximum
labour absorptive capacity in the crop sector over the next II
years indicate that only about 8 million people can
additionally be absorbed in this sector. Consequently, policy
measures will have to l on utilizing the labour absorption
potential of the non-crop sector in the rural areas. In this
regard the following measures could be considered:
VI. I Policy Direction
1. Development of infrastructure in small (owns for
accelerating the development of Small—Scale Industries
(SSI). Small—Scale industries could be linked with the
agriculture sector on the one hand and large—scale
manufacturing sector in the urban areas on the o as
indicated in recommendations specified below.
2. Linkage of SSI with agriculture could be done by:
a) Encouraging the establishment of milk collection and
cooling centres which could provide additional cash
income to farmers who own livestock and also
generate employment.
b) Fruits and vegetables are currently marketed with large
differentials between farm and retail prices. Cold
storage facilities together with marketing infrastructure
could be established through village development
councils, supported by district level professional
expertise and credit. Availability of cold storage and
marketing facilities for the farmers would also induce
them to invest in these labour intensive crops.
109110 Annexure II
c) Choice of appropriate technology in rice mills can also
generate off farm employment. For example, a large
number of two tons per hour labour intensive mills
could be set up instead of a small number of the large
15 tons per hour capital intensive ones.
d) Manufacture of farm-implements, and tractor repair
and maintenance facilities. The institutional
mechanism required to provide credit, training and
special fabrication facilities is discussed in the
following section on “Institutional Framework”
3. The linkage of SSI with large-scale manufacturing
industries in the large towns close by needs to be
established through a system of manufacture of
components on a subcontract basis. Here again the
institutional framework for ensuring quality control,
delivery dates and provision of orders for components,
and credit becomes important. (This is discussed
subsequently.)
4. Development of livestock and social forestry, and fruit
orchards together with food processing facilities in small
towns.
5. Construction of rural infrastructure, especially water
management and lining of canals to improve both delivery
and application efficiencies of the irrigation system.
VI.2 Institutional Framework
1. The institutional framework that could be considered
for realizing the yield potential for the small farm sector in
agriculture, as well as realizing the income employment
potential of the off-farm sector, is the csta6lishmènt of multifunctional
grassroots organizations of farmers at the village
level. These village level organizations could be linked at the
district level, through Support Institutions. The function of
these Support Institutions would be to provide credit,
technical expertise in project formulation, specification and
overcoming bottlenecks to project implementation at the
village level; and finally, provision of support in marketing
and technical training of personnel. Example of successful
grassroots experiments abound in South Asia. Some of the
110Annexure II 111
more prominent ones being the AKRSP in Gilgit and Skardu,
the Orangi Project in Karachi. Bhoomi Sena in India, Comilla
and the Grameen Bank in Bengal etc. The idea in Pakistan’s
context is to provide a hack-up support mechanism for the
rapid development and replication of such grassroots initiative
2. The institution for accelerating the growth of SSI in small
towns and linking them with Large-Scale Manufacturing
enterprises could be based in the district headquarters and
have (he following functions:
a) Arranging of sub-contracts from LSM for manufacture
of parts and components to SSI.
b) Conduct quality control and pinpoint/resolve
bottlenecks in the SS1 to the fulfillment of their
production schedules. These bottlenecks could be
financial (credit for machines or working capital),
technical (training of personnel) or managerial.
c) Provide common facilities (at a price) such as heat
treatment, forging and product design to SS I which
normally does not have the financial and technical
capacity for these operations.
VII. OPERATIONALIZING RURAL
INDUSTRIALIZATION
VII.l The Task
The latest survey of small-scale manufacturing
establishments in Pakistan shows that there were a total of 24
I * 896 small manufacturing establishments in Pakistan which
were employing 555,497 persons (see Table 4). The growth
rate of manufacturing units over the period 1976/77 to
1983/84 was 5.58 percent while the growth rate of value
added in this sector was faster at 8.16 percent. This indicates
that over time (he composition of SSI has been changing
positively in favour of higher value added units. As Table 5
shows, while the capital cost per employed person in the
large—scale manufacturing (LSM) is substantially higher
than in SSI, the productivity of investment (value added per
unit of investment) in LSM is substantially lower than in SSI.
It is the growth of SSI that needs to be not only
accelerated substantially but also needs to be induced towards
111112 Annexure II
a geographic disposition that results in the emergence of SS
based growth nodes in the small towns of Pakistan. Such a
process would enable a geographically diversified growth,
that is relatively cheap in terms of infrastructural investment
and also oriented towards employment generation. These
growth nodes of SSI in small towns should be linked with the
agriculture sector (producing farm implements and food
processing) on the one hand, and with the Large-Scale
Manufacturing Sector in large cities (through sub-contracting
of components manufacture) on the other. Such forward and
backward linkages would enable both an increase in
agricultural productivity and also a reduction in the import
costs of the large-scale manufacturing sector. This policy does
not mean that SSI should grow at the expense of the LSM. In
fact, establishing a heavy industrial base that imparts to
Pakistan an indigenous technological change capability is
essential for a self-sustaining and autonomous
industrialization drive. The functions of rapid growth of SSI
would be four food. (i) to help achieve the employment
objective. (ii) to enable a regionally balanced industrial
growth with relatively low infrastructural investment, (iii) to
reduce the foreign exchange costs of large—scale industry,
and (iv) to increase Value added and productivity in the rural
sector.
VII.2 Constraints to the Rapid Growth of SSI’s
Field visits to a large number of SSI units in the Punjab
and NWFP have revealed that while potential in many cases
may he high, the units are producing low value added items
like steel shutters or car exhaust pipes, instead of components
for LSM, or high quality farm implements. This results in low
probability, low savings and slow growth. There are the
following major constraints to accelerating growth of SSI’S in
small towns:
1. Inability of small units to get orders for components
manufacture from LSM and farm implements from
agriculture.
2. Inability to achieve quality control, and to meet tight
delivery schedules.
112Annexure II 113
3. Lack of specific skills like advanced millwork, metal
fabrication, precision welding, all of which are needed
for producing quality products with low tolerances and
precise dimensional control. In other cases accounting
and management skills may be inadequate.
4. Difficulty faced by small units in getting good quality
raw materials, which often can only be ordered in bulk
(for which the small entrepreneurs do not have the
working capital), and from far away large cities.
5. Lack of specialized equipment.
6. Absence of fabrication facilities such as forging, heat
treatment and surface treatment which are required for
manufacture of high value added products, but are too
expensive for any one small unit to set up.
7. Lack of capital for investment and absence of credit
facilities.
VII.3 Overcoming the Constraints: Industrial Support
Centres (ISC’s)
The concept of the industrial support Centres is based
on the fact that small-scale industrialists in Pakistan have
already demonstrated a high degree of entrepreneurship,
flexibility, innovation and ability to work hard. The ISC
would provide an opportunity for rapid growth to SSI through
local participation in extension services, prototype
development, and diffusion of improved technologies,
equipment and management procedures. The ISC would
constitute a decentralized system which ensures continuous
easy access to a comprehensive package of support services
such as credit, skill training, managerial advice and technical
assistance. The JSC would also be linked up with national
research centres, and donor agencies for drawing upon
technical expertise and financial resources of these agencies
in the service of SSI.
The ISC would he located in specified growth nodes
where there exists a potential for major rural industrialization
activities.
The Industrial Support Centres would have the
following functional dimensions:
113114 Annexure II
(a) Marketing
Provision of orders from the large-scale manufacturing
sector for components and from farmers for farm implements.
These orders would then the sub-contracted to the cluster of
SSI units that the ISC is supposed to serve. The individual
order would be sub-contracted to the SSI on the basis of the
skills and potential strengths of the unit concerned.
(b) Monitoring and Quality Control
Having given the sub-contract, the ISC would then
monitor the units closely and help pinpoint and overcome unit
specific bottlenecks to the timely delivery and quality control
of the manufactured products. These bottlenecks may be
specialized skills, equipment, good quality raw material or
credit.
(c) Skill Training and Product Development
The ISC would provide specialized supplementary
skill training on its premises to workers in the satellite SSI
units when required. At the same time, it would provide
advice on jigs, fixtures, special tools and product
development where required.
(d) Forging and heat Treatment Facilities
The ISC’s would establish at their premises plants for
forging, heat treatment and surface treatment The SSI units
could come to the ISC to gel such fabrication done on the
products they are manufacturing on sub-contract, and pay a
mutually agreed price for this jot) to the ISC.
(e) Credit
The ISC would provide credit to the SSI’s for purchase
of new equipment and raw materials. In cases where raw
materials are available in bulk supply, the ISC could buy it
from the source, stock it on its premises and sell at a
114Annexure II 115
reasonable price to units as and when they need the raw
materials.
VII.4 Specific Technical Facilities at ISC’s
The specific Facilities that could be available at ISC’s
to fulfill their technology diffusion/fabrication functions are:
1. Materials testing laboratory.
2. Foundry.
3. Surface Treatment Plant
(a) Hot Dip Galvanizing Unit.
(b) Paint Spray Installation.
4. Welding Workshop.
5. Sheet Metal Unit:
(a) This metal sheet and pipe bending unit.
(b) Thick metal sheet unit.
6. Heat Treatment Unit.
7. Tool and Die-making Shop.
8. Automotive Workshop/Garage.
9. Design and Information Centre.
VlI.5 Product Groups
The product groups for which above facilities could
provide support to SSI’s are:
i) Agriculture
The ISC’s could provide manufacturing support and
marketing for SSI’s in the following products:
a) Tools for manual work such as hoes, shovels, rakes.
b) Animal traction equipment.
lnspite of rapid tractorization in Pakistan there remains
a high demand for ox-drawn implements. The main
technology here is the assembly of section irons and plates.
Forging is essential in this field but there is also need for cast
iron. The production of this equipment may consist of:
- Ploughs: (forging and structural sleet work).
- Rotary—blade harrows (forging, casting and
structural sled work).
115116 Annexure II
- Bearings and other parts for animal drawn
earls.
ii) Power Traction
Popular tractor drawn equipment contains cast as well
as forged and mechanized parts. Welding is often necessary.
Items to be produced my include:
- Spare parts for power cultivators (mainly
Forging):
- Ground graders (mainly plate assembly):
- Rollers (mainly plate assembly);
- Seeders, ha and cultivators (plate stamping,
casting and structural sleet work):
- Components lo sprayers (aluminum casting)
iii) Irrigation
This equipment includes values and pumps (or
industrial and household use.
More complex technologies are involved in producing
irrigation equipment. Among the technologies are the casting
of non-ferrous metals and production of special cast iron.
Typical products are:
- Components for centrifugal pumps (all ICS
workshop technologies are involved);
- Connect ions and bends (mainly aluminum
technologies):
- Components for hand pumps (casting.
machining and welding);
- Components for sprayers (casting and
machining):
- Panels for water reservoirs and roof tanks
(welding and sheet metal technologies).
iv) Off-Road Transportation
Off- road transport at ion includes rail transportation.
Products are:
- Parts for railway cars and rail transport (forging,
castings, plate);
- Bushings and covers (nodular cast iron);
116Annexure II 117
- Traction components (forged or shaped
metalwork);
- Brake components (cast iron):
- Hooks, turnbuckles, clamps and other fastenings
(mainly Forged).
v) Vehicle Components Industry
Vehicle components include spare parts for motorcars,
trucks, buses, tractors and industrial conveying and hoisting
equipment. Particular vehicle components subject to frequent
breakdown, such as pulley systems, fans and traction hooks,
should be considered. The following are representative items:
- Brake discs and drums (pig iron);
- Oil-tight covers, oil pumps, pistons (aluminum
alloys);
- Fans (aluminum alloy and Stamped plate);
- Lights and tool kits (aluminum alloy and
stamped plate):
- Trolley reefing (stamped plate and structural
steel work);
- Hubs for tractor an(l trolley wheels (cast iron):
vi) Metalworking
The metalworking industries require metal containers,
conveyors, gears, pulleys, electric motors castings, and
supplies for trucks and cars. Typical products are:
Plate bins (shaped plates);
- Plate bins (shaped plates);
- Components for rolling conveyors (plate or cast
iron castings);
- Pulleys and gears (iron castings and forging);
- Equipment for ingots moulds (iron castings);
- Blacksmith or smelter equipment (uses all ISC
technologies);
- Miscellaneous tools (mostly forged).
-
vii) Food and Related Industry
The food processing industry in NWFP is still in its
infant stage. However, the scope for the production of canned
fruit, fruit juices and vegetables is quite favourable. The set-
117118 Annexure II
up of such industries requires an approach on a case-to-case
basis. Among the products are:
- Containers for food liquids (normally stainlessSteel
stamped parts);
- Stainless steel vats, tables, containers for foodprocessing
plants:
- Wire products (b shelves, dish drainers);
- Metal hanging panels;
- Cookers, water heaters, solar heaters;
- Components for seed-oil presses;
viii) Construction
Building yard machines are generally imported in
whole or in pail from abroad. Domestic production of simple
castings may partly replace imports. The following are
construction products:
- Building yard equipment (mostly forging);
- Scaffolding material (mostly forging);
- Mason tools (mostly forging);
- Components for building yard machines;
- Implements for rolling shutters or window
screening (shaped plate, welding);
- Components for door framing and windows
(cast or stamped plate):
- Drain covers, grates, road drain wells (cast
iron);
- Piping elbows and unions for (trains (cast iron);
- Components For valves, gate valves, unions,
portable or street and road signs. road fencing;
- Hinges and locks.
ix) Household Appliances
Household appliance products for the model
workshops are:
- Bath tubs, showers and sanitary equipment
(mostly cast iron);
- Taps (non-ferrous casting);
- Miscellaneous household fixtures and
equipment (cast iron and alum in i urn castings
and shaped sheets):
118Annexure II 119
- Brassware for fittings, stop cocks, water laps.
x) Power and Telephone Line Fittings –
Considering the ambitious plans in Pakistan for the
increase in installed power capacity and electrification of
rural areas, items in this category should be subject to market
surveys and, if feasible, then produced. Possible ISC
workshop items are:
- Connection support and mooring clamps for
power liens (cast iron and aluminum castings);
- Accessories for overhead line supports
(aluminum castings and forging);
- Cable connection boxes (cast iron and
aluminum castings);
- Waterproof feeder boxes (cast iron and
aluminum castings).
xi) Valves for industrial Use
Valves for industrial use include products that are
almost exclusively nodular cast iron. Components include
those of gate valves and fittings for gas and oil pipeline. Also
included are components of small rotary compressors and
radical fans which mostly use shaped-plate castings. Cast-iron
pipes, centrifugally or statically cast, must also be considered.
VII.6 Growth Nodes for Rural Industrialization
The proposed growth nodes for rural industrialization
where the new industrial Support Centres (ISC’s) could be
located are as follows:
119120 Annexure II
120
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