'Deregulation and institutional reforms key in reviving growth': An interview with Dr Salman Shah, Adviser to Punjab Chief Minister.

Dr. Salman Shah is an eminent economist and former finance minister who is currently serving as the Advisor to Punjab Chief Minister, Usman Buzdar on economic affairs and planning. BR Research recently met Dr. Salman Shah where the conversation revolved around Punjab's current state and his plans to revive economic growth in the province.

Following are the edited excerpts of the conversation:

BR Research: What is your key focus area in Punjab when it comes to improving the province's governance?

Dr. Salman Shah: The federal government has been working to correct the balance of payment gaps in the country. The tough decisions that were taken are now yielding results. This whole process however ended up raising the cost of doing business as well as the cost of consumption in the province.

So our task for Punjab, which has a large share in the production of the country, has been to figure out what to do to bring down the cost for businesses. Our approach has been to bring down the cost through deregulation; reducing the regulatory burden and eliminating hurdles in investments, while going for efficiency and productivity improvements so that agriculture can operate at a much higher value addition.

Punjab is a power house with enormous resources such as its people, the youth bulge, and the great ecosystem of River Indus. And then there is this phenomenon of urbanization and cities achieving scale; lots of young people are migrating from the rural economy to the urban economy. Utilization, productivity, and competitiveness of these entire can make a breakthrough. And the focus for Punjab government is to improve the institutions, and bring in governance and technology to leverage these resources.

To harness these, reforms become very important. Punjab has almost 250 plus entities that have 40 departments. Then these departments have associated departments, companies, authorities, agencies, boards and bodies. So there is a plethora of institutional arrangements that not only deal with the administrative structure of Punjab but also the services that Punjab Government provides. But unfortunately, they are not really geared towards generating big improvement in Punjab's economy. It is pertinent that we bring the focus of these institutions towards economic reforms and economic growth. This would involve not only capacity building but also a change in the mindset from controlled to development.

This is a challenging task. We have made Punjab Spatial Strategy and Punjab Growth Strategy, and have set up Punjab Public Private Partnership Authority as well as Special Economic Zone Authority (SEZA) in this regard. The focus of all these new strategies, entities and the revamping of the old one is to make Punjab a lot more competitive, productive and richer province than ever before. We call it the "Business Plan of Punjab" to create employment.

BRR: Can you elaborate on the kind of reforms you are talking about?

SS: What this requires is streamlining and reforming the markets, reducing the transaction cost in the market that includes simplifying the procedures and the regulatory systems. Essentially, bringing regulatory and institutional reforms in the different markets include the commodity markets, wholesale, retail, housing, labor etc. as many of these are regulated through archaic regulations.

When we looked at the structure of the government when I was appointed by the Prime Minister, we decided that we at least need a coordinated action for agriculture and rural economy, services economy, manufacturing and the mining sector, urbanization and human resource development. I asked for at least 8 senior members of the civil service who could coordinate these identified areas to break the silos that our departments have been working in for so long to make the economy a central pillar for the governance of Punjab. The PM assigned 8 additional chief secretaries and for the first time in history, these offices are being designated by an economic function.

To talk of the services sector, it is 60 percent of the economy with around 17 sub sectors being managed by 250 government entities. This is where deregulation and the 'regulatory guillotine' is going to be really affective. The job of the additional secretary for services is to ease up the regulations for the sector for them to invest and create a space for them.

Around 20 percent of the economy is manufacturing, and our aim is to take it up to 25-27 percent of the economy, which can be achieved not only because people are moving to the cities but also if cities become the manufacturing hubs apart from becoming hubs for services. Given the sheer size of the youth population, we believe Pakistan and Punjab can become the mini factory of the world. In other words, we need not confine ourselves to just one or two products but can have the whole range of global markets manufacturing products by developing and leveraging the existing manufacturing clusters all over Punjab.

Plus, we have the opportunity to provide a good proposition to Chinese industries to shift their manufacturing here in value chains that have become expensive in China. Apart from the SEZs under CPEC, Punjab Government is also thinking of setting up these zones in the private sector where the population is. We have to create the infrastructure and the ecosystem for manufacturing in the province and set up economic cities just like China did. We have identified around 15-16 cities for economic cities including Lahore, Gujranwala, Faisalabad and Multan, and we want to bring infrastructure around these cities so that businesses can move in and get into production.

As I mentioned before, creating jobs is our number one concern because the numbers are stagnant. Given the size of our population, the working age population in Pakistan is expected to increase by at least 3-4 million people, which means that we need these many jobs every year, and 60 percent will be from Punjab.

BRR: This shows that population control is a big challenge. Are you doing anything on this side?

SS: From an economic point of view, we are focusing on how to skill the manpower for the economy through education, schooling, vocational training, skill development. We are also focusing on how to get the out of school children back into schools; and on how to bring education chains and hospital chains to improve human development. We are trying to set up a system of technical and vocational education and training that would emulate TVET systems in the world.

We are dealing with the development side of the population, and are assuming and hoping that government at the federal level is focusing on the social side of the challenge through various programs devoted to family planning and population control.

BRR: Services and manufacturing sectors make up around 80 percent of the economy. What about the remaining 20 percent that represents the agriculture sector?

SS: The agriculture sector has enormous opportunities because the agriculture economy in Punjab was put up around the irrigation system that was built 150 years ago, which gave birth to so many towns and cities of the province. Out of the 192 cities of Punjab, many of them came into being due to the irrigation system, which is the world's largest contiguous irrigation system. Unfortunately, the output of this sector relative to the land, water and people is only a fraction of the world standards. Agricultural productivity in the world is five times better than ours. Australia produces about $2 billion worth of output from one million acre feet of water, while our productivity is only around $400 million primarily because our focus has been on cereal whereas global focus for irrigated agriculture on high value crops.

We are working on modernizing the agriculture by improving productivity by reducing land usage and using that land for horticulture, vegetable farming, fish farming and all high value crops. In terms of research, we are trying to make the entire agriculture and the rural economy the focus of research rather than a few acres of agricultural land solely being used for research. The research agenda is target oriented agenda to improve the productivity, efficiency, and diversify the cropping patterns by certain measurable and accountable targets so that we can really transform the agriculture economy in the next 3-4 years.

BRR: You need to have an economic background for an economic role. How have you appointed these 8 additional secretaries?

SS: First of all, they are not outsiders; they are from within the department, so their acceptability is very high. Secondly, we have tried to hire officers who have had exposure to economics to a certain degree, or some sort of trainings and courses abroad. Thirdly, most of our officers in the civil service are very capable because of their experience and are very useful when it comes to coordination and inducting technology. And they are also the extension of the chief secretary's office, which means that the officers in their departments have to take them very seriously. I would say they are part of the old system, but also the reforming side of the old system.

BRR: Crop zoning has completely finished in the country. Do you think it should be done?

SS: Our focus is on a few areas. First is productivity, which is a challenge across the board as it has to be done for everything. Another very innovative way to look at agriculture is what is the next level of development of the 24 canal systems we have in Punjab that take water to the farms. For example, we are looking at what ecosystem will be needed to take Lower Chenab Canal into the next phase of development to upgrade the output. We might need to fix the infrastructure; or conduct further research.

The term we have coined for these canals is agriculture corridors. And we are looking at ways to optimize the output of these corridors.

BRR: We might not have the labour for the high value crops as they require more attention, time and resource. What is your view on this?

SS: In the agriculture and rural economy, almost 50 percent is in agriculture crop and 50 percent is in livestock. In agriculture cropping, we have at least 15 products in crops and vegetables. Each crop has a market and different returns. How do you move to a cropping pattern that gives you the maximum return? That is our aim.

In the first instance, we have taken up a couple of areas for initial focus. For example, we are trying to create a block chain for citrus; we want to connect all the players from the nurseries to the customer's table, domestic or international. This will also include the extension services which include research and knowledge to the farmer. When they have knowledge about the seed, market, skills and the procedures, they will be willing to move to high value crops, because already subsistence level of agriculture is not producing the value and hence growth in income for the farmers.

BRR: About 40-50 percent of the perishable products are wasted. That is why their prices are erratic as evident from the high perishable food inflation. How can we reduce the wastage?

SS: For each of these products, you need to have an ecosystem. The existing ecosystems that were made during the British rule and farmer prosperity was not a very important factor back then. Wastage occurs because of lapse in diseases, quality control, cold storage, processing units, etc. You have to develop all these to reduce wastage, and here public private partnerships can play a huge role so that you can bring in the big food processing players. The FTA agreement with China can also help in trade, investment and technology transfer, which will further build a sustainable ecosystem and result in improvement in quality, which will have a positive impact on the waste control. Modernization is the key and luckily is on the cards.

BRR: Coming to livestock that is also 50 percent of agriculture, what is your view of the sector challenges and what are you doing to resolve them.

SS: We have now asked the livestock department to look at the sector as an economic activity to reduce poverty. The livestock department has to cater to both the dairy chain and the meat chain and develop them, because their values run into hundreds of billions of rupees. The question is how to increase the productivity of dairy and meat sector.

Livestock department has assigned four areas: they have to produce the breeding policy, nutrition policy, extension policy - how to take to the farmers, and marketing strategy. There are at least a dozen departments that get involved at some point in time with differing jurisdictions and regulatory environments. What we are saying is that there should at least be a focus on increasing the output. That's the first step. The next step is to conserve and preserve the added output. For that, they have to build the entire value chain.

BRR: Minimum Pasteurization Law is coming into force by July 2022. What are your thoughts?

SS: If we get the value chains going, which would mean addressing the regulatory issues regarding the kind of milk being provided to the ultimate customer, you would need treatment plants in almost all the rural areas that have the milk production centres all over Punjab. And you will have to regulate in a way that you don't stifle the 'gwala-system'; rather facilitate them so that they also bring in quality milk the people need. This will need policy attention.

BRR: You talked about making cities the engine of growth. How do you plan to address issues regarding devolution?

SS: We have appointed a very senior position for coordinating everything relating to urbanization and management of cities. The top priority for us is for these cities as the engine of growth to provide livelihood. Second is how to manage the cities so as to create livable, thriving cities in terms of water supply, sanitation, transport infrastructure, school and leisure infrastructure etc. To carry this out, property tax is a very important function. Moreover, service charges for facilities and amenities are also very important.

Therefore, you need a revenue base for the cities. Some of it comes from the federal government in the form of fiscal transfers, while others come from the provinces to the local levels. But you also need revenue that the city can generate on its own.

Obviously, it's a huge task. But the whole system needs to be revamped, and that's the plan.