Government policies deepening poverty

According to the "poverty reduction strategy paper" prepared by the Government of Pakistan 30.6 per cent of the population was poor in 1998-99. The poverty level, however, increased to 32.1 per cent in 2001-2002. The concept of poverty inherited by us from the West is that an individual is deemed poor if his daily income is US dollar 1 per day which according to current exchange rate of $1= Rs 60.00 translates into Rs 1,800 per month or 21,600 per annum. One is not sure if, in Pakistan, the said formula is used in computing the poverty level. The Planning Commission, Government of Pakistan, has taken the yardstick of Rs 670.00 per capita per month or Rs 8040.00 per capita per annum [ please see footnote No 2 page 199 of the State Bank of Pakistan's (SBP's) annual report for the fiscal 2001-02 (FY-02)] which is just 37.22 per cent of the Western standard of $1 per capita per day.
In case our statisticians had adopted the Planning Commission's above formula, the poverty level computed by them will be exaggeratedly underestimated.
The standards devised in the West are hardly adoptable in our scenario for many reasons including: (a) that in the West each adult member of the population is remuneratively engaged and in the case of unemployment, he gets subsistence allowance from the State (b) that each adult individual is an independent entity as the concept of joint family is almost non-existent there etc.
Contrarily, in our society a family comprises of approximately 6 members all depending on a single bread-earner. So determination of poverty level in our environment basing it on per capita income seems hardly appropriate. We should base our estimation on the income of a family instead of an individual. So, at the $1 per capita per day formula, a family will be deemed poor if its monthly income level is less than Rs 11,000.
Just imagine, what will the ratio of families in Pakistan having monthly income of Rs 11,000 or above. By a conservative estimate, such families may hardly comprise 20 per cent. Therefore, the real poverty level in Pakistan may not be less than 80 per cent.
Shaukat Aziz, in his capacity as Finance Minster, has asserted while presenting the federal budget for the current fiscal on the 12th June,2004 that the poverty level had gone down by 4.2 per cent compared to FY-01 ( 2000-01) which assertion could not find acceptance from any quarter because the estimation was based on the survey of ( perhaps) only 5000 households. Obviously, how could a survey based on such a limited scale be representative of the population of over 150 million.
The general perception is that the poverty has increased during the last two years ( and not decreased). The World Bank's president who visited Pakistan in February this year has also subscribed to the view of increase in the poverty.
What are the policy measures which could put a dent in the poverty level? Obviously increase in the national income (GDP) is of prime importance. But it cannot help achieve the end unless the authorities adopt policies to ensure equitable distribution of the national income (GDP) / assets among all the sectors of the society and creating more employment for the people.
If we examine the policies pursued by the present economic managers during the last over 5 years, we find that the basic emphasis has been in reducing the fiscal deficit and achieving macro-economic stability.
How have they been able to curtail the fiscal deficit? by increasing taxes regardless of the consideration whether they are affecting the persons in the higher strata of the society or are squeezing the already suppressed poor people. The economic managers claim that they have doubled the collection of taxes since 1999.
HOW HAVE THEY ACHIEVED THIS CAN BE PERUSED FROM TABLE I APPENDED: It is universally accepted that the direct taxes are progressive in nature while the indirect taxes are regressive.
What our economic managers have done is that they have curtailed the fiscal deficit by imposing the regressive indirect taxes and more particularly the sales tax which is being collected @ 15 per cent which is perhaps the highest rate in the world as they are virtually unable to expand the tax net for collection of the direct taxes as in that process they have to bring the big sharks in the tax net for which they have no strong muscles.
The result is that quantum of sales tax has grown from 27.11 per cent in 1998-99 to 42.33 per cent in July,2004-January,2005. It has been mentioned in Table 5.5 page 59 of SBP report for July-December,2004 that the direct taxes given in Table I above include Rs 46.9 billion collected through withholding taxes. As withholding taxes are levied at import level also, the ratio of direct taxes will fall still below 28.8 per cent while indirect taxes will further increase proportionately in case withholding tax on imports is properly accounted for.
The economic managers are so vulnerable before the big sharks that they had taken back the wealth tax which was affecting the wealthy people only, the income tax of 0.1 per cent imposed on sale of shares was virtually withdrawn by reducing it to 0.01 per cent and the capital gains tax on share trading continues to be tax-exempt although the big sharks are making billions of rupees from this business and also depriving the small investors of their assets by manipulating the stock markets ; the current boom and bust is the recent example.
The big sharks are also making billions of rupees through real estate speculation without paying any tax and the economic managers neither have the scheme nor the muscles to tax such income. They are rather aiding speculation in this field.
A few weeks back, SBP realising that housing finance obtained from banks was being utilised for real estate speculation had put a ban on grant of loans for purchase of plots but recently not only the ban has been lifted, the limit of Rs 10 million per loan has also been withdrawn.
The government does not seem to be currently interested in introducing measures to ensure equitable distribution of national income and assets. While addressing the pre-budget seminar organised by an English daily of Lahore on the 26th May,2004, SBP Governor had mentioned that the priority is to bring the poverty down to 20 per cent and the turn of removing income inequalities will come thereafter.
Thus the nation should wait to see rationale in income/ asset distribution till poverty comes down to 20 per cent through GDP trickle down. The economic managers perhaps believe in reducing the poverty through trickling down affect of the GDP growth. How much successful the trickle down is can be gauged from the research conducted Special Policy Development Centre, Islamabad which says that out of GDP of Re 1.00, the upper most 10 per cent of the population gets 34 paisa , thus leaving only 64 paisa for the rest 90 per cent of the population.
This trickle down is obviously making rich the richer instead of putting a dent in the poverty.
The economic managers also talk about the safety nets introduced for the poor in the shape of zakat, food support programme, provision of micro-finance enabling the poor to start small business and old age pension scheme. Now let us have a brief view of the coverage of these programmes quantitatively and monetarily.
The widows/orphans / disabled persons who are regular recipients of Zakat number 500,000 only. The beneficiaries of food support programme are put at 1.2 millioon. The persons availing of micro-finance number 200,000 while the beneficiaries of old age pension are put at 700,000 heads only. Thus the total heads falling under the social safety net aggregate 4.4 million only out of over 50 million people living below poverty level.
The food support programme provides Rs 2000 per family (perhaps per annum).The quantum of disbursement is too meager. As for Zakat, the amount of monthly disbursement to each individual/ family is not available. There have, however, been reports of the misuse of the zakat funds.
Recently, the zakat disbursing authorities in Nawabshah are reported to have distributed auto-rickshaws in good quantity to the persons of their choice. During Ms Benazir Bhutto's regime, when there was an in-fight between the Kilpars and Bugtis, the former were shifted to Punjab and not only that they were fed from but were also armed from out of zakat funds. Not only that the coverage of zakat beneficiaries is too small but the malpractices indulged in by the authorities concerned make the reaching of the benefits to the actual needy doubtful.
The government had announced increase in old age pension from Rs 700 to Rs 1000 per month quite a few months back but the decision awaits implementation as yet. The progress viz-a-viz micro-finance availability is painfully slow as the two micro-finance institutions have been able to outreach 200,000 people only during over half a decade. At this speed, we shall need another over half a century to attain the level of the Grameen bank in Bangladesh.
The economic managers are on the negative path in the matter of asset distribution. They are introducing corporate farming enabling the big feudals and multinationals to acquire land without any limit. Although the land reforms of General Ayub and Zulfikar Ali Bhutto eras were ineffective to a large extent and did not make the desired difference in the lives of the poor peasants, the new policy regime would enable the big sharks to deprive the small farmers of their land.
This would also dislodge the poor farmers from the lands they now cultivate as the big feudals and the multinationals will need much lesser labour owing to the mechanised farming they would adopt. This will create large scale unemployment in the rural areas.
Another aspect of government policies affecting the poor class of population is fixation of the prices of the petroleum products by the Advisory Committee of the Oil Marketing Companies. The formula being used by the Committee was never made public.
It is, however, strange that the prices of petrol requiring higher refining cost are raised in proportion lower to the proportion in which the prices of kerosene and diesel are raised which affect the poor class directly and indirectly, both; directly because poor masses use kerosene for burning their lamps where electricity is not available / for cooking where gas is not available and indirectly because the increase in diesel price raises the transportation cost which causes increase in the price of every item of common use and it also puts burden on the pockets of poor people in the shape of enhanced fares of the public vehicles, mostly the buses, which use diesel.
The comparison of the price raise in four petroleum products between mid-June,2002 and end-March,2005 is appended in Table II below:
With regard to the banking sector, we see that the profits of the banks continue to grow from time to time. How does that happen? By squeezing the depositors as they are being paid interest at a very nominal rate of 1-2 per cent p.a.
This is the direct result of excess liquidity accruing to the banks on account of large remittances from overseas Pakistanis and scarcity of the investment avenues which compelled the banks to reduce the lending rates and consequently the deposit rates thus squeezing the poor depositors and benefiting the corporate sector and the speculators in the real estate and the stocks.
Somewhat similar remittance boom emerged in late 1970s/early 1980s when the annual remittances had reached $3 billion. Neither at that time nor now the government had/has any plan to use the windfall in industrial investment creating more employment opportunities and it is seeing movement of the funds in consumerism and speculation.
The business and industrial sector did not pass on portion of benefit accrued to them through sharp cut in the lending rates to the general public and the economic managers have no means to protect the interest of common man. However, what the government did was to take full advantage of the interest rate / excess liquidity scenario for reducing its debt servicing cost by reducing the rates of return on Treasury Bills/ Pakistan Investment Bonds and National Savings Scheme (NSS) instruments.
The mainly affected from reduction in the interest rate on NSS instrument was again the common man from middle/lower middle class including retired old age persons and the persons retired per force under various golden hand-shake schemes.
The beneficiaries were the government itself, industrialists, traders, banks and speculators etc. The interest rate scenario seen quietly by the SBP for over two years resulted in transfer of assets from poor to affluent people at a very large scale.
The question is: can we dream of reducing poverty to any significant extent albeit the anti- poor policies remaining in force?

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TABLE I

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                Tax collection comparison      [amount in billion Rs]

Category        July, 1998- January,1999+   July, 2004- January,2005@

                 Amount    Ratio to total    Amount    Ratio to total

1                   2            3              4                   5

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Direct taxes     127.00        35.67 %        87.50           28.80 %

Customs duty      65.50        18.40 %        59.90           19.72 %

CED*              67.00        18.82 %        27.80            9.15 %

Sales tax         96.50        27.11 %       128.60           42.33 %

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TOTAL            356.00          100 %       303.80             100 %

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Central Excise duty.
Source: + Table IV.2 page 49 SBP annual report for fiscal 1998-99. @ Table 5.4 page 57 SBP report for July-December,2004.

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TABLE II

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                  Petroleum prices comparison    [Price Rs per litre]

Date                    MS 87RON     HOBC     Kerosene     HSD     LD

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15-06-2002                 33.30    37.74       16.34    19.41  15.67

01-04-2005                 45.53    50.52       27.98    29.06  26.39

Increase                  36.72%    33.86%     71.23%   49.71% 68.41%

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