Agriculture, manufacturing sectors impede growth in FY15 Let’s be clear; the targeted economic growth for the outgoing year was missed by a long shot. This time last year, Finance Minister Ishaq Dar had boldly announced a target of five percent GDP growth. But the yearend report card shows that tally only mustered up to 4.24 percent.
Quizzed over the missed growth target, Dar was quick to point the accusing finger to the PTI sit-in which lasted more than four months of the outgoing fiscal. Perhaps it would be more pertinent to acknowledge the role of choked private sector lending, rising imports that have muscled out some domestically produced goods; and power generation which was actually lower in FY15, than the previous year.
The government has not presented any verifiable working to calculate the GDP loss due to the sit-ins and spectacles that went on in Islamabad. But the performance of the agriculture and manufacturing sectors is more revealing of why targeted growth was not achieved.
Agriculture comprises 20.9 percent of the GDP. Manufacturing contributes another 13 percent of national income. The formerly posted growth of 2.9 percent in FY15, marginally higher than 2.7 percent in the previous fiscal. The latter grew just 3.17 percent, which is lower than the previous year’s sectoral growth of 4.46 percent.
Major crops get a bashing in FY15
Stagnation in agriculture sector growth is becoming a hallmark of the current government. Production of major crops (which includes cotton, wheat, rice, and sugarcane) mustered a paltry 0.3 percent growth in FY15, over the previous fiscal.
Lest anybody argue that farmers are moving into other crops; please note that minor crops grew just one percent, year on year. In fact, it is the livestock sector which comprises more than half of the agriculture output that posted 4.1 percent growth. The efforts of this segment along with forestry and fishing that helped agriculture sector muster up slightly higher growth than the previous year.
This is the same livestock sector that the government is dangerously close to pitting against importers (of powdered milk) if it goes through with a decision to allow unhindered import of powdered milk. Such a decision might be popular with the corporate consumables marketers but will take a bite out of the one segment of agriculture that is contributing hefty growth within the sector.
While the country’s cotton production has improved by nearly ten percent in the outgoing fiscal, depressed international cotton prices have diluted the benefits accrued from it. The wheat crop was dented by September 2014 floods which destroyed about 800,000 metric tons of the staple food commodities. Its production of 25.478 million tons in the concluded fiscal was lower than the previous years tally.
Meanwhile, the area under cultivation of sugarcane dropped by 4.5 percent in FY15; as did sugarcane production (down to 62.7 million tons in FY15 as against 67.5 million tons in FY14). Maize production also reduced by five percent over the previous year.
In short, all but one major crop received a bashing in FY15. The Economic Survey document admits “lack of agriculture-specific financing”, “limited amounts of credit for agricultural production” among other inhibiting factors. But the most alarming trend is observed in the availability of water, the lifeblood of the agrarian economy. Water availability in Kharif and Rabi seasons has remained below average for the past nine years.
The water crisis is not looming for the agriculture sector; it is here. If Dar and his team of economic managers want to narrate a better recap for FY16 than they have managed in FY15, the budget announcement expected today will have to include measures to revive the sputtering agriculture sector; especially crop cultivation.
Timid growth in domestic manufacturing
Large-scale manufacturing makes up four-fifths of the manufacturing sector. LSM growth in the outgoing year was reported at 2.38 percent for FY15 which is a mere slice of the four percent growth reported last year.
Other important segments including electricity distribution and generation and construction were also sluggish in the outgoing fiscal. The former posted muted growth of 1.94 percent in FY15 as against 5.57 percent in FY14. Construction grew by 7.05 percent year on year, compared to 7.25 percent in FY14.
The Economic Survey admits imports are hurting some domestic industries. It states “substitution of domestic production of edible oil with imports” took a toll on its production during the year. Other manufacturers including steel and associated industries, dairy sector and food producers have also been clamoring for higher duties on imports as the strong local currency has made imports cheaper while rising energy costs drive up domestic production costs.
China’s reversal on cotton imports hurt revenues from cotton yarn. Fertilizer production fell victim to the gas shortage. Pharmaceuticals hold immense potential but a dearth of domestically available inputs and lack of FDA accreditation has continued to restrain its growth.
The automobile sector appears as a lone success within the manufacturing industries performance during FY15. Lower sales tax on tractors and the introduction of new car models helped that industry contribute to the otherwise waning growth tally of the manufacturing sector.
The government is mindful of the limitations caused by the energy crisis. The survey cites ongoing energy projects as potential drivers for economic activity in the upcoming year and also as a source of energy for the power-deprived industries.
Not enough jobs!
Almost half of the country’s workforce is employed in the agriculture sector. The industrial sector is the other major provider of jobs. Stagnating growth in these sectors amplifies the risk of higher unemployment. The share of agriculture sector in total employment has dipped slightly in the outgoing fiscal from 43.7 percent to 43.5 percent.
According to the Finance Division, work opportunities in the sector are becoming limited. The share of working population in mining and manufacturing has remained stable over this period while job creation has picked up the pace in the services sector.
Interestingly, the report card for FY15 claims that unemployment has dropped marginally, from 6.24 percent in FY14, to six percent in FY15. But this unemployment rate is based on the assumption that the labor force has shrunk from 60.34 million in FY14 to 60.09 million in the outgoing fiscal.
This assertion is unverifiable in the absence of a recent population census and comprehensive labor review. It is also silent on the level or nature of employment generation within a context of rising urbanization which is fuelling the growth of cheap, unskilled labor within the cities.
Stepping back from the rhetoric of amplifying minuscule statistical improvements in sectoral production data, it is evident that jobless growth fuelled by consumerism on the back of surging imports will do little benefit to the country. The PMLN has introduced some programmes for employment generation but the real focus will have to be in aligning the skills of labor force with the sectors that hold economic potential.
This must be coupled with a cogent strategy to drive and thrive economic mainstays like major crops (wheat, cotton, sugar, rice) and industries (steel, auto, cement) along with an innovative approach to sunrise sectors (horticulture, dairy, and livestock).
The first budget announced by the current government was excused on the pretext that they had little time to prepare it after assuming power. The second budget was premised on bringing national debt into manageable limits and securing credit lines. Now the PML-N is announcing the third budget of its tenure. Dar and his team can ill afford to delay measures that can create jobs and spur domestic production and that cannot be achieved if agriculture and manufacturing sectors remain lethargic.
