Problems of agriculture

At a recent seminar in Karachi the role of agriculture in the growth of national economy was discussed in detail. Agriculture is Pakistan's major resource and the backbone of its economy. The sector accounts for almost 21 percent of the country's GDP and it provides employment to nearly 45 percent of the population. But the sector remains in a moribund state. It has never received the attention it deserves in terms of budget allocation, development planning and investment.

With sufficient time and money put in this sector, Pakistan can become a major exporter of food to the Middle East and Central Asia. Year after year, the sector has continued to stagnate. According to the latest Economic Survey, the sector missed the 3.8 percent growth target against the provisional growth of 2.1 percent in FY14. This growth rate is lower than last year's by 0.8 percentage points.

Details show that major crops such as wheat, rice and sugar posted growth of 3.74 percent as compared to 1.19 percent last year. But other sub-sectors witnessed a paltry growth, like livestock 2.9 percent, forestry 1.5 percent and fishing one percent. On the other hand, cotton ginning and other crops showed negative growth of 1.3 percent and 3.5 percent, respectively. To improve the situation in this year's budget a number of incentives have been offered for small and marginal farmers. These include sales tax exemption on high irrigation equipment for green house farming, removal of customs duty on plastic coverings, mulch films and anti-insect nets for tunnel farming, credit guarantee schemes for small and marginalized farmers with 50 percent loss sharing, livestock insurance scheme for farmers with up to 10 heads of cattle and crop loan insurance scheme for farmers with 25 acres of land.

However, given the high population growth rate, experts do not consider these sufficient enough. A representative of Pakistan Agriculture and Dairy Farmers Association recently said that budget allocations made for supporting the agriculture sector were not at par in terms of the share it holds in the GDP. It has also been pointed out that no steps have been taken to withdraw sales tax on all agricultural inputs except a reduction in sales tax for tractors from 16 percent to 10 percent.

The Seed Association of Pakistan has drawn attention to the fact that during FY14, the availability of water was 13.5 percent lower for Kharif crops and 10.7 percent lower during the Rabi season than the normal supply. As such, the government should have apportioned an adequate amount for increasing crop water supplies. But the government allocated a measly amount for this purpose as compared to Rs Rs112 billion given for road construction, for example.

One reason why budgetary allocations for agriculture are low is that its revenue potential has yet to be fully exploited. During his recent budget speech the Finance Minister referred to the low agriculture tax collection by provinces. But income tax is a federal subject and the time has come to subject the rich landlords to the same IT rules as industrialists and the salaried classes.

If high agricultural income is taxed, there will be enough revenue generated for investment in the uplift of agriculture as a whole. Feudal lords enjoy significant lobbying power in the parliament, which has enabled them to avert the effective levy of Agriculture Income Tax so far. But this anomalous situation cannot be allowed to continue any longer.