Archive for the ‘Economic Development’ Category

One View About Marketing

The term marketing is derived from a word “market”; which, means a place where vendors and buyers come together to exchange different commodities. A bunch of various techniques hired by companies to sell their products by creating consumer’s interest is commonly known as marketing.

Marketing is a way of communication between producer and consumer; in which manufacturers produce goods considering the needs of people; whilst, on the other hand buyers transfer their choices and preferences to producers in the form of upward and downward slopping demand curves.

According to Phil Knight, CEO of Nike, “Now we understand that the most important thing we do is market the product. We’ve come around to saying that Nike is a marketing-oriented company, and the product is our most important marketing tool” (Phil Knight, CEO of Nike in the late 1980s). The concept of marketing is originated with the transactional activities of a man. We, human are interdependent on each other for our needs; because nature has not bestowed everyone with all faculties; some are physically weak while others are strong; some are rich and others are poor, etc. This shows that a nature has not distributed its resources equally; and that is the reason because of which people has to exchange their abilities and products with each other. From this point one has to hire the concept of marketing; in order to exhibit what he possesses.

So, it is pertinent to say that: “Marketing is comprised of all activities involved in the transfer of goods from the producer to seller and then to the consumer or buyer.” In late 19th century, marketing emerged as a separate technical field of study. The emergence of marketing as a separate entity divided scholars into two streams: one group of intellectuals favor marketing techniques; whilst the other opposes it severely.

Social critics claim that: “Certain marketing practices upset individual consumers; for example, big companies violate human rights in the poverty stricken countries like India, Pakistan, and Sri lanka, etc.” To make this point more clear let’s take an example of Nike, Inc; which is the giant of sportswear and equipment supplier; and has been criticized sporadically by human rights activist; for the use of child labor in Cambodia and Pakistan in factories it contracted to manufacture soccer balls.

In addition, there are many marketing techniques like: deceptive practices, excessive marks up, and exploitation of labor, etc; that harm the interest of individual, society as a whole, and other business firms.

Similarly, marketing is responsible to create evils like materialism, inferiority, and superiority complexes in the society; and also increases the gap between poor and rich; as people belonging to lower and middle class cannot afford products of big brands like Nike, and Toyota, etc.

Advertisements

The Natural gas – A freebie of the Pakistan

The miraculous Pakistan is blessed with infinite natural resources by the God and  natural gas is the most precious one. The recoverable reserves of natural gas have been estimated at 29.671 trillion cubic feet (January 1st 2009). During July-March 2008-09 the production was 3986.5 million cubic feet per day as compared to 3965.9 mmcfd during the corresponding period last year showing an increase of 0.52%. Presently 26 private and public sector companies are engaged in oil and gas exploration and production activities. Total natural gas production by company wise is given below.

The consumption of natural gas during 2007-08 was 40.3%. The sector wise natural gas consumption during July-March 2008-09 is given below.

Following are the natural gas fields in the Pakistan:

  • Adkhi
  • Badim
  • Bhit gas field
  • Khasan gas field
  • Kandanwari gas field
  • Kandkhot field (13 TCF, 347×109m³)
  • Khan field
  • Mari field
  • Miano gas field
  • Mizra field
  • Sawan gas field
  • Sui gas field (2 TCF; 54×109m³)
  • Toot gas field
  • Ul Haq field (1 TCF; 27×109m³)
  • Zamzama field

The Sui gas field is the biggest natural gas field in the pakistan. It is located near Sui in Baluchistan. The gas field was discovered in the late 1952 and the commercial exploitation of the field began in 1955. The Sui gas field accounts for 26% of Pakistan’s gas production. Remaining reserves are estimated to be at about 800 billion cubic feet (tcf) and the daily production is around 660 million cubic feet (19,000,000 m3) of natural. The operator of the field is Pakistan petroleum limited. Other natural gas companies in Pakistan are:

  • SUI NORTHERN GAS COMPANY LIMITED
  • SUI SOUTHERN GAS COMPANY LIMITED
  • PAKISTAN STATE OIL COMPANY LIMITED
  • PAKISTAN PETROLEUM LIMITED
  • PAK ARAB REFINERY LIMITED
  • SAINDAK METALS LIMITED
  • LAKHRA COAL DEVELOPMENT COMPANY Ltd
  • GOVERNEMNT HOLDINGS (Private) LIMITED
  • PAKISTAN MINERAL DEVELOPMENT CORPORATION LIMITED
  • INTER STATE GAS SYSTEMS (PVT) LIMITED
  • STATE PETROLEUM REFINING AND PETROCHEMICAL CORPORATION (PVT) LTD
  • NATIONAL REFINERY LIMITED (NRL)
  • OIL AND GAS DEVELOPMENT COMPANY LIMITED

Apart from the terrorism, today the Pakistan is also victimized by a Secessionist movement though not very strong but present. A Baloch Nationalist Militant is a secessionist movement headed by some Baloch chiefs with the view of an establishment of independent Baluchistan free of Pakistani rule. This movement doesn’t only come into sight over sudden but also with no rock-hard vision. The movement is of view that the people of Baluchistan are being exploited by the Pakistani government in the form of their fewer shares in the natural resources of Baluchistan. This allegation against the Pakistani government is very much true as Economic growth rate in Baluchistan is very low as compared to the other provinces of Pakistan. According to Baluchistan PRSP (poverty reduction strategy paper2005), poverty could be as high as 47%. People are deprived of basic necessities of life, low level of investment and capital accumulation, lack of education and employment opportunity etc.

If we acutely study the policies of the Pakistani governments since 1947 we came to the conclusion that since its birth all governments were focused for escalating their own bank balance rather then mounting the prosperity of the Pakistan. They didn’t only deprive the people of Baluchistan but the whole Pakistan. The reason behind the little attention to other provinces is the panic of high population whilst Baluchistan is being particularly ignored because it is a home of only 5% country’s population. That is why all allegations of the people of Baluchistan are very much factual and our governments should strictly be questioned for such mistreatment.  And if the government still don’t pay heed to nation‘s voices then it should be overthrown immediately. But terrorist activities like blasting the natural gas pipelines are not human traits. The human follows laws in their social life whilst the animal does not as they don’t have societies.

In a word since its inception more or less every Pakistani citizen is being suffered by the policies of corrupt governments and the only way out of this catastrophe is – the selection of honest and candid leaders not an organization of separatist movements. We must realize that

‘United we stand, divided we fall.’

References:
http://www.gsp.gov.pk
http://www.mpnr.gov.pk

www.wikipedia.com
www.finance.gov.pk

Bookmark and Share

Taxes in Pakistan

Government earns revenue through plenty of ways like interests , dividends ,trading profits etc and tax is one of the primary tool of revenue in above mentioned ways. Some one rightly describes tax as;
“A fine is a tax for doing something wrong whilst tax is a fine for doing something right.”
Pakistan, the state of 180,800,000 people collected the total tax revenue of Rs 1,317,857 millions according to Budget estimate (B.E) 2008-09 which is less than satisfactory and witnessed actual slow in real term. I will begin my writing with Ogden Nash’s stanza

The more you earn, the less you keep,
And now I lay me down to sleep.
I pray the Lord my soul to take,
If the tax-collector hasn’t got it before I wake
.

The sources of tax revenue in Pakistan are:

  • Federal Taxes
  • Provincial Taxes
  1. Federal Taxes

Let’s take a detailed view of direct and indirect taxes of Pakistan.
Income Tax
It is kind of direct tax that is lived on a person having income more than the certain level. According to Plato:

When there is an income tax, the just man will pay more and the unjust less on the same amount of income.”

The revised slabs for taxable income through Finance Act 2008 are given below;

S. No. Taxable income Rate of tax.
(1) (2) (3)
1. Where taxable income does not exceed Rs.180,000 For women taxpayer it is Rs.240,000. 0%
2. Where the taxable income exceedsRs.180,000 but does not exceed

Rs.250,000

0.50%
3. Where the taxable income exceedsRs.250,000 but does not exceed

Rs.350,000

0.75%
4. Where the taxable income exceedsRs.350,000 but does not exceed

Rs.400,000

1.50%
5. Where the taxable income exceedsRs.400,000 but does not exceed

Rs.450,000

2.50%
6. Where the taxable income exceedsRs.450,000 but does not exceed

Rs.550,000

3.50%
7. Where the taxable income exceedsRs.550,000 but does not exceed

Rs.650,000

4.50%
8. Where the taxable income exceedsRs.650,000 but does not exceed

Rs.750,000,

6.00%
9. Where the taxable income exceedsRs.750,000 but does not exceed

Rs.900,000,

7.50%
10. Where the taxable income exceedsRs.900,000 but does not exceed

Rs.10,50,000,

9.00%
11. Where the taxable income exceeds

Rs.10,50,000 but does not exceed

Rs.12,00,000,

10.00%
12. Where the taxable income exceedsRs.12,00,000 but does not exceed

Rs.1450,000,

11.00%
13. Where the taxable income exceedsRs.1,450,000 but does not exceed

Rs.1,700,000,

12.50%
14. Where the taxable income exceeds Rs.1,700,000 but does not exceed

Rs.1,950,000,

14.00%
15. Where the taxable income exceeds Rs.1,950,000 but does not exceed

Rs.2,250,000,

15.00%
16. Where the taxable income exceeds Rs.2,250,000 but does not exceed

Rs.2,850,000,

16.00%
17. Where the taxable income exceeds Rs.2,850,000 but does not exceed

Rs.3,550,000,

17.50%
18. Where the taxable income exceeds Rs.3,550,000 but does not exceed

Rs.4,550,000,

18.50%
19. Where the taxable income exceeds Rs.4,550,000 but does not exceed

Rs.8,650,000,

19.00%
20. Where the taxable income exceeds Rs.8,650,000 20.00%

Workers Welfare Tax

It is charged at 2% on the manufacturers having income of Rs 100,000 and above. Employees Old Age Benefit Scheme is financed through this fund.

Capital Value Tax
Capital Value Tax is payable by every individual, association of persons, firm and company, not born on the National Tax Register. Currently CVT is payable with different rates on immovable commercial and non commercial property, residential flats, and purchase of shares of stock exchange.

Worker Profits participation Fund

This tax is paid by the industrial undertaking having more than 10 workers at 5% of their profits for distribution amongst workers. Any leftover amount after distribution amongst the workers is deposited with the government to become part of the WWF.

Custom Duties

Customs duties are levied through Customs Act, 1969 on goods imported into Pakistan. It contributes 24.4% in the indirect taxes and 15% in total taxes collected by FBR. The collection of custom duties is important as it also contributes in the base calculation of other taxes like sales tax on imports and withholding tax. Only 15 major commodity groups contributed 78% of the total customs duties during 2007-08. Auto sector is the top contributor of the customs duty. The composition of gross customs duty collection is provided as following:

1. Import Duties

2. Warehouse Surcharge

3. Export Development Surcharge

4. Misc (auctions, recovery of arrears, defense etc)

Federal Excise

Federal Excise Duties are levied on domestic production, imports and services rendered in the country. The major excisable commodities include cigarettes, cement, beverages, natural gas and POL products, whereas excisable services are; Air Travel, Insurance, Non-Fund Services provided (  In FY: 2007-08 the NFS were extended to full coverage of Non-fund Financial Services (NFS), and FED on Air Travel was rationalized.) by banking or non-bank financial companies and Franchise services. The old Central Excises Act, 1944 has been replaced by The Federal Excise Act, 2005, with effect from 1st July, 2005. As part of budgetary measures for the year 2007-08, Special FED at 1% has been levied on goods which are manufactured or are imported in Pakistan.

Sales Tax

Sales tax is liable on sales of all goods and services produced in the country excluding those goods exempted in the Sales Tax Act, 1990. The rate structure was different for native products and imports. The details of sales tax collection at import stage also point out the higher concentration as fifteen major commodity groups have contributed around 87% of total ST (imports) collection. The major commodity groups include POL Products (27), Edible Oil (15), Plastic (39), Vehicles and Parts (87), Iron and Steel (72), Mechanical Machinery (84), Electrical Machinery (85), Organic Chemicals (29), Paper & Paper Board (48), Oil seeds etc (12), Misc Chemicals Products (38), Rubber (40), Coffee, Tea, and Spices (9), Aluminum Products (76) and Articles of Iron & Steel (73).

Provincial Taxes


Conclusion
In above mentioned direct tax caption you must have been noticed that there is no wealth tax which is thought provoking. It has been stopped since 2007.Wealth tax for 2006-07 were Rs 47m .Will Durant rightly says;
“If our economy of freedom fails to distribute wealth as ably as it has created it, the road to dictatorship will be open to any man who can persuasively promise security to all?”
One of the primary maxims of taxation is that,the burden of tax should fall on the people according to their ability .But in Pakistan the case is opposite I-e taxed poor, exempt wealthy. Wealth tax is the best tool of controlling the alarming rate of unequal distribution in under developing economies like Pakistan. But unfortunately every next government of Pakistan starts loading its bank accounts rather than addressing the real problems of country. Gandhi brilliantly states;
“The things that will destroy us are: politics without principle; pleasure without conscience; wealth without work; knowledge without character; business without morality; science without humanity; and worship without sacrifice.”
References:
http://www.finance.gov.pk
http://www.fbr.gov.pk
State bank of Pakistan

Bookmark and Share

Nelson Low Level Equilibrium Trap

Richard R. Nelson, an American professor of economics at Columbia University presented his theory for underdeveloped countries  based on ‘Malthus View’;

“The population tends to rise when per capita income rises above minimum subsistence wage.”

According to Nelson underdeveloped countries have always stable equilibrium per capita income equal to subsistence level and this low per capita income entrapped such economies in vicious cycle presented below.

An increase in per capita income works on population growth rate as;

  • In beginning increase in per capita income leads to increase population.
  • Then it decrease population.

To show how underdeveloped countries (UDC’s) are trapped by low equilibrium level of income Nelson presents three sets of relations.

  • Y = f ( K , L , Tech )
  • New investment is equal to capital created out of savings (in form of addition to machine tools and addition of new land).
  • Whenever the per capita income reaches a level above the subsistence level any further increase in it will have a negligible effect on death rates. Moreover changes in death rate are due to changes in per capita income.

Reasons Behind the trap

  • High Correlation1 between per capita income and population growth rate
  • Scarcity of  non cultivable area of land.
  • Inefficient techniques of production.
  • Social and economic inertia2.
  • Little propensity to direct addition per capita income to increase investment.

Graphical Demonstration of theory

Explanation

  • In panel (1) of figure the curve dp/p shows population growth rate by taking per capita income (Y/P) along x-axis and population growth rate along y-axis.  Curve dP/p intersects x-axis at point “a” indicating minimum subsistence per capita income where dP/p=Y/P. Population is decreasing left to point “a” whilst it is increasing right to the same point shown by arrows. When per capita income is above subsistence level at first Population growth rate attains maximum point “b” then becomes stationary and lastly starts decelerating after point “c”.
  • Panel (2) of figure shows the curve of per capita rate of investment out of saving (dK/p) relating per capita of investment with varying levels of per capita income. At point “x” savings are zero. Left to the point, saving is negative while it is increasing along investment growth curve (dK/p).
  • Panel (3) shows curves of population growth rate (dP/p) and per capita income growth (dY/Y) by taking dP/p and d Y/Y along y-axis and per capita income along x-axis. Both curves(dP/p) and d Y/Y are intersecting at point “y” where d Y/Y = dP/p. Before point “y” dP/p < d Y/Y which push an economy to point “y” where zero saving is equal to minimum subsistence level of per capita income. Above “y” point dP/p > d Y/Y pushing an economy again to point “y”. This process goes on and on entrapping an economy of UDC’s in an equilibrium trap of low-level of per capita income.

Getaway from the trap

According to Nelson following steps can avoid trap;

  • Favorable socio-economic and political environment.
  • Reduction in family size.
  • Change in income distribution.
  • Proportion of public investment must be changed.
  • Loans should be taken from foreign countries to support investment and capital.
  • Improved techniques of production.

Criticism

  • Population growth is assumed an increasing function of per capita income growth rate in the start then as its decreasing function but in actuality population growth takes place due to an augment in public health facilities.

References:

  • R.R. Nelson (1956) “A Theory of the Low Level Equilibrium Trap”, American Economic Review, Vol. 46, p.894-908.
  • “Economic Development” by M.P.Todaro
  • “Economic Development” by Herrick and Kindleberger

1 A tendency of per capita income and population growth rate to vary together.
2 An example of Social inertia in Pakistan is in the form of choice of corrupted political parties again and again regardless of benefits.

Bookmark and Share

Anylasis of Pakistan’s economy with the help of Nurkse’s theory of vicious cycle of poverty

In this article I will try to present how Pakistan is entrapped in vicious cycle of poverty in the light of Nurkse’s theory of poverty. Before going deep into the matter, it is essential to write something about Nurkse and his theory. Ragnar Nurkse, an Estonian policy maker and an economist was the founding father of classical development economics. He was of view that vicious cycle of poverty is the prime reason behind the developing states to be developing for decades. He emphasized on the role of saving and capital formation in the development process. According to him this cycle works as

Now we will analyze the present status of Pakistan in the light of above cycle.

Above sequence is presenting a deplorable picture of Pakistan‘s economy where government is failed to achieve the target of real GDP growth rate of 7.2 % for the fiscal year 2007-08 generating  just 13.9 % national saving lower than last year’s 17.8 %. This leads to 21.6% total investment as a percentage of GDP once again less than 22.9% of last year’s (2006- 07) ,resulting in only 15.5% of GFCF in private ,public and general government sectors.  Nurkse is undoubtedly right but to some extend. Few evils of developing states like Pakistan are needed to be addressed on immediate grounds before strengthening the saving and capital formation trends. Some of them are given underneath.

  • Ripping unbridled corruption from the root.
  • Effective control over nepotism and exploitation.
  • Strict control over abeyance in policy execution
  • Rule of law on firm grounds
  • Control over rapid change of governments
  • Poor Infrastructural facilities
  • Misallocation of resources.

As absolute perfection isn’t possible so this theory is also criticized on following grounds like

  • For Peter T Bauer, a developmental economist, nurkse’s idea is fragile because every state has to undergo the stages of lower saving and capital formation in its process of development.
  • For nurkse increase rate of capital formation is necessary for poverty eradication but this formation requires funds that are already short in form of low saving and escalating foreign debt.
  • An idea of financing growth with the help of disguise unemployment isn’t new.

In a nut shell under the light of recent figures Theory of Nurkse has proved true in case of Pakistan.

References and Notes: http://www.finance.gov.pk
Data source is Federal Bureau of statistics government of Pakistan
Data for fiscal year 2007-08 is used
NS: National saving
mp: Current market price
TI: Total Investment
GFCF: Gross fixed capital formation in public, private and general government sectors at
current market prices.
GDP: Gross domestic Product

by  basiliskt

Bookmark and Share

An equal distribution of income against laws of nature

Income distribution is a key indicator of an economic development. Though we cannot have absolute equality in its distribution but the struggle can be made to gain the relative equality in an income distribution. Income basically is the reward of work in a monetary term.It is something, which is earned by human with his efforts and faculties. Some people earn higher whilst others receive lower. This is a natural discrimination because if all are kings, who will be the beggar.

So it wouldn’t be inappropriate to say that income depends upon destiny and human efforts I-e Y=f (D, E). The increase gap in an income distribution result in riots, wars, and massacres, etc. The height of this inequality eats an economy as termite eats wood. An urge of three elements i.e. power, sex and money can never be scratched from the human nature. Cain killed his brother Abel because he wanted to marry his beautiful twin sister.

The humankind has been following the above mentioned pattern for decades. For some people Heath ledger’s will (Australian actor) can be one of the reasons of his baffling death (who knows the truth but The God). Sociologists suggest moral theories to lessen the aftereffects of unequal income distribution. Economists have not succeeded in suggesting any concrete solution of this evil. However, to check the rate of inequality they suggest various theories of poverty.

Gini index (formulated by an Italian statistician) is a measure to calculate the distribution of family income. It is obtained through Lorenz curve (A curve that is used to show the relationship between population groups and their respective income shares by Conard Lorenz, an American statistician).The countries with Gini coefficient between 0.5 and 0.7 fall under the category of unequal income distribution. On the other hand, countries with Gini index between 0.2 and 0.35 have relative equality in their income distribution.

Let’s employ the example of Pakistan to see the significance of Gini index.

Pakistan, a country of 168228,500 people has a gini index 30.6(30.6/100 =0.30) during FY07-08 which was 41(0.41) in FY 98-99. According to statistics, the ratio of income distribution has improved in Pakistan up till now. The statistics of developing countries are extremely doubtful due to rampant corruption, biasness, nepotism and bribery.

In fact, improving numbers is not the remedy of unequal income distribution.

When a poor sees rich leading a lavish life while he is deprived of basic necessities, the sense of hatred arise. When this revulsion reaches to its height, he starts doing criminal acts like kidnapping and killing. He involves in illegal activities because poverty removes the fear of consequences from him.

Poverty is like a sword that impoverishes the countries. It is one of the biggest hurdles in the way of the crime elimination or reduction. There are many countries that have attained the relative equality of an income distribution but fail to remove or even diminish the crime rate. The crime rate in the USA is high despite 0.45 Gini index (2007 estimates). The statistics show that the poverty affects developed and developing countries alike.

After examining the statistics we can say that an absolute equality in an income distribution is not only out of the question but out of nature as well. If we look at human history we will get to know that an unnatural phenomenon and systems are thrown out of human lives sooner or later.

The collapse of socialism is one of the prominent and recent examples in this connection. It was an unnatural system because people do not have the property rights. In socialism people are just treated as an employee, which is absolutely abnormal. This is because nature bestowed humankind with the property ownership rights. Any attempt of government to usurp that right has never been appreciated by the people worldwide.

Moreover, the sense of possession is innate in the humankind. The law of demand is a clear testimony of this fact. As far as money is concerned the law of demand works in opposite direction i.e. the more money man possesses the desire to get more of it increases, instigating him to struggle more.

Raping up the discussion, governments should not only try to attain good gini index but also strive hard to provide basic necessities of the life to masses.

Bookmark and Share