Economics (AS & A Level) · Oct / Nov 2022 · Paper 23 · Question 1

Pakistan’s agriculture survives on subsidies As in most developing countries, the agricultural sector in Pakistan is heavily dependent on subsidies. Agriculture is an important activity, employing 45% of the population. Domestic production is vital in providing food for its growing population. Farming in Pakistan is not very profitable and without subsidies, many farmers would be forced to leave their farms. Despite subsidies, as shown in Table 1.1, the cost of production in Pakistan is much greater for a range of staple products than it is in India where farmers are more heavily subsidised. Table 1.1: Cost of production after subsidies of selected products in Pakistan and India, 2018 (Pakistan Rupees per unit) Pakistan India Wheat 76 51 Cotton 127 88 Rice 124 68 Sugar cane 222 142 Maize 119 53 The higher cost of production in Pakistan has serious implications for Pakistan’s participation in global trade in agricultural products. This problem is particularly critical as Pakistan seeks to increase exports to reduce a deficit on the current account of the balance of payments. A complaint of farmers is that GST, a sales tax, is charged when they purchase fertilisers. In May, the government gave in to pressure and cut GST on fertilisers from 17% to 2%. Farmers’ leaders want the tax to be completely removed from fertiliser sales. Their priority, however, is for a large increase in the subsidy paid to farmers to a level comparable to that paid to farmers in India. In Pakistan’s current economic position this prospect appears to be remote. Pakistan’s farmers also complain about the subsidies that are paid to farmers in richer neighbouring countries. They strongly argue that these subsidies are unfair on farmers from developing countries and are holding back their economic development. Source: Agriculture survives on subsidies, Amjad Mahmood, Dawn, 27 May 2019

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