5. Household Saving in Rural Pakistan - empirical analysis
5.7 Investment
Although a larger share of the saved amount is utilized for consumption expenditures, a small share is utilized for expanding the productive base of the household, too. There are two types of investment: 1) new investment; 2) re-investment. New investment deals with the addition or extention of the existence base, while re-investment keeps the existing economic base constant.
The present study discusses three categories of regular investment: 1) land betterment, 2) farm instruments, and 3) education. According to the aforementioned classification of investment, education falls into the category of new investment, and land betterment, in re-investment. Investment in farm can be a new investment if new instruments are bought which were not available before, or a re-investment, if investment is done only into the maintenance of available instruments.
Saving is not considered equal to investment in this study. First of all, investment is not necessarily done from the amount saved in that year; it is mostly a handsome amount extracted from past savings or credit. Savings done in the year of investment usually represent part of the whole sum. Investment activities in the sampled households include regular expenditures which have to be incurred. Tables 25 and 26 include those investment expenditures which are made from the annual income of the current year.
247 EGLAR (1960:24) observes (for rural Pakistan) the usage of these vessels for storing extra foodstuffs such as sugar, ghee (churned butter), flour for immediate use, salt, lentils, peas, peppers, pickles, jam, and brown sugar.
248 See EGLAR (1960:24ff) for further details of household items in a rural household and their function in Pakistan.
Table 25: Investment expenditure in 12 case study households in 1991 -92 (Rs.)
Cases Farm
instrum ents
Land betterme
nt
Educatio n
Total
Case study 1 25,000 20,000 5,000 50,000 Case study 2 10,000 4,000 12,000 26,000 Case study 3 20,000 81,000 20,000 1,21,000 Case study 4 14,000 34,000 6,000 54,000
Case study 5 - - 12,000 12,000
Case study 6 7,000 13,500 - 20,500
Case study 7 26,000 - - 26,000
Case study 8 24,000 10,000 34,000
Case study 11 4,000 - - 4,000
Case study 12 8,500 - 8,500
Source: author’s own survey
The study calculates absolute investment as well as its balance after subtracting total disinvestments of the year. Table 26 shows disinvestments in the form of crop loss, livestock loss in case of death or theft, infrastructure damage or loss, and other occasional small losses. We see a considerable fall in the total amount of investment after subtracting total disinvestments.
The amount and kind of investment expenditure in Table 25 shows a limited rate of investment in the study area. There exists no lucrative incentive to motivate households towards new investment possibilities; the farmer's knowledge also seems to be quite limited in this context. Any new risk is avoided because of the low level of income. They rather prefer to secure the existing resource base by improvement and repair. Annual investment is usually made for the repair and betterment of the existing productive potential. STRUTZ (1994:178) also observes that, in the District Mardan,249 one-third of the members of saving organizations utilize their savings for their farms, for buying raw material. Actually, such expenditures cannot be called real investments as they finance only the current expenditure.250 Almost one-fourth of the members spent their money for buying land or consumers’ goods like refrigerators, televisions, construction of a house, etc. 10 percent of the members spent this money for social purposes like support of friends and relatives. The expenditures incurred for buying land and constructing houses in the District Sheikhupura are not very different; either only consumers’ goods are of a relatively lower significance. Farm investments were similar to those made in Mardan; the major amount of capital was invested for buying raw material and repaying credits, but the average amount saved for farm investments in Sheikhupura (28,600 Rs.) was significantly
249 The study (Small Industry and Rural Development) was conducted in the District Sheikhupura and Mardan of Pakistan.
250 Although many businessmen desired to expand their base to be able to work independently of the commisssion agents.
higher than in Mardan (7,200 Rs.).Only unavoidable investment expenditures are made in a normal situation. A low level of investment reflects a low level of saving. Investment may also act as an incentive to save if new opportunities are provided.
Along with investment, a household has to bear many disinvestments in the form of crop or livestock loss, infrastructure damage, etc. The actual investment of a household will be the net rate of investment after subtracting all losses. Table 26 and Diagram 13 gives a net balance of investment in twelve case study households for a period of one year
Table 26: Disinvestment in 12 case study households
(Rs.)
12,350 - 3,000 1,500 7,500 350 37,650
Case study 2
26,000 (5.6)
22,875 20,000 - 4,000 8,700 175 3,125
Case study 3
1,21,000 (34.8)
15,230 - 2,000 - 13,000 230 1,05,770
Case study
All values in parentheses are the percentages of total annual income in 1991-92 Source: author’s own survey
Diagram 13: Net investment expenditure in twelve case study households
0 20000 40000 60000 80000 100000 120000 140000
1 2 3 4 5 6 7 8 9 10 11 12
137650
3150 105770
900
11950 11200 22400
42750
0 0 3964 4345
Source: author’s own survey
5.8 Summary
The study area lies 50 km northeast of Sargodha District in Tehsil Bhalwal of the Province Punjab in Pakistan. The selected village acted as a model village for the Mona Reclamation Experimental Project (MRE) initiated in 1965. The sampled population is predominantly cultivating. 81.7% of the total sampled population is mainly engaged in self-cultivation. Sharecropping represents the second most practiced mode of self-cultivation.
11.7% of the sampled population practices this mode in the case of wheat and sugar-cane, which represents the second most cultivated crops after citrus fruit. Only 5% are partly contractors and partly self-cultivators. Twelve case study households have been selected, two from the upper, five from the middle and five from the lower strata, for the empirical analysis of income (cash and in kind) and its utilization.
Empirical evidence shows only four out of twelve households drawing their income from non-farm sources, which contributed just 2.4%, 24.2%, 17.9% and 27.6% of the total annual income respectively. Moreover, all households were engaged in farm activities, which provided a major share of the household’s actual income, in ten out of twelve households, even more than 50%. Milk, churned butter and crop produce were the major contributors of income in kind.
The major utilization of the household income includes:
− Consumption
− Saving
− Hoarding
− Investment
Empirical evidence reveals considerably higher expenditures on basic items such as food, transport, hospitality, etc., than under the other heads.
Saving comprises the following methods: 1) saving in cash; 2) saving in bond holding;
3) saving in agricultural products; 4) saving in livestock.
Cash saving represented a relatively difficult way of saving in the research area. Empirical evidence showed cash saving in seven out of twelve (58.3%) case study households.
While only three of these seven households deposited their saved amount in a bank, two of those belonged to the upper stratum and possessed active accounts. The other four preferred to keep the amount at home.
Saving in bond holding is a rarely practiced form of saving. Prize Bonds and Saving Certificates are two well-known bond holdings. They are more urban-oriented and require a certain level of literacy to be managed. Two out of twelve households possessed Prize Bonds, both received it as a gift. Only one out of twelve possessed a Saving Certificate.
Saving in agricultural products is practiced preferably because of its higher flexibility.
Some well-practiced forms include:
− stock of crops, e.g., wheat, rice, cotton and lentils,
− stock of pressed cotton seeds and fertilizer,
Empirical evidence shows eight out of twelve households with a stock of savings in kind:
two cases with a stock of pressed cotton seeds, five with wheat and one with rice. A stock in kind may be differentiated in saving or investment, depending upon the purpose of storage.
Saving in livestock represents the most practiced form. It has a dual impact on the household economy, firstly, as a source of extra income and, secondly, by acting as cash which is always available at home. Almost every type of animal keeping is proved to be of productive nature in the study. Hoarding of livestock is therefore non-existent in the studied area.
Besides these direct saving acts, rural community practices some indigenous traditional saving arrangements on the basis of cooperative type traditional institutions. These arrangements include: 1) Sep relation (a bank of labor); 2) Wanghar (a bank of labor); 3) Share leasing of livestock (saving in livestock); 4) Rotating saving system (a bank for cash); and 5) Vartan Bhanji ( a bank for cash and kind).
The quantitative analysis of the saving composition proves saving in kind as the most stable, preferred, profitable and flexible method in almost every stratum.
Hoarding is a sterile art of saving, which is not intended to be invested or liquidated in the future. Gold and silver accumulation is the only form of hoarding in the research area. The empirical evidence showed that the value of gold hoarded (during an unspecified period) in twelve case study households vary from 17.4% to 88.3% of the annual household income.
Investment includes the expenditure undertaken for expanding the productive base of the household, e.g., land betterment, education, etc. Saving is not considered to be equal to investment in the present study. First of all, investment is not necessarily done from the saving of the current year; it is mainly a handsome amount extracted from past savings, present savings and credit. Empirical evidence shows a low level of investment which decreases further after calculating the investment balance. Risk avoidance and lack of motivation proved to be the main factors that are responsible for its low level.