Irrigation water shortages have lately been a main area of concern for policymakers and planners in Pakistan. Current literature on the country’s water resources predicts an alarming situation regarding the availability of irrigation water in the future due to declining water tables and serious financial, environmental, and social constraints of developing big storage reservoirs. Since there is little room to augment water supplies by building new dams, the existing supply-driven surface irrigation system needs to be replaced by a demand-based system with special focus on water use efficiency through the introduction of an appropriate water pricing system. The present study aims to evaluate several alternative water pricing systems in the search for choosing one that will ensure efficient use of irrigation water in Pakistan. A related objective is to test the extent of sensitivity of the demand for irrigation water to a change in alternative water prices. A major conclusion that emerges from this research is that irrigation water shortages are the result of the inflexibility of the present irrigation water supply system for agricultural use and have little to do with the existing water pricing practice in the country. Furthermore, the results of our water price simulations exercise confirm the general perception that demand for irrigation water is less sensitive to changes in alternative irrigation water prices. Two findings from the pricing policy perspective are: (i) irrigation water is not available in adequate quantity to farmers in the nine sub-districts surveyed at almost all of the alternative prices in Pakistan’s irrigated agriculture sector since the predicted water usage at all prices is greater than the actual usage for all districts; and (ii) our empirical analysis indicates significant inefficiency of resource allocation in respect of irrigation water as shown by its positively large marginal value product to opportunity cost ratio.

The concern over the environment is not new. But the development policymakers have recently recognised that failing to take the costs of environmental damage into account will slow down the process of raising incomes and the wellbeing of the people. This recognition is in view of the fact that economic development in both industrialised and developing countries, especially during the past half century, has not been environmentally sustainable. The current debate regarding the environmental sustainability of economic development has even challenged the very question of development. The measurement of per capita income is no longer accepted as a sufficient indicator of people's well-being when it comes to the quality of life and its sustainability over time. The true. growth rate in the Gross National Product (GNP) of a country will definitely be lower than the absolute rate if the depreciation of natural resources resulting from environmental degradation is allowed. The Indonesian growth rate of 7.1 percent in 1971-84 has been reported to be actually 4.0 percent when the depreciation of three resources i.e., petroleum, timber, and soil were taken into account [Warford and Partow (1989)].

Pakistan has a history of subsidising agricultural inputs. Although none of the agricultural inputs were subsidised during the early 1950s, the process was initiated in the second half of the decade by subsidising chemical fertilisers in order to popularise their use [Niaz (1984)]. The list of subsidised inputs and the rate structure of the subsidies were expanded considerably throughout the Sixties. Towards the end of the Sixties, it was noted that almost all the agricultural inputs including fertilisers, insecticides, seeds, irrigation water, tubewell installations, and the operation and purchase of tractors and tractor-related equipment were subsidised in one form or another [Aresvik (1967) and Kuhnen (1989)]. In the 1970s, some curtailment of subsidies occurred as a result of input price increases which followed the worldwide recession, a major oil shock, the credit crunch, the war with India, and the consequent steep devaluation of Pakistani Rupee [Chaudhry (1982)]. Although the subsidies had survived the onslaught of the Seventies and tended to persist on most inputs, the government became totally committed to their removal beginning with the 1980s, under pressures from the IMF and the World Bank [Government of Pakistan (1980)]. As a consequence, there was a total withdrawal of subsidy from seeds, insecticides, tubewells, and tractors. A phased-out withdrawal of fertiliser subsidy, culminating in 1984-85 in the case of nitrogenous fertilisers and in 1989-90 in the case of phosphatic and potash fertilisers, was also to be undertaken [World Bank (1986)].

The need for effective .project planning in the farmework of macro planning has always been very strong in Pakistan as projects form the basis of development. Without the successful execution of projects, it is unlikely that development plans could be implemented effectively. In Pakistan an elaborate machinery for the planning of development projects exists but its prformance has been far from satisfactory. If one has to write the porject history of Pakistan, one wiII come across numerous examples of projects that have failed due to the ineffecient functioning of this machinery. Needless to say these failures have cost the economy billions of rupees, which in a capital-scarce economy like Pakistan, would have made a substantial difference towards economic development had this machinery operated efficiently. The objective of this paper is two fold: first to indentify shortcomings and weak links in the project planning system which are responsible for the failure of most projects. Failure here refers to the lack of implementation in time and within the project's planned budget estimates. And second, to suggest appropriate remedial policy measures. Experience has shown that the process of project planning and implementation in the country has suffered from inherent problems ranging from conceptual differences about the projects, hurriedly prepared feasibility studies deficient in proper technical and. economic underpinnings and the lack of basic information obtained through insufficient investigation and surveys to inadequate project monitoring and almost non-existent in-depth evaluation studies.

The paper attempts to estimate social rates of return in Pakistan's large-scale manufacturing sector. As cut-off rates, they can help in the selection of public and private sector projects and can also be used as' estimates of the Accounting Rate of Interest (ARI) which can then be used as test discount rates in the economic analysis of projects. In the context of Pakistan, our study makes an important contribution in that whereas the discount rates hitherto used in the country for an economic appraisal of projects have all been determined arbitrarily,1 we, in this study provide first ever rates that have been arrived at empirically. For example, the discount rate used in both private and public sector investment projects for a considerable period of time was arbitrarily fixed at 12 percent. The reason given for choosing this estimate was that it was based on the rate used by lending institutions on the loans they advanced to various development-oriented agencies. The Fifth Five Year Plan (1978-83) raised this rate to 20 percent for the industrial projects which were to be undertaken in the public sector because it required this sector to generate more funds [9]. Also, during this period, it had been decided that a cut-off rate of 15 percent would be applicable to private-sector industrial projects because the private sector investors complained that if the higher figure of 20 percent was used as a discount rate, then the Bruno Ratio, which measures the domestic cost of saving one unit of foreign exchange and also serves as a criterion of profitability, would decrease to such an extent that the project would become unprofitable.