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Automotive industry in Pakistan lacks comprehensive policy

The automotive industry of Pakistan often attracts a lot of criticism for operating as a cartel and charging high price. There is an urgent need to bring down cost of production, boosting sale through soft-term financing and improving quality of roads for minimizing wear and tear. Indigenization is a positive policy but the objective just can’t be achieved without the focus of the government shifting to facilitator from tax collector. While assemblers enjoy access to power corridors, manufacturers of components suffers from neglect by the government. Developing a robust vendor industry can only help in progressive manufacturing, else the industry will remain assembler.

At present automotive assembling units enjoy substantial foreign investment, which provide them easy access to power corridors. As a result little success has been achieved on indigenization front. While assemblers are often accused for failing in developing dependable vendor units, only the successive governments can be held for discrimination among the assemblers and vendors for failing in adopting a holistic approach and fixing Specific, Measurable, Attainable, Relevant and Timely (SMART) goals. No rocket science is required to boost sales, it only requires coming up with a coherent policy and following it in letter and spirit. Developing a robust vendor industry is the collective responsibility of assemblers and providing them the level field is the sole responsibility of the government.

Role of automotive industry

Automotive manufacturers (inclusive of assemblers and vendor units) constitute one of the most important industries of the country because it: 1) enjoys one of the largest foreign investments, 2) contributes substantial amount towards the national exchequer, 3) plays a major role in the proliferation and development of light engineering industry 4) offers affordable personal transport and above all 5) improves the quality of life of Pakistanis. It can also earn huge foreign exchange by exporting completely built units as well as parts and accessories. A curb on smuggling of parts and accessories, imported under the disguise of scrap, will offer further impetus to the local manufacturers of parts and accessories. Achieving economy of scale can improve competitiveness of manufacturers of parts and accessories in the global markets.

Major contributor to national exchequer

Many of the analysts when estimating contribution of automotive industry just take duties and taxes on CKD and SKD kits and corporate tax into account. To estimate the real contribution it is necessary to add to this the levies/taxes collected on POL products, LNG, CNG and LPG and income collected from the employees of automotive industry. Let one point be kept in mind that every citizen of Pakistan, irrespective of his/her income paying tax imposed on petroleum products. On top of that owners pay billions of rupees as vehicle tax. Since its collection is provincial responsibility, hardly any consolidated data is available. It is feared that vehicle tax is amalgamated into ‘excise duty’.

Analysts go the extent of paying that if the provincial governments spent ‘vehicle tax’ honestly on the construction of infrastructure (roads, underpasses, flyovers) there will be no need to allocate any amount for the construction of roads and other ancillary facilities.

Focusing on public transport

Public transport is not only highly depleted, but totally incapable of catering the needs of commuters. Karachi has over 10% of country’s total, population but public transport is conspicuous by its absence. One can see highly depleted buses and minibuses running on the roads, which often cause most fatal accidents. The other common mode is CNG Rickshaws, which were initially introduced to replace two-stroke rickshaws. These are often term ‘lesser evil’ because in the absence of business and mini buses these have become one of the modes of public transport.

Bringing down cost of production

Without mincing words, it may be said that assemblers operate at below optimum capacity utilization. The biggest indicator of this ugly fact is the length of delivery period that extends beyond three months. This brings windfalls for the assemblers as well the authorized dealers. Even a cursory look establishes two points: 1) assemblers thrive on the payments received from those booking cars, to the extent that L/Cs for the import of kits are established using the money received from people booking the cars and 2) authorize dealers earn ‘on money’ from those who are not willing to wait for months but demand immediate delivery. According to a sector expert if delivery time is curtailed both the assemblers and authorized dealers will lose. Therefore, the practice has been going on from the period when automotive assembly was done by the companies operating under the state control. Operating plants at optimum capacity utilization will bring synergy that will help in ringing down cost of production. One of the suggestions is that import duties and taxes on imported CKD and SKD kits should be reduced to zero. Imposing duties can be termed ‘front loading’. There should also be no tax/duty applicable on buses, trucks, tractors and motorcycles.

Ensuring financing

Both the provincial and city governments have failed in providing an efficient and affordable public transport system in Karachi. Whatever little facilities are available are owned and operated by individuals. Analysts also fear that ‘Green line’ and circular railway will not provide any sustainable long term solution. The only solution is to allow the private sector to provide the solution. Following steps have to be taken: 1) allow creation of corporate entities to run buses on different routes to begin with, 2) provide soft-term loans to these corporate entities, 3) ask insurance companies to issue comprehensive insurance policies to minimize the expenses in case of any accident, 4) no import duty/levies should be collected on the vehicles sold by the local assemblers and 5) import of CBUs should not be allowed to protect the local assemblers. The residents of Karachi certainly deserve a better public transport system.

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