NAY MORE, LSM CAN BOOST UP GDP
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
July 21 - 27, 2008
The importance of large scale manufacturing sector in domestic as well as in international trade can not be denied for its capability to shore up country's foreign exchange reserves and to give impetus to economic activities leading to bulky gross development product. On one hand the proper utilization and management of scale of production of this sector can bring up products in surplus for exports and it can generate multitude of employment and investment opportunities on the other.
Nay more, as in Pakistan sufficient numbers of manufacturing sectors give large scale of production parallel focus on each can multiply the share of LSM in total gross development product, and too get the exchequers rid of unnecessary import loads.
History has not done justice with the few sub-sectors of large scale manufacturing; therefore, their growth rate has either experienced stagnation or slide downwards gradually. What indeed had been in practice in past was preferential treatment to selected segments while others succumbed to neglect and started recording negative growth rates. Rather few manufacturing expertise has never been untapped in its actual sense in all successive governments.
Overleaping all these, however, the growth of LSM in last fiscal has persisted year on year momentum. Not only during July-April 2008 that witnessed 4.7 percent change in growth of LSM but indeed in a span of nine years from fiscal 1999 to 2008 did LSM exhibit cumulative growth average rate of 4%, which is at satisfactory level if aggregate growth of entire large scale manufacturing accounts for. Its contribution of Rs. 7 trillion in real gross development product of Rs. 54.9 trillion in last fiscal was the highest among counterparts such as small scale manufacturing, mining and quarrying, and construction in the industry.
But, alarm rises on estimating the separate shares of the red zones moving downward on the growth trajectory determining percentage change in growth of LSM during the aforementioned period. These red zones namely automobile, fertilizers, metal industries, and electronics have some of the manufacturing hallmarks started depicting negative growth rates during almost a year.
Items manufactured in some of these sub-sectors of large scale manufacturing are relatively consumed locally to have been propping up real GDP of the country, and made main input sources for the allied industries nonetheless their incapacity to meet local demands let alone to provide surplus. Till April of last fiscal negative growth for manufacturing was shown in automobile (0.1%), tyres and tubes (4.1%), electronics (3.2%), metal industries (8.3%)-despite production capacity enhancement of Pak Steel, billets production was reversed by 18.3%-, and fertilizers (12.2%).
It is worthwhile to remember that due to emergence of competition in electronic media services people got to change in their buying patterns and above all consumption of income on buying electronic gadgets increased manifold. Contrary to this would become a good sign for local manufacturers of electronics items, psychographic dynamics shuttered on flood of imported gizmos to have undermined local production of electronic items; benefits of the turnaround seemed to be overshadowed.
While in a subsequent effect local manufacturers obtained a chance to augment capacity of producing TV sets, which till April 2008 revealed 17.5% growth, they suffered setback in other items like deep freezer and electric transformer, production of which moved backward by 10% and 34% respectively. Barring them, manufacturing of refrigerator, TV, Air conditioner, fans, etc. grew positively. Yet overall result of electronic production hinged on negative position paradoxically. Thus, its ratio of contribution in real GDP automatically recorded decline.
Beleaguered within the disharmonious polity, people around the country had began undergoing fuel price hike vivisection last year, precipitated lately, and showing annoyance over out of market practices of charging extra money on four wheeler. As expected, this resulted in decline in production of automobiles. During July-April 08, large scale manufacturing for cars and jeeps registered reverse growth trend of 5% while for tractors it was of 3.2%. Still, government prefers subsidizing imports of tractors instead of accoutring industry with the required facilities to manufacture tractors locally, which is comparatively convenient and cost-cutting measure.
It is surprising to note that while agriculture sector of the country is performing satellite source of inputs to various trade and industry its essential input needs are fulfilled through imports, causing outflow of foreign reserves across the border. Ranging from DAP, fertilisers, pesticides, to tractors and harvesting machineries, local industry has not been self sustainable in to abridge local agrarian demand supply gaps, inevitably forcing import bills up. Manufacturing of fertilizers (phosphatic, nitrogenous) in the country is not enough quantitatively and qualitatively to quash expenses on purchasing fertilizers from abroad. The local production of fertilizers has also gone into negative side last fiscal. It recorded 12.2% negative growth rate as compared to preceding year.
Textile group, which is the vital export revenue generator for Pakistan, is too prominent a cause of elevating and maintaining growth rate of large scale manufacturing sector year on year and a principal shareholder in real GDP. Though imports of inputs in this sector reduce the volume of trade surplus to approximately $2 billion achieved by the textile group, its overall consistency in progress until yet provides great sustenance to balance of trade as well as to GDP. In terms of GDP's share, textile group has surfaced as a largest contributor in LSM by showing 2.5% change in growth.
In Pakistan, large scale manufacturing occurs mainly in textile, automobile, food & tobacco, metal industries, petroleum products, fertilizers, pharmaceuticals, electronics, chemicals, non-metallic minerals, engineering items, leather products, paper & board, tyres & tubes, and wood products. Well versed is the fact that there are few pitfalls in availing full potentials of large scale as equal support to all sub sectors calls for availability of prerequisites like technology and cost efficient mechanism. But, negative growth can be turned into positive if preference to indigenization is given. For this overriding strategies on the basis of circumstances should be chalked out. Advisably, current ruling economic team does not repeat the mistakes of predecessors by bestowing preferential treats to selected trade and commerce.