NO INCENTIVES

 Jun 22 - 28, 1996

The budget for 1996-97 has been declared purely 'revenue-driven' whereby more items have been proposed to be brought under GST which is a disincentive for the export oriented industries. Pakistan has an inelastic demand for imported goods and needs to enhance exports to support import of plant and machinery, intermediaries and raw materials to produce exportable surpluses, but the budget has failed to address the issue.

On the one hand, the government has failed to establish export processing zones in the country. Only one such zone is operating in the country but has failed to attract the investors mainly because of inconsistent and non-coherent government policies. Even the concept of 'bonded manufacturing facilities' has failed due to complicated policies and regulations. The procedure for duty drawback payments takes exceptionally long time and the system is corrupt.

These were the reasons why industry has been demanding 'no duty no rebate regime' in the country. But the country is so hungry for revenue that the planners just could not dream of introducing such a system in the country. As repeatedly conveyed by the media, there should not be any duty on the import of capital goods. The imposition of duty on plant and machinery automatically renders the local manufacturers un-competitive in the domestic as well as international markets.

It has also been felt that in this country the chambers are dominated by the traders and therefore the tilt of government policies is more towards increasing the import of finished goods rather than supporting the local industries.

It is also true that often the tariff on raw materials is so high that it is better to import the finished goods rather than manufacturing the same products in the country. The latest example was the tariff rate on plastic granules. The industry has potential to meet the local demand as well as exports but after payment of fantastic duties it is just not possible to compete in the international markets.

After the signing of WTO membership Pakistan is liable to open its market by removing tariff and non-tariff barriers. The textile industry has enjoyed tariff protection for the last over 45 years and sudden change in the policy has created problems for the industry.

In this regard the point of view of the industry to formulate anti-dumping laws in Pakistan must come as proper legislative change. If the importing countries have a right to impose anti-dumping duties on Pakistani products why should not Pakistan also discourage or stop dumping by foreign suppliers.

As many industries including textile, fertilizer (urea), sugar, PSF and automobile assembly have installed capacities more than the domestic requirement, efforts should be made to encourage export of more of the products produced by industries. The1996-97 budget does not provide any incentive to these industries.

It is high time the government redefined its policies. The country had started with import-substitution and many industries are now capable of exporting. The adhoc policies should be substituted with long-term policies.

Although the government has not announced the trade policy for the year 1996-97, it would be more appropriate that the government announced a 10-year policy as demanded by the business community. Although the government has announced reduction of duty on specialized textile machinery, it will take some time to avail of the real advantage of this change. It takes around a year to conceive a project, arrange financing, install machinery and commence commercial production. Most of the time, project development work in the country has suffered from short sightedness of planners, sudden changes in government policy and withdrawal of incentives before expirey of the promised period.

The reason the country could not come out with long-term policies is political uncertainty and weak governments. Change in policy needs political will, courage and commitment. Unfortunately, long-term commitment has been missing in the case of most of the governments. They have gone for short-term and short-sighted policies to achieve political gains.

If the introduction of Yellow Cab policy of Nawaz Sharif was bad, the same could be said about the Awami Tractor scheme. The first one, through import of CBUs, dented the auto assembly industry while the second one crushed the tractor assembly industry. The impact of Awami Tractor scheme was worse than the Yellow Cab - the tractor assembly units had achieved over 80% deletion and import of CBU tractors not only caused problems for the assemblers but, more importantly, also for the vending units which had no option but to shut down manufacturing facilities as there was no demand for the parts from the tractor assemblers.

The issue of trade with India is still lingering on. The discussion is more on the political implications rather than economic benefits. If the country needs a cheaper source of goods, India may be one such source but the topic for the business community in Pakistan to expolre is :does the country have the potential to export products to India?