TATA BUSES TO PLY ON KARACHI ROADS
SHAMIM AHMED RIZVI, Senior Correspondent
Oct 01 - 07, 2007
The automobile and allied industry in Pakistan has developed at a highly impressive rate during the last 6 years because of liberal and pro-industry policies of the government. The leasing and car financing schemes launched by commercial banks has also contributed a lot in creating fresh demand for vehicles promoting manufacturers to enhance their production capacity through additional investment to expand their plants. As a result the on an average production of vehicle has gone up by almost three and half times during the last 5 years as in evident from the following chart.
VEHICLE PRODUCTION IN PAKISTAN
Figures in units
Plan under the Auto Industry Development launched by the government in March last vehicle production in Pakistan would reach about 1.5 million by 2010.
The Economic Coordination Committee (ECC) in its meeting last March approved the long term Auto Development Policy aiming to increase the production of cars and trucks from 200,000 in 2006 to 500,000 in 2011 and motor cycles from 600,000 to 1 million during this period with an additional investment at about five billion US dollar in auto industry during the next five years. The long-term auto policy was originally drafted by the Engineering Development Board (EDB) after a series of meeting with stakeholders and then vetted by the Ministry of Industry before submitting to the Prime Minister for his approval.
Before ECC approval, the Prime Minister Shaukat Aziz had reviewed and discussed the draft policy in a meeting attended by the federal Minister for Industries, production and special initiatives, Jahangir Khan Tarin, Deputy Chairman, Planning Commission, Dr. M. Akram Sheikh, Chairman Engineering Development Board, senior officials and leading automobile manufacturers. Mr. Tareen made a presentation about the salient features of the policy. He said the important pillars of the policy include a five year tariff plan, human resources development plans, auto cluster development, technology acquisition support, incentive for higher value indigenization, penalty for not achieving the further indigenization and institutional mechanism including industry representatives for regular assessment and review of progress under the policy.
Cumulative production and sales figures for the first three quarters of current financial year (to March 2007) were 146,600 vehicles ñ up by approx 8000 vehicle during the same period last year. This is in spite of the impact of almost 60000 used vehicles imported last year. This indicates an annual increase of 5% in the capacity of local market, which seems to be sustainable.
However, it does not mean that all is well with the targets set in the AIDP. It was recently reported in the media" that the bankers were finding it difficult to make recoveries of the stuck up consumer loans of Rs. 10 billion against the recently financed 15000 cars. Low interest rates, easy credit availability until recently was the big factor in the recent boost to auto sales. Now that the pent up demand has been met; bank interest has started to rise, and the disposable income of the consumers has begun to shrink because of high inflation, there is a big question mark on the ability of the market to maintain past momentum.
The current economic scenario of the country has begun to cause some concern to economic managers. There is a net trade deficit of $ 12.5 billion at the end of financial year 2006-07. Government's deficit financing on the current account has reached alarming proportions and the unemployment seems to be getting out of hand. All of these key indicators do not augur well for the planned level of nation's GDP to be achieved.
The expansion of auto market is largely dependant upon the higher disposable income of the middle class consumers. The prevailing inequitable system of wealth of distribution and unjust taxation system with high proportion indirect taxes are increasing the prevalence of poverty in the country. There are no visible effect of recent improvements officially claimed in the balance of payments, foreign exchange reserves and GDP on the vast majority of the poor and middle class people in the country.
According to an economy survey, some 25% of Pakistan's population is "absolutely poor", next 30% people are "not so poor", with income of less than $ 1.15; the next 30% are "middle class" earning less than $ 3 and next 12% are "well to do" with an earning of $ 7.5 a day. Thus 85% of our population lives at a subsistence level of Rs.5400 a month and another 12% live a little better on a monthly income of Rs.13500.
According to the above survey, there are about 5 million people in the country, who may be called "rich", with an average income of $ 1666 (100,000) per month. These facts and figures may be reflective of the official data, while the actual ground reality may be quite different. Number of people filing the tax returns is only 1.5 million out of the estimated population of 160 million ñ not even 1% of the population. Our tax to GDP ratio is one of the lowest in the world because the rich feudal class do not pay any taxes, while the members of armed forces and other privileged classes enjoy several tax exemptions and pay tax at a very low rate.
In order to attain expansion in the production capacity of cars to 500,000 in the next five years, it is imperative that necessary steps be taken by the competent authority in order to enhance the disposable income of the middle class of a sustainable level, to increase the effective demand to buy higher volume of automobiles.
In the first three quarters of 2006-07 of the current financial year, the cumulative production and sales of Trucks was 3300, the same as last year. The number of Buses produced and sold were 627, which was 20% higher than same period of 2005-06. The installed capacity of trucks in the country is 25,000 and that of buses is 17000 units. It is a pity that the current capacity utilization is hardly 17% for trucks and just 4% for buses. In this background, it is heartbreaking to read the recent news report that Karachi District City Government plans to import 4000 CNG buses from India manufactured by TATA, out of which the first batch of 250 buses have already arrived in CBU condition.