June 16 - 22, 2008

Throwing prioritized industrial developments of predecessor's era on backburner, financial proposal of this government has realigned sectoral development direction with a new startup, embarking on afresh experimentation modus operandi for economic rebuilding.

Having effected by the Finance Bill 2008, federal budget proposal for upcoming fiscal 2008-09 has turned policy makers' steep inclines and tapped on special incentives towards hitherto arguably neglected sectors of agriculture, livestock and dairy, and textile, vindictively brushing aside supports given to telecommunication, automobile and allied, and real estate sectors, which have been accounted for main agents of economic growth in the last governing system. Stock markets too have been misperceived as barometer of economic growth. In reality, capital doubled and tripled via stocks trading have rarely landed in expansion of industries. This budget seems to intentionally avoid poke at several throbbing nerves of the economy. Perhaps investment in stock markets is one such nerve that could be ruptured by any little hit.

For the welfare of people real progress in former sectors albeit is very important, a balance had to be maintained and exploited to equitably shower windfalls branched out of progressive later group on to large [deprived] sections of the society.

Even if corrections in earlier industrial polices were needed neutral and amicable approaches by this government to deal with the economic flaws might carry different priorities along on the growth trajectory of social and economic prosperity. However, the financial proposal has disclosed the government continuing dependence over the previous government's revenue generation avenues.

Like by increasing in GST, which has been a major source for revenue collection, the government has planned to keep ballooning general sales tax structure. In fact, storm of new federal excise duties on cement manufacturing, telecommunication services, development surcharge on CNG and LPG operators, and especially revised upward petroleum development levy, and tax on local automobile above 850cc would be proved as stumbling stones in the progress of these sectors as well as catalysts of consumers' vagaries.

In a context of unfriendly national tax structure, government evolving policy and operational framework to attract private investments in development works may fail in producing desirable results. Private investment remains an important booster of economic development. It is equally unfortunate that large tax units of the country do not come up with significant tax revenue. But, it should also be considered that double taxation system extensively adds to alienation of serious corporate tax payers. Without friendly industrial policies and prevailing financial insecurity, private investors may unlikely to give sustenance to government's economic development efforts. The need is to strike out exasperating provisions of present tax structure in order to tame back tax evaders into the tax network. In addition to this and most importantly, it is commonly observed burden of tax is readily passed on to final consumers of products. Since every new tax whether on corporate turnover results into new episode of price hike a comprehensive strategy framework must also be chalked out to curb buck pass-on.

The financial budget 2008-09 has proposed magnitude of incentives for the agriculture sector and for inter-related activities while only those manufacturing sectors that depend on agrarian outputs are incentivized. Foreign investors will be provided large tracts of land for inducting modern agrarian technology. Improving in cultivable areas is planned with the help of foreign assisting bulldozers import; whereas present practice of occupying unlimited land tracts by landlords is not paid heed in the financial proposal. Subsidy on DAP is proposed to increase from Rs. 470 to Rs. 1000 per bag. Similarly, subsidy on fertilizers also increases from Rs. 25 billion to Rs. 32 billion.

During the next fiscal year, an additional amount of Rs30 billion will be provided to agriculture sector in addition of total credit of Rs. 130 billion. Exemption from 10% custom duty on rice seeds, 5% FED on premium of crop insurance, reduction in custom duty on polyester staple fiber from 6.5% to 4.5%, reduction in custom duty on import of buckram from 25 per cent to 10 per cent are mainstay advantages for agriculture sector in the budget. In order to protect local manufacturers of sewing machine parts and components custom duty on import of sewing machines is increased from 5% to 20% while import duties on raw materials, parts and components of these industries are proposed to be reduced to 5% and 10% respectively.

In live stock sector, Rs. 1.5 billion is allocated out of PSDP outlay for livestock production, veterinary services for livestock, milk collection and processing, and establishment of an integrated national animal and plant health inspection services facility.

In contrast, a tariff line to attract 15% extra duty on auto parts manufactured locally would continue. However, it does not make any sense of government considering 1000 cc local car a luxurious item and levying annual tax on it.

It is also proposed to increase the rate of FED on telecommunication services from 15 per cent to 21 per cent, which is collected in VAT mode. While revamping of infrastructure and resolving of energy crisis are presented to be main thrusts of the budget, no separate allocation for utilizing alternative energy techniques for electricity generation is proposed in the budget speech. Indeed, conservation and line loss elimination are boasted to altogether make available 1500 MW.

Well comprehending excessive borrowing from the central bank causative factor behind food inflation, this government has planned to resort to analogous method of public funding for meeting budgetary deficit in next fiscal. Despite of less inflationary aftermaths the proposed method beholds, this would be like changeover. What is the difference between these two modes of debt creation? Are not both meant for debt monetization, excess of which is said to be impeding genuine monetary circulation in the country? Above all, having targeted new sources for revenue generation in the financial proposal, will the government need any further indulgence into non-monetary transactions to contain proposed fiscal deficit at 4.7% of GDP?