BOOSTING GDP SIZE & GROWTH RATE
FOCUS ON AGRICULTURE CAN HELP IN ENHANCING PRODUCTION AND BUILDING MODERN STORAGE FACILITIES TO SAVE ONE-THIRD OF THE PRODUCE THAT GOES STALE AT PRESENT.
SHABBIR H. KAZMI
June 18 - 24, 2012
Pakistan has achieved little in terms of gross domestic product (GDP) size and growth rate. The officials attribute the dismal economic performance to reasons including volatile political situation, changing geopolitical realities of the region, rising cost of energy, and shrinking purchasing power of individuals. However, cynics strongly believe that our present state is a progeny of inept governance and all other justifications are to divert direction from the original problem.
To begin with, they say that only one-fourth of the economy is documented and the remaining three-fourth is not. This statement gets some credibility when one looks at the total number of taxpayers in the country. Since some of the segments continue to enjoy tax exemption, it is much easier to evade tax by clubbing income from various sources into those, which continue to enjoy tax exemption.
It is said that 65 per cent population of the country is involved in agriculture sector but tax collected on income from agriculture is negligible. While prices of agricultural produce are on the rise, overall tax collection from agriculture is on the decline.
Until recently, the misperception prevailed that income from agriculture was tax exempted but now it has been proved beyond any doubt that provincial tax collection regimes have been failing miserably in collecting tax from feudal lords, enjoying access to power corridors.
Estimation of tax evasion by the feudal lords is possible if the tax collection regime just focuses on growers of wheat, rice, cotton, sugarcane, and oilseeds and owners of orchards.
This year financial institutions are likely to disburse nearly Rs300 billion among the farmers, bulk of which will go to feudal lords. This agri-credit is usually used for procurement of seed, fertilizer and agricultural implements. The credit disbursement amount can be used as proxy to work out overall value of the agriculture produce. If one adds to this the turnover in livestock, milk, poultry and seafood, the emerging numbers would turn up mind-boggling. This leads to a point that by achieving higher documentation alone, the size of GDP can be enhanced manifold.
However, to encourage greater documentation, applicable tax rates have to be brought down significantly. Around the world, it has been proved that higher the tax rate, higher is the evasion. Experts are of the opinion that if a flat rate of three per cent income tax is charged and no questions asked for the first five years, overall revenue collection can be doubled. One of the recent examples is that the government imposed tax on capital gains made in the stock market and also introduced a cumbersome calculation procedure. However, the overall collection plunged because trading volume almost dried up.
Around the world stock, markets thrive on trading volume and only five per cent of the total trade comes for the final settlement on daily basis, and Pakistan was not an exception.
It is beyond comprehension how GDP growth rate of a country suffering from worst energy shortage can be boosted up? The guiding principal is 'uninterrupted supply of energy products at affordable cost'. However, industrial sector despite paying very high tariffs does not get the required quantities of electricity and gas. While electricity pilferage is rampant and receivables are on the rise, any hike in tariffs can't improve cash flow of the utilities.
One of the most obvious examples is that gas supply to fertilizer manufacturing plants is being curtailed and diverted to power plants. The real loss has been reduction in urea production by 1.2 million tons. Instead of exporting the surplus production, the country was forced to import 1.2 million tons urea, eroding foreign exchange reserves and forcing the government to pay billions of rupees subsidy on the imported urea.
According to certain estimates, nearly one-third of total agricultural produce goes stale because of poor farm to market roads, inadequate logistic, and storage facilities. If this waste can be contained, not only income of growers/farmers will be increased, but export of these products can also fetch extra foreign exchange. It is highly regrettable that due to war on terror being fought in northern parts of Pakistan, bulk of the fruits just could not be brought to the market.
According to some recent studies, experts have suggested doubling of lending to farmers. However, unless two hurdles 1) limited outreach of financial institutions and 2) risk hedging of the loans are not overcome, the objective will not be achieved. Experts also say that there is also a need to bring change in the mindset of bankers, who are still reluctant in lending to farmers. It is on record that in the recent past some of the commercial banks preferred paying penalty for not extending loans to the farmers. However, with the entry of microfinance banks, it is expected that more funds would be made available to the farmers.
Farmers say that the interest rate being charged on loans extended to them is exorbitantly high. Financial institutions charge higher interest rates because crops are exposed to natural calamities. However, this risk can be mitigated by introducing comprehensive crop insurance scheme.
Experts also say that due to highly porous borders a significant quantity of agricultural produce is smuggled to neighboring countries. Some of the favorite commodities of the smugglers are wheat, fertilizer, rock salt, dry dates, and even petroleum products.
It is feared that this year nearly half a million tons sugar was smuggled out of Pakistan. Had all these commodities exported through official channels, millions of dollars could have been earned.
There is a growing consensus that achieving higher value addition can help in increasing income of farmers that will enable them to use better seeds, apply appropriate dosage of nutrients, and even go for mechanized farming. Increase in production of cotton and sugarcane can improve capacity utilization of these agro based industries and help in poverty alleviation and containing migration of people from rural to urban areas.