"It's true that the manufacturing sector in the country still revolves around the traditional low value added industries, whose share in world trade is continuously declining but there are other factors that are responsible for this decline. However, the industry was expecting relief as the cost of doing business was increasing with every passing day as a result of the depreciating rupee against the dollar and high energy cost including electricity, gas and petrol and cumulative impact of monetary tightening are responsible for poor showing of manufacturing in 2007-08."
By Munawar Iqbal
A recent report has shown that Pakistan's manufacturing sector recorded the weakest growth in a decade during the outgoing fiscal year 2007-08 due to several unfavorable conditions. The growth target have been lowered twice and overall manufacturing posted a growth of 5.4 percent during the first nine months of the fiscal year 2007-08 against the target of 10.9 percent and 8.1 percent of last year. The report further said that the large-scale manufacturing, accounting for 69.5 percent of overall manufacturing registered a growth of 4.8 percent in the current fiscal year 2007-08 against the target of 12.5 percent and last year's achievement of 8.6 percent.
Prior to budget announcement, some observers were expecting that the government would announce a comprehensive package for the revival of the industry and businesses which were under tremendous pressure owing to multiple reasons including inflation and energy shortage and Heightened political tension, deteriorating law and order situation as well.
It's true that the manufacturing sector in the country still revolves around the traditional low value added industries, whose share in world trade is continuously declining but there are other factors that are responsible for this decline. However, the industry was expecting relief as the cost of doing business was increasing with every passing day as a result of the depreciating rupee against the dollar and high energy cost including electricity, gas and petrol and cumulative impact of monetary tightening are responsible for poor showing of manufacturing in 2007-08.
We have witnessed that the investment in upgrading technology is low and diversifying into emerging markets, products and processes is either slow or nearly constant and an efficient international quality supply chain which is essential for local industry to flourish, is missing. Here it should have been a point to ponder for the government that banking and financial sector should have been activated to rescue the ailing industrial sector but no such thing has happened and as the industries lacks the cash-flow they were still unable to revamp themselves. Hence they were not able to compete in international market in a tough WTO regime.
The private sector also needs to adjust with new realities but primarily it's the duty of government to sensitize the industry regarding emerging trends in global market. Moreover, governments are also expected to provide enabling environment to its local industries, especially those sector that cannot survive without a certain level of protection from the government. The share of knowledge and technology intensive engineering, electronics, pharmaceutical, chemical and non-metallic mineral products, should be strengthened and enabled through fiscal and tariff means as well as building of alliances with international partners.
The observers are of opinion that the announcements made by the government in the federal budget 2008-09 can be ascribed as cosmetic measures. These circles say that the sectors and products with comparative advantage such as textiles, food and agro-processing should be fostered and the sectors like computer industry needed special care as the growth of the industry is vital for all economic sectors. Ironically government could not reach at a rational policy in this regard.
The government officials claim that the restructuring of the duty mechanism would benefit local industry. Duty rates on dairy products, fruits, chewing gum, chocolate, processed food, fruit juices, aerated waters, ceramic products, air-conditioners/refrigerators, electric fans, toasters, microwave ovens, televisions, including liquid crystal display, other, black and white or other monochrome, furniture and lighting equipment etc has been increased from 25 percent to 35 percent. Yes, government may collect some extra revenue but the measure would not benefit local industry till its being enable to get compatible both in terms of quality and price.
As the industry is on verge of collapse, it was being expected that the government would rationalize Sales Tax on various Industries. Keeping in view the fact that industry is struggling for its very existence, the government should have been curtailed the rate of sales tax from the existing 15 per cent to 10 per cent, as it had already been proved through various experiences that a cut in tax rate earns more revenue for the government. Moreover, the industries that need to be encouraged and promoted yet, the exemption of sales tax for a particular time period would have been a great help to restore the confidence of both the industry and investor.
But on contrary to it, the government has increased the sales tax instead of reducing it and this measure would be resulted as more horrible consequences both for the consumers as well as the industry. The government has claimed that due to revenue crunch, the rates of sales tax and FED have been increased but the industrial sector is not able to see any good is resulting out of this measure. Instead it would affect the revenue collection as it would prove another fatal blow for the industry.
*The writer is senior vice president of Islamabad Chamber of Commerce in Industry (ICCI) and the president of Pakistan Computer Association (PCA).
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Tayyab Ilyas
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