No relief till stabilisation!

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PRIME Minister Imran Khan, on Monday, expressed his inability to immediately ease tight monetary and fiscal policies and withdraw the Computerized National Identity Card (CNIC) condition amid industrialists’ concerns that more industrial units can become sick due to prevailing conditions. A delegation of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) met him to seek urgent relief to save the industries but did not receive positive response on the plea that at this stage no relief can be provided due to ongoing economic stabilization policies.
The points raised by representatives of the industrialists were quite relevant and have much to do with the prevailing economic recession, therefore, it was expected that their concerns would evoke a favourable response from the Government. According to reports, the industrialists placed three main demands before the Prime Minister — cut in peak high interest rate, reduction in energy prices and withdrawal of CNIC condition on purchase of over Rs 50,000. With the exception of the last one, which is related to documentation of the economy, therefore, must not be compromised for vested interests, other demands were genuine. It is intriguing that all over the world the interest rate is kept to the minimum as part of the policy to ensure ease of doing business and reduce the input cost but in Pakistan this has been increased to as high as 13.25%. No one knows whose interest this high rate is serving except allowing banks to have windfall profit without passing it on to their clients and account holders. Similarly, how industry can become viable in the face of ever-increasing rates of electricity and gas besides their chronic shortages that affect production and push the cost of production up. An analysis of the power bills would reveal that rates of electricity are almost doubled for same units for the month of December 2019 as against the same month previous year. Upward revision of power tariff to recover high technical and line losses amounts to penalizing consumers and rewarding incompetence and inefficiency of the discos. There is also gas load-shedding for industries these days and seven industrial associations of Karachi held protest on Monday outside the offices of the Sui Southern Gas against gas shortages attributing them to the incompetence of the federal government. The delegation of the FPCCI legitimately pointed out that if the Government did not immediately remove irritants, the industrial units, which are already running at 40% of their capacity, may start failing sick. The plight of the industry is reflected in what happened to the auto sector for which first half of 2019-20 proved highly disappointing as car sales plunged by 43.2 per cent to 59,097 units, from 104,038 in same period last year. Analysts say one of the reasons of slowdown in sales was high car prices as assemblers passed on the impact of federal excise duty of 2.5-7.5pc and additional customs duty on imports of parts, while steep interest rate of 13.25pc further hurt the already ailing sector. The massive devaluation of rupee also forced the companies to jack up prices and as a result cars are going beyond the reach of the people. Under these circumstances, it is apprehended that foreign companies, which earlier showed keen interest to launch new ventures or expand the existing one might reconsider viability of their projects. Economic stabilization should not mean just cutting expenditure and squeezing the existing tax-payers to pay more as such a policy has its own ramifications for business and industrial activities. Instead, stabilization should be achieved by providing maximum relief to businessmen, industries and the agriculture sector. Why to insist on keeping the interest rate high when the central bank itself has acknowledged in its latest report that “a number of industries within the large-scale manufacturing struggled with inventory build-ups amid rising input costs during the quarter. With gross margins squeezed and financing costs rising, firms scaled back their operations to save their bottom lines from dropping further”. As most of the inflationary measures have their origin in IMF conditionalities, people rightly believe that IMF programme is a bane and not boon. The leadership has repeatedly claimed that 2020 would be year of relief and growth but insistence on continuation of the existing approach contradicts this cherished objective.