LAHORE: Lack of coordination between ministries connected with the economy has been one of the major reasons of policy failures in the past, as it slows and delays the implementation process.
The main economic ministries are Ministry of Finance, Ministry of Commerce and Industry, Ministry of Water and Power, and Ministry of Petroleum and Natural Resources. The trade and industrial policy comes under the domain of the Ministries of Commerce and Industries. The Ministry of Environment should also be the integral part of the ministries connected to the economy, and no new industrial estate should be established until it has installed an environmentally approved water treatment plant.
It is the duty of these ministries to ensure fair and level playing field for the domestic industries. They also have to ensure that domestic industries have smooth supply of both electricity and natural gas.
To achieve this aim they must closely coordinate with the Ministry of Water and Power. Any disturbance in supplies of these to inputs to the local industry must be intimated to the users through the Ministry of Industries.
The load-shedding schedule, if any should also be communicated through this ministry. The Ministry of Industry should in fact be consulted before formalising the schedule of load-shedding.
It may ask the power sector to curtail supplies when gas is available for the industries to produce power. This again means close coordination of the Ministry of Industries with the Ministry of Petroleum and Natural Resources.
The trade policy comes under the domain of the Ministry of Commerce. The ministry is supposed to announce incentives or subsidies to boost exports after assuring availability of funds with the Ministry of Finance.
Past experience reveals that the incentives are announced, but the Ministry of Finance fails to release the required funds in time or even withholds all the funds. The industry bases its export prices on the basis of incentives and cuts its original margins to boost exports. But when funds are not released by the Ministry of Finance, the exporters face cash crunch, and exports gradually slow down while this withholding of genuine refunds prolongs into years. It is the mandate of the Ministry of Commerce to fix duties on imports. It has to fix duties on finished products in consultation with the stakeholders. It also has to seek the help of the Ministry of Industries in this regard. This is necessary to protect the domestic industry from foreign products.
Unfortunately, this power of the Ministry of Commerce has been taken by the Federal Board of Revenue (FBR) that works under the Ministry of Finance. Duties and taxes on imports are fixed on the basis of revenue needs of the government and not the needs of trade and industry. The ministries of industry and commerce are more competent to evaluate the import tariff price of finished imported products than the FBR that tends to accept the under-invoiced value of the importers. Incidentally, the same FBR charges the same percentage of sales tax on locally finished products that is five to ten times higher than the sales tax paid by under-invoiced imported finished products.
This should be an eye opener for the tax officials. The ministries of commerce and industry when evaluating the value of imported finished products would keep the aspect of sales tax in mind.
The FBR should in fact seek guidance of these ministries on import matters. Pakistani exporters contribute billions of rupees every year in export development fund that legally should be in the control of the Ministry of Commerce, but the fund is managed by the Ministry of Finance that releases small instalments to the relevant ministry.
The fund should be directly available to the Ministry of Commerce so that it could withdraw funds for development without approval of the Ministry of Finance. Historically the economic ministries in Pakistan have worked in isolation, resulting in skewed implementation of even laudable policies. The Ministry of Finance always enjoys an upper hand in this regard.
It was during a brief period in Musharraf era when the Minister for Finance Shaukat Aziz, Minister of Commerce Razzak Dawood, Mister of Privatisation Altaf Saleem, and Governor State Bank of Pakistan Ishrat Hussain jointly visited trade associations and resolved inter-ministerial issues in those meetings. This resulted in record investment in the industrial sector in Pakistan. At that time (early 2000) Pakistan faced no power or energy shortages.