Economic revival

LAHORE: Pakistan needs a courageous duo like Manmohan Singh and Narasimha Rao of India who in 1991 liberalised the Indian economy, allowing it to speed up development by dramatically introducing painful but transparent reforms.

It is said that when Singh took the reform agenda to the Indian Prime Minister Rao, he assured him that these reforms would take India to new heights. When Narasimha Rao asked if it would help the ruling congress in elections, Singh bluntly warned that the electorate might boot congress out of power because reforms in the short run would be painful. He said in the long run the reforms would benefit India and its masses immensely. The Indian PM gave a go ahead, endangering his chances in the next election. The congress lost elections and is still struggling to regain power, but India is now a global economic force.

The 1991 reforms introduced by India were similar in some respects to those introduced a little earlier during the same period in Pakistan. But there was a difference: the Indians, while opening the economy, plugged loopholes that could encourage corrupt practices, but we opened gates for whitening of black money by allowing foreign remittance of any amount without questioning the source. That law was repealed by the PTI government after 30 years. Pakistan is awash with black money and smuggled goods because of that law. We definitely needed a liberalized foreign exchange regime but not a license to businessmen to whiten money they accumulated by escaping taxes.

Would the next prime minister of Pakistan muster the courage to go for extremely difficult decisions at the risk of his and his party’s political future? Will he give a free hand to a genuine finance minister to go ahead with reforms without fear or political considerations? Finding a suitable finance minister would also be a problem. All political parties lack a man of vision on economics in their cadre. Most operate on their whims irrespective of the ground realities. We have seen that in the past five years we tried four finance ministers, barring one. All initially resisted IMF, making things more difficult for the masses. When there was no recourse, they accepted more stringent IMF conditions than while it offered initially. Only one, Miftah Ismail, was prudent but is out of favor with political parties.

Let us see what actions Singh took immediately after assuming the office of Indian finance minister. Singh, after getting approval of his prime minister, immediately devalued the Indian currency. This involved a two-step devaluation program, coordinated with the Reserve Bank of India (RBI). The currency was initially devalued by 9 percent against major currencies, followed by an additional 11 percent devaluation two days later. It was perhaps the largest ever devaluation of Indian currency in one go. This move bolstered trade and international market transactions.

The introduction of a new industrial policy in the 1990s proved to be a game-changer. This policy eased certain provisions of the Monopolies and Restrictive Trade Practices Act, making it simpler for businesses to enter the market and undergo restructuring through mergers and amalgamations.

The policy dismantled public sector monopolies in numerous sectors and introduced a policy permitting automatic approval of foreign direct investment up to 51 percent, as opposed to the previous cap of 40 percent for foreign equity investments. Furthermore, it abolished licensing requirements for all industries except 18, regardless of their investment levels (akin to our SROs and exemption). The corporate tax rates were raised by 5 percent to 45 percent, and introduced tax deducted at source for specific financial transactions.

Thirty years back these were difficult decisions but in Pakistan’s case there is a need for much harsher, prudent and fair measures to ensure a better future for our next generation.