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June 20, 2019

Charter of economy must to implement harsh reforms

Business

June 20, 2019

LAHORE: Pakistan needs a new social order to strengthen the share of labour in the GDP that is declining with increase in automation, job transfers due to globalisation and wakening role of trade unions.

The ambitious economic agenda of the present government is unlikely to succeed without taking on board all political parties commanding some vote bank. There should be a broad based consensus on the way to take the economy forward.

Presently, the government has opened numerous fronts, both in the political arena and on the economic front. After the presentation of the budget, the traders are unhappy, the exporters are in agitation mode, the real estate players are protesting!

The salaried class is appalled by higher tax rates imposed on them. The previous government enhanced the tax exemption of salaries class from Rs4.8 million a year to Rs1.2 million. It was a lavish favour that the country could not afford. In this budget, the minimum taxable income was reduced from Rs1.2 million to Rs600,000. But the tax slabs have been increased and enhanced substantially starting with five percent to beyond the rate of corporate tax.

It would have been appropriate to restore the tax rate prevailing in 2017-18, instead of instead of further increasing the tax rates at a time when employers are not only reducing jobs, but many are decreasing salaries.

The domestic industries are reeling under the pressure of extremely high power and gas tariff (at least in Punjab). The rates of imported inputs have also increased substantially.

At the same time the demand of products in the market is waning because the consumable surplus of middle class (the main consumers) has declined. The government may attribute difficulties on the economic front on the previous governments, but ground reality is that the electorate has come under severe stress in the last 11 months.

The economic planners might have taken some necessary measures to boost the economic outlook, but execution of these measures would require peace and harmony. All stakeholders have to be convinced and brought on the same page to ensure realisation of economic goals.

If the traders and industrialists start agitating and get the support of opposition, there would be chaos which was not good for the economy. The economic managers cannot take back any of the measures they announced to increase revenues.

They will have to neutralise the pressure of the businesses by taking the opposition into confidence. Economic managers of this government should brief the main opposition parties on the state of the economy and the much needed harsh measures to correct the distortions in the system for good.

This could be achieved if the government lets the courts and law tackle corruption cases of opposition stalwarts instead of fuelling confrontation through statements even before the court verdict.

Besides the charter of economy, the charter of democracy is essential. Backlash on budget proposals was despite the fact that the stakeholders were taken into confidence before the presentation of the budget.

The five sales tax exempted sectors were convinced that the zero-rating would be withdrawn, but now they are up in arms against the government. These agitators would become fodder for the opposition politicians if government does not take them on board when deciding economic affairs.

We should not let the reforms dilute fearing chaos.

When Manmohan Singh introduced similar reforms in India, as Indian finance minister, the then Indian prime minister Narasimha Rao asked him about the impact of those reforms on elections.

He told his PM that the party would probably lose the election. And the Indian congress did lose the elections, but the succeeding government did not reverse the difficult measures introduced by the previous government. Since then the Indian economy has been on a growth path.

It is unfortunate that whenever harsh reforms are planned in Pakistan, the opposition sides with vested interests in street agitation and strikes. The same party that tried to introduce reforms sides with vested interests when its opposition forms government.

This is because there is no charter of economy among politicians to agree on a minimum economic agenda. This time around very harsh measures have been announced in the budget, but trouble is brewing on both political and business level that may create chaos unless politicians are on one page. If chaos persisted for long the economy would be more bruised.

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