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June 30, 2020

Planning without implementation is equal to zero

Business

June 30, 2020

LAHORE: The current Covid-19 crisis has sent almost everyone from common man to the industries/businesses to seeking bailout packages from the state, making the state look like the lender of the last resort – a term tied traditionally with International Monetary Fund bailout packages.

Yet most third world states are responding to the cry of their population and businesses without any conditionality or prudent use of government money. In Pakistan, we have unfortunately been doling out monthly stipends to the registered poor unconditionally.

This approach has kept the pool of poor enlarging each year as well as the budgetary allocation for this purpose. The countries that addressed poverty successfully like Brazil provided assistance to their poor conditionally forcing the recipients to either do community work or enrol the girls in school ensuring their 90 percent attendance monthly to qualify for dole out.

India provided assistance to its rural poor by engaging them for at least three months a year in government development projects. Both countries addressed poverty substantially while it is on rise in Pakistan.

In the same way, businesses and many industrial sectors were facilitated without any pre-conditions by the state in kind or cash to help them survive. No economic planner realised that unconditional investments do not lead to a resilient, healthier and productive economy.

To achieve this end, the government should also pitch in with some conditionality on the recipients ensuring that the private sector besides profit motives also operates in a way that promotes inclusive and sustainable growth.

We have seen our governments supporting corporations through tax exemptions, subsidised loans sometimes on government guarantees, and in case of emergencies like earthquake, floods and now Covid-19 even cash grants. This assistance in the past has come without any strings attached.

It was made available across a sector irrespective of the fact whether the stress in the sector was because of incompetence or due to market conditions. These concessions most of the time brought the sick business back to prosperity.

The prosperity gained on government assistance was rarely or almost never shared with the workers or for the improvement of the environment. Owners prosper on government concessions, while the plight of the workers is not addressed. In the wake of Covid-19, almost all governments are facilitating their businessmen through bailout packages, but this time around there are strong voices calling for strict conditions of bailout.

They are demanding high wages for the workers, their representation of company’s board. They are also demanding restrictions on dividends, stock buyback and executive bonuses (some even advocate for reducing upper executive perks by 20-30 percent. If the businesses act this way, the financial resources generated due to bailout package would be reinvested in productivity instead of enriching the vested interests.

We see public pledges by various export sectors of increasing the exports by $5-10 billion if their demands are accepted. The irony in this regard is that the official representative body of basic textiles makes these pledges on behalf of value-added textile sectors.

Why don’t the sector-specific trade associations make that pledge? These days all exporters think that the execution of sales tax refund after exports is the main hindrance in exports.

They conveniently forget that exports of textiles were zero-rated during the previous regime and even then the exports were as stagnant as now. This is despite the fact that the rupee has devalued by 60 percent in the past two years.

Devaluation is enough even to absorb the impact of sales tax. Concessions given to any sector should be subject to realisation of promises three months after the concessions are announced.

Governments in Pakistan have been liberal in facilitating various sectors like textile, fertiliser and auto. If we compute the tax benefits doled out to these sectors or the monetary value of concessions awarded to each sector in form of subsidised loans or protective duties etcetera, then the amount would easily exceed at least over five percent of our GDP.

These sectors survive on these concessions. Similar sectors in other economies compete globally without these perks.

The reason is simple, they have lost efficiency. These sectors are confident that if their efficiency is further lowered the state would come to their rescue. We often hear many industrial sectors complaining of heavy under-invoicing. Neither the government nor these sectors are genuinely interested in operating on level playing field.

Ideal and on the basis of economic viability only those industries should operate in our country that produce products at par in quality and price with imported products. There should be no import duty, but the sales tax on these products should be equivalent to the sales tax paid by the most expensive producer in Pakistan.

This would eliminate under-invoicing of tiles, artificial leather, textiles and tyres and tubes. Smuggling should be controlled even otherwise, as it is a threat to our national security. If tyres and refrigerators get smuggled unchecked, we would be unable to check smuggling of arms and ammunition and influx of terrorists and spies in our territory.