Pipedreams

LAHORE: Most of the long-term sector specific announcements by the state are pipedreams that rarely materialise the way they are supposed to.

Take for instance textiles that are the mainstay of our exports. The government regularly announces a five year long-term textile policy which mostly remains a piece of paper only. The 2014-19 textile policy expired two years back.

The long-term policies are meant to give confidence to the investors about the consistency of policies and assurance of support/facilitations during the five year period.

The 2014-19 textile policy was a non-starter that resulted in stagnation of textile exports. During that period, the textile exports in fact declined from its peak in 2013. The present government took a long time in announcing a long-term textile policy. It has come up with a policy draft for year 2020-25 but the same has not been approved by the Economic Coordination Committee of the Cabinet. This shows the non-serious attitude of the state towards a policy that was heartily welcomed by the textile industry and the incentives were offered by the Advisor on Commerce.

The hesitance of the different ministries is understandable. The ministry of petroleum for instance cannot supply imported gas at $6.5 per mmBtu as the actual cost of import is much higher.

The federal government has undertaken to provide the subsidy but past experience has shown that the subsidy is either not paid or overly delayed. The gas has to be imported on hard cash; delayed payments could result in suspension of imports and penalties from the suppliers. The subsidy must be given at the time of opening of the letter of credit to ensure smooth supplies.

The government has increased the electricity tariff sharply and more increase is on cards while the proposed textile policy guarantees power to the sector at 7.2 US cents. The actual subsidy has doubled even before the approval of the textile policy.

Would the government bear the additional subsidy? Or it would let it add to the already high circular debt. The water and power ministry rightly wants answers to these issues before giving their nod to the proposal. The textile policy meant for 2020-25 is already a year late. The investors have put their investment options on hold till a clear policy comes into effect.

The first long-term Auto Industry Development Programme (AIDP) was announced in 2007-12. It was brutally tinkered with in the next five years. Auto policy was drastically changed during this period. That resulted in a huge decline in car production.

The industry operated without any AIDP for three years. The next AIDP was introduced for another five-year period from 2016-21 under which new entrants were given lucrative concessions.

It broke the monopoly of three entrenched Japanese manufacturers that enjoyed near monopoly in different segments of passenger cars. Today there are at least eight new players in this field and most are from outside Japan.

They have made inroads in the Pakistani market. The existing players scrambled to improve their quality and enhance localisation to meet new entrants' challenge. Unfortunately even this successful policy was tinkered with by allowing import of electric vehicles at zero or nominal duty. The purpose was to reduce environmental pollution and the oil import bill.

To achieve this goal Pakistan needs to invest in the next 20 years of its foreign exchange earnings on import of EVs or their parts. The infrastructure (EV charging terminals) would take decades to complete. Moreover, an EV takes over an hour to recharge that lasts for a 300 km drive. The foreign exchange savings would be nominal as electricity produced from coal (used in charging EV) would nullify substantially the impact of fuel pollution.

The impact on pollution would be defeated by increased dependence on coal for power production and general pollution that is increasing yearly from the industries. The AIDP expires this June and the government should have waited to introduce changes in the next AIDP in consultation with the industry players (both new and existing assemblers).

The domestic players in the meantime were planning investment in hybrid cars. The new entrants are also setting up assembly plants for hybrid vehicles. These vehicles are highly efficient and are environmentally-friendly when driving in the city. They are much cheaper as well.

Some have put their investment plans on hold. The government must analyse the pros and cons of singularly supporting EVs keeping in mind what is going around in economies like neighbouring India where hybrids are in the driving seat. The hybrids should be provided the same incentives as provided to EVs.