LAHORE: Inflation, high mark-up is only addressed through high productivity that also reduces prices. Disposal of production is easier when the demand of many goods is constantly increasing in the domestic market.
Currently, the economy is operating on suppressed demand. Even the use of edibles has declined as majority of the public is unable to bear the high prices of all items.
Improving foreign exchange reserves at high cost and suppressing essential import is proving counterproductive for the economy. It is creating shortages, and prices are spiralling up.
When we talk about economic stability then inflation and interest rates are as important as the foreign exchange reserves and the current account deficit. We could have achieved reduction in imports by completely banning the import of all luxury items and not by indiscriminately increasing the import duties not only on luxury but essential items as well.
We should have completely banned the import of all cars, but instead we have allowed import of electric vehicles at very low duty.
The electric vehicles would be consumed by the richest segment of the society and would cost three times the price of a normal car. They would at the same time not stop using petrol-run cars.
The foreign exchange saving even in ten years would not cover the cost. During that period, the user would have to import an expensive battery thrice, as well as many other highly expensive components that would eat up even those savings.
Why can’t we start living within our means? We should buy Pakistan made cars as numerous variants are now available in the country.
The electric cars would not make a dent in pollution. Regulating the smokes emitted by thousands of industries would be more beneficial for the environment.
In the same way, we do not need imported processed foods when alternates are available in Pakistan, and the manufacturers are reputable multinational and national companies. We do not need costly cosmetics as well.
Increasing duties is not an answer. We should completely stop their imports. There is no need to allow import of artificial leather, tiles and numerous types of tyres which are produced in the country.
Most of our imports are heavily under-invoiced and the impact of higher duties does not impact the prices of those items much.
In fact, if the imports are assured at actual global prices of those items we might collect higher duties on their imports than the duty we are collecting by slapping higher duties on undervalued imports.
The need is to improve the system and not to choke the economy through undue taxes. Our industries are hostage to under-invoiced and smuggled imports.
We are transferring jobs to other countries through unethical and criminal trade practices. The government is trying to handle trade in the same way as it is handling the energy issue.
It is passing on the buck to the masses instead of improving its administrative deficiencies. We can improve productivity only by lowing the cost of doing business and eliminating the unethical trade practices.
Prices would continue to go up if we failed to improve productivity because despite downturn in economy, the needs of its young population are constantly rising.
Job creation is not directly related to GDP growth, but is linked to the quality of GDP growth based on state policies. The planners would have to think beyond textiles as no country has ever become rich by making more of the same thing; to achieve economic success they innovate and grow by venturing into new fields.
Each new government comes up with a different growth strategy. There is no consistency in policies. Unfortunately, this government has not outlined any growth strategy. A segments of trade be it traders, manufacturers or service sector are confused. Growth in the country would come by changing what the country produces and the way it produces.
Software industry in this regard has one advantage that other industries lack. It provides upstart low barriers to entry and unlimited huge market through information highway. Thus, it might create few billionaires, but job creation would nevertheless be low.
Pakistan needs to add millions of jobs on regular bases which can only be achieved through massive industrialisation. The country however lacks capabilities that growth industries demand.
Capabilities can only be developed when such industries are already operating in the country.
Vertical integration of firms can solve internally the coordination of the supply and demand for any new capability. We will have to encourage conglomerates for vertical integration that we unfortunately disdain to resolve many of the existing problems.
