0
KARACHI, July 30: The State Bank has allowed all banks to give loans to general public for purchase of consumer durables (like televisions and refrigerators etc.).
The State Bank accorded this permission through a circular BPD No 18 issued to all banks on Tuesday.
The circular says the move is in line with the SBP efforts to promote consumer financing in Pakistan that has strong linkage with the growth of industrial and trading activities. It says the banks are encouraged to have properly formulated lending policies for consumer financing with adequate delegations of powers to their branches for quick disposal of requests from the interested borrowers.
The SBP has also exempted the banks from submitting a copy of income tax/wealth tax statement relating to minimum information on borrowers if the borrowing for purchase of consumer durables remains below Rs100,000.
The liberalization of consumer financing by banks is in line with the government policy to fuel industrial growth as stated in the trade policy for fiscal year July/June 2002-03. The policy was announced last week.
COSMETIC REMEDY: Whereas the SBP believes that liberalization of consumer financing by banks can help Pakistan achieve a higher industrial growth rate leading economists have a different view.
“I think tackling the growth problem from demand side is like offering a cosmetic remedy under the present circumstances,” says economist Dr. Professor Shahida Wizarat—a former director on the board of directors of Karachi Stock Exchange who now heads social sciences department at a private university. “I hope this will have some favourable impact on the economy but must remember that liberalization of consumer financing will not necessarily help domestic industries grow.”
“Liberal consumer financing will partly increase demand for the imported goods as well,” Dr. Wizarat says adding that it would not attack the crux of the problem of low economic growth in the country.
“Lack of consumer demand is not the basic problem of Pakistan economy,” she says. “The crux of the problem lies in high input cost of domestic industry.”
“The lending rate is very high and electricity and oil prices have been on the rise. Besides, the progressive lowering of import tariff also hurts the local industry. I think a better way (of fuelling industrial growth) is to make local industry viable.”
INFLATIONARY PRESSURE: Former chief economist of Planning Commission Dr. Arshad Zaman says “the main problem confronting the industry will not be solved by demand-inducing measures.”
“In view of the rigidities that confront the expansion of domestic production capacity demand-inducing measures will only lead to higher imports and greater inflationary pressure,” he says when asked to comment on the SBP decision to liberalise consumer financing by banks.
WORKING GROUP: He says that in order to find out what exactly should be done to increase domestic industrial base he suggests setting up of a high-level working group of industrialists. “That group may be asked to find out what impedes industrial growth and what exactly must be done to enhance investment and production.”
POLICY MIX: Chairman of the SITE Association of Industry Dr. Arshad Vohra says instead of relying on demand-inducing measures only the government should follow a demand and supply side policy mix to boost industrial growth. He says that liberalization of consumer financing would make local industries more competitive but on the other hand it would lead to higher inflow of imported goods into the country.
“Tackling the (industrial growth) problem through demand side is not enough. The government should also do something to make local industry viable.”
“Look at the high input cost of the industry. We get loans at a high rate and pay high charges for electricity and fuel and communication facilities.”
“Besides, there is a lack of quality physical infrastructure,” he says adding that very little has been done to attack these problems. Dr. Vohra seconds the proposal floated by Dr. Zaman that the government must set up a high-level working group to find out what should be done immediately to enhance industrial growth.
In the first three quarters of the last fiscal year i.e. July 2001 through March 2002 large scale manufacturing grew by 3.2 per cent in Pakistan down from 7.6 per cent a year ago. The economy on the whole is estimated to have grown by only 3.3 per cent in the last fiscal year against the target of 3.7 per cent. That is why the government is keen
on enhancing industrial production.
