KARACHI: March 6: Prices of steel, cement, automobiles and other building materials are up for different reasons that require varying approaches to price stabilization.

Cement industry is accused of working as a cartel. Liberal lease financing/home remittances are boosting car sales and its premium on prices. And the steel prices have jumped because of galloping import prices on rising world demand.

f the charge of cartel formation is established, an updated anti-competitive law needs to be immediately applied effectively. There is a growing global trend towards oligopolies both in developed and emerging markets including Pakistan that needs to be curbed.

If excessive lease financing is pushing up demand of car price, curbs are required to ease credit-driven demand. To introduce competition, proposed liberal imports of cars would run counter to the policy of building up foreign exchange reserves needed to combat speculative market attack on the rupee and to keep the national currency stable for exports and investments. The speculative trends in automobile should be checked by credit curbs.

And if the steel prices are soaring because of high cost of imports, duties/taxes may be reduced to stabilise prices.In the National Policy 2001 approved by the cabinet, it was recommended that duties and taxes on major construction materials shall be rationalized and reduced to make construction more affordable." In mid-December 2003, the government did reduce the duty from 20 to 10 per cent on imports of billets both in public and private sector following increase in billet prices by Rs8,280 from July to December 2, 2003. Despite the cut in import duties, the cost of billet is rising because of a big jump in world demand of steel particularly from China.

The vice-chairman of All Pakistan Contractors Association, Naeemuddin Ahmed Siddiqui, says that between July 31, 2003 and March 4, 2004 the price increase in hot roll coils supplied by Pakistan Steel was 37 per cent. Similarly, MS plates supplied by People Steel Mills rose by 87.50 per cent and of angle iron by 55 per cent during the same period. The price of re-enforcing steel was up by 96.50 per cent from Rs28,000 per ton to Rs55,000 per ton.

Steel and cement constitute a significant cost of construction whose prices need to be stabilized. Labour-intensive housing and construction industry can play a pivotal role in a domestic-driven economic growth as textile plays a leading role in export.

No less than 38 domestic industries are linked directly or indirectly to the construction activity. Both cement and steel are also required in building of dams and ports now underway. Their prices would inflate project costs of building dams and ports.

The domestic market is currently being stimulated by home remittances/excess liquidity. Under an official policy designed to promote a consumer-led domestic sector growth, commercial banks are being encouraged to move rapidly into consumer and mortgage financing. Private consumption accounts for 70-75 per cent of the Gross Domestic Product.

Can the official policy of consumer-led and domestic-driven growth succeed without prices and credit being made affordable to borrowers wanting to construct their own houses. It requires a policy of industrialization with broad-based household prosperity.

If incomes of the middle class do not rise, the alternative is increased risks of personal bankruptcies as is now being witnessed on a rising trend of loan defaults in the United Kingdom and the United States.

Whereas legitimate corporate profits should not be denied and company savings should be encouraged for urgently needed productive investments, the growth of vulture culture must be effectively curbed.

In policy-making, the first priority should be on industrialization with broad-based prosperity. That requires adjustment in taxation policy. If an industry is in distress, taxes must be cut to revive it. If it is making good profits, it should proportionately share it's incomes with the government. This would minimize the frequency of business cycle of boom and bust.