The day after the budget I had the privilege of meeting three top tycoons of this country, all at the same function, but separately. These three perhaps rank among the top ten business captains in the country.
And all the three appeared noticeably reluctant to say a single good word about the new budget which is being touted by its authors as a growth- and investment-oriented document and by its detractors as a rich man's budget.
One of these tycoons maintained that it will still be as difficult as in the past to invest in the country in the face of what he described as an impossible plethora of red tape.
The second one came straight down to the heart of the matter and said it was very wrong on the part of the budget makers to propose at this juncture in our economic development a capital value tax (CVT) on the purchase of shares.
And the third one who appeared to have been directly hurt by some of the new proposals, actually described the budget as being anti-investment. All the three of them are good friends of the media.
If they had wanted they would have gone on record publicly about how they felt about the budget. Since they have not done so, and since they had only appeared to be sharing their thoughts with a 'friend' when they were talking to me with their professional guards down, it would be wrong on my part, both professionally and morally, to disclose their identities here.
To be fair to all of them, they had all appeared to be talking about the negative aspects of the budget not in their own narrow business interests but had appeared rather convinced that what they were saying was in the larger national interest.
So, I do not question their motives or integrity as such. But it was, indeed, a shocking experience to hear such comments from three Pakistani tycoons for me who had seen the next year's budget as a document meant to favour the already privileged sections.
And the next morning when the three stock exchanges in the country almost crashed, my shock further deepened. The comments of the three tycoons and the subsequent crash of the stock exchanges sounded like a re-affirmation of my firm belief that the rich in this country who make a very influential part of the ruling elite do not countenance sharing a single paisa from their escalating profits with the country's masses or the government.
The budget makers who also belong to the ruling elite perhaps have no intention of passing the Rs. 4 billion or so that would accrue to the treasury from this measure to the masses.
They perhaps had wanted to make good part of the losses that had accrued to the treasury due to a number of investment-oriented concessions given to the rich businessmen. And perhaps they had also wanted to document the economy to enable them at some future date to present an exaggerated estimation of the per capita income and then use the data to camouflage effectively the rising incidence of poverty.
The private sector in this country has a very interesting history. It had never been an enterprising lot inclined to take risks to make a quick buck. Except for a short gap of five years between 1972 and 1979, the private sector in Pakistan had never had any trouble in adding to its wealth without bothering about any business norms.
In the 1960s, it was licenses, permits and protections that turned them into no more than mere rent seekers. The debt-equity formula of putting up an industry had been perfected so well that even before the unit came on stream, the sponsors would be making profits without having had to invest a single penny of their own. With a five-year pause, in the 1970s, all the bad business practices of the 1960s returned with a vengeance in the 1980s.
The rich were becoming richer while the government was becoming poorer and what small effort the government had been doing in the public sector development front upto then, was also brought down gradually to a trickle as the meagre taxes collected by the government were being spent mostly on protecting the margins of the private sector and adding to the military muscles of our armed forces.
The power of the private sector had become so overwhelming that in 1977 it was the big and small business in Pakistan rather than the people of the country who were instrumental in creating the enabling political circumstances for the army to take over.
Next, when the then government levied a defence surcharge of five per cent on imports in 1986, it was the business community which by pulling down its shutters brought the government to its knees and an entire budget had to be withdrawn for the first time in Pakistan's history.
And then when the PPP government in 1996 proposed the GST, the business community went on a shutter down strike for almost a week, a record in Pakistan's strike histories which forced the government to withdraw the reform.
And remember the fate of the tax surveys and anti-smuggling raids launched by the military government of General Pervez Musharraf during its pre-9/11 tenure? Since the time in the early 1980s when people in this country heard for the first time terms like, users' charges, divestment, deregulation and decontrols (the infamous 3-Ds), the private sector has been allowed to take up even the essential social obligations of the government like health, education and utilities' production and distribution and make profits.
But, their rate of investment has remained abysmally low throughout these almost 25 years and they have paid only a paltry sum by way of taxes in these years, but in the meanwhile they have accumulated astronomical levels of wealth.
Indeed, another of their reasons for opposing the CVT on shares, besides their reluctance to part with even a single penny of their profits is to avoid by hook or crook any measure that would bring on book their black money.
The government asks the source of the capital from the sponsors every time an investment application is received by it. But in the case of investment in shares and the profits it makes such questions are not asked.
And it was about 25 years ago that an exemption was provided to investors in shares from paying any tax on their profits ostensibly in order to encourage investment in shares which were in those days considered less attractive than real estate and lucrative government savings schemes.
The share markets are booming these days and there is no need for continuing with such an exemption. The argument that before the levy of this tax, the business community should have been taken into confidence is valid but only to an extent.
Obviously those who could manipulate the stock exchange to make it seem collapsing to blackmail the government to withdraw the proposed CVT, would have used some other means to arm twist the proposers, if the idea had been mooted before announcing it as a budgetary proposal.
Even now, the government seems to have gone on the defensive very quickly and has constituted a committee to find a way out with face savers for both the parties involved.
There are indications that by the time the budget is approved, this measure would most likely be so amended as to have the rate brought down to next to nothing and at the same time withdraw completely its ability to document the transactions.
The kind of growth rate that the government is hoping the economy would attain over the medium term is not likely to be achieved unless the rate of investment is accelerated in the range of 21-22 per cent.
On its own the government is not in a position to mobilize such resources. And even if the private sector was to take up its due role in national development in the right earnest, it is not likely for the two to bring the rate of investment up to such high levels in a year or two.
We, therefore, need to attract foreign investment in significant volumes in the next two to three years to sustain even the current rate of growth. But this too is likely to be denied to us because of deteriorating law and order situation.
So, with no or very little foreign investment flows and inadequate private sector investment, even a 50 per cent increase annually in the public sector development budget is not likely to do the job. In fact the medium term scenario appears so bad that the growth is likely to get choked at the current rates if it does not get slowed down considerably.
Then, what do we do to break out of this looming impasse on the development front? We do need some creative thinking on this subject. It is not possible for those who know only the IMF way to manage the economy to do such creative thinking.
You need political thinkers with a vision for evolving such creative ideas and then leading the nation along on the path to achieve this vision. There could be many arguments against what Hernando de Soto is prescribing.
But could we not in the interest of this nation and the poor of this nation take a closer look at his idea of withdrawing all those laws which are adding to the black economy and expanding it while shrinking the white economy? And also could not we distribute the land available in this vast country to the poor, give them property rights and make laws to make these properties bankable?
These are highly innovative ideas, but if thought through properly and implemented honestly, they have the potential of breaking down over night the barriers between the rich and the poor and making this wonderful country in a land of opportunity for every citizen, and not for only the handful of power wielders.
