February 20, 2006	Monday	Muharram 21, 1427

THE share of industry in Pakistan’s GDP is barely 17-18 per cent, while that of agriculture is 23 per cent. That makes it a predominantly agricultural country in which 60 per cent of the people depend on agriculture.

Compared to that, India, which started industrialization much earlier, has a 26 per cent share in its GDP with agriculture with a share of 20 per cent.

The low savings rate and modest investment of 18.1 per cent of the GDP leave much space for considerable improvement. It has been repeatedly asserted that the investment rate should be at least 25 per cent of the GDP to produce better results and provide adequate employment to 160 million people. About 1.5 million men and women enter the job market each year which is already over-crowded by the unemployed but the hope of higher investment has not materialized.

In fact, there is serious doubt whether the funds claimed to be invested by the private sector in industry were actually invested or somewhat less as industrialists tend to inflate the investment figures. Secondly, if you adjust the investment figure for an inflation of 8-9 per cent on a average, the net investment drops.

Besides, as new factories commence production, many old and sick mills close down particularly when the land price is sky high now. And real estate is far more rewarding than sustaining old and ill- maintained mills.

In such a context, the report of the task force on Rapid industrialization drawn up by a team of experts lead by Dr Ejaz Nabi of the World Bank which was set up by the ministry of industries, production and special initiatives is exceedingly useful. The report submitted to the ministry in January last year is comprehensive and all embracing and makes all the right recommendations and strongly but its implementation has been delayed so long as it has not yet received the approval of the stakeholders.

If the strategies advocated by the report is adopted by the government and implemented over a three year period it can make a major contribution to poverty reduction and employment promotion.

The report calls for positive measures to reduce the cost of doing business and setting up industries. It urges measures to cut cost of production and make goods competitive for exports.

The report calls for reduction of the maximum income tax rate to 30 per cent from the current 35 per cent and reduction of the number of taxes on industry. It calls for exemption of the top exporters from income tax as well as the exemption of 200 top exporters including textile men from sales tax and the rigmarole of getting refunds.

The experts want uniformity in taxation and industry in the provinces and tax relief for investment in disadvantaged areas in the provinces.

The report calls on the provincial government to play a positive role in the industrialization of their provinces in coordination with the centre and remove intra provincial anomalies.

The experts do not seem to have spoken highly of the possible role of trading estates like Sundar near Lahore. But they certainly want clusters of SME‘s and more bank credit for them and better training of SME workers.

The report attaches great importance to skill development so that the number of skilled workers can increase rapidly. The experts call for enough credit for the stock exchanges. They say the market capitalization of the stock exchanges in 2005 was 35 per cent of the country’s GDP unlike India where it is 50 per cent of the GDP and China 25 per cent.

They want the capital market to be deepened through the use of private pension funds and the assets of insurance companies, which are indeed very large. They want margin finance to replace COT. The strategies suggested by the taskforce include streamlining and modernizing regulations governing capital, land, markets and strengthening of the contract enforcement.

It wants the reduction of taxation, lowering of the cost of international trade, upgrading workers skills, removing infrastructure bottlenecks, reinvigorating the medium enterprises and formulating provincial strategies to lower location specific costs and new vents for industrial growth.

The taskforce mentions the cumbersome regulation and inaccurate, complex and opaque land records resulting in most lands remaining either unregistered or held with informal titles. The result is fraudulent transactions and high cost and prolonged litigation. It welcomes the land titling efforts of the Agricultural Development Bank and the World Bank which can remove many of the defects in this area.

The World Bank has come up with a $60 million loan to help the government to clean up the land titling and owning system. The task force says that measures should be put in place to ensure timely, reliable, simple, secure and accessible system of land transactions.

The experts give a great deal of importance to the adequacy of infrastructure including less costly electricity. The road transport system, it says is cheap, but the roads are badly maintained or neglected. The taskforce wants greater attention to be given to the SME‘s including a new regulatory framework and adequate bank credit.

The task force attaches a great deal of importance to contract enforcement without loosing time so that the industries can focus on their production. It wants export orientation to be given top priority instead of consumption.

One area in which the task force has not come up with a recommendation is in respect of merging the ministry of Commerce and the ministry of Industries as done in most modern countries including the US, Japan and Britain. India has now the powerful Kamalnath as the minister for Commerce and industry, so that he can resolve the disputes between the two ministries easily. We too need such a merger for the two ministries to be effective and focus on their principal goals.