A MAJOR problem of the developing countries has been political, economic and social instability. Their foreign exchange reserves are paltry, while interest rates have usually hovered in double digits. Their currencies have generally devalued; the Pakistani rupee went from 60 to over 100 per dollar in recent years.

If the dollar-rupee parity is not defended, it will be incompatible at least with neighbouring countries like India and Bangladesh, which would adversely reflect on the entrepreneurship, resource base and the quality of human resource.

The stage, therefore, must be set for growth through optimum investment, production and export, not only to create employment but also to increase much-desired revenues — value-addition. An agreed upon strategy has to focus on sustained growth through manufacturing and agriculture. The emphasis must also be on strategic, industry-led growth and value-added exports, transfer of advanced technology, and import-substitution.

The emphasis must be on strategic, industry-led growth and value-added exports, transfer of advanced technology and import-substitution

This would naturally include basic industries such as steel, heavy mechanical, chemical and engineering complexes, which are currently internationally uncompetitive following the faulty globalisation-led growth strategy. This globalisation strategy is now being questioned both in the developed and the developing world.

In glocalisation alone lies continued macroeconomic stability — an antidote to deficit finance, trade imbalance and inflation. It is thus glocalisation, and not faulty globalisation, which will serve the purpose.

Basic industries: It is in this perspective that one must highlight the assembly of several basic industries, including engineering, chemicals and pharmaceuticals, which is being done generally through irregular channels that neither add value, nor create employment, earn foreign exchange or reduce cost.

On the other hand, massive under-invoicing is being undertaken at an ‘agreed value’ for customs clearance, which is lower as compared to regular imports. This occurs despite the fixed minimum export price the world over, including China. There is the law to restrict such imports under the global discipline of misfeasance, under which the organised sector cannot do so in whatsoever circumstances.

Thus, there is a case for rationalising such a practice. It causes huge unemployment and revenue loss at a heavy cost to the growth strategy of value-addition. The least that may be expected is that no one should be allowed to undertake assembly without a technical assistance agreement and/or joint venture agreement, drawings of the components and parts from the principals, in-house frame and engine-manufacturing facilities, paint shop, maintenance, testing, after sales and warranty arrangements etc.

Without these prerequisites, it will endanger loss of user life on one hand, and loss of revenue, not to speak of industrial development, on the other. Various budgets have re-enacted this, where the Industrial Development Board has been authorised to ensure its implementation.

Otherwise, capital investment of billions in the industry will go waste and further investment due to extremely hi-tech value-added parts would be otherwise jeopardised. This would require the policies of adequate safeguards for the industry.

Glocalisation: There is also a need to dismantle import and export barriers. However, protection is not as out-of-mode as sometimes made out. Examples of protection in the US and the EU to agriculture, textiles, steel etc are well known.

Let us, therefore, dovetail industrial policies with local priorities that transfer technology, save foreign exchange and generate employment.

Such thoughts thus must be harmonised with local genius. The Malaysian experience shows that as long as a country has sufficient reserves, industrial policy can be formulated that simultaneously promotes export, import-substitution and strategic industries. The industry, especially the hi-tech manufacturing industry, can be promoted to become globally competitive.

In India, the basic industry is now one of the top tax generators for the government. They did it through focussing on manufacturing and value-addition, and not packaging or assembly. Revenue shortfalls and unemployment must be checked, and low inflation maintained. The reliance on these policies would be in the larger national interest.

Inconsistency: Inconsistent economic policies discourage investment, production, export and employment, and they need to be harmonised with local aspirations. The remedy lies in the industry, particularly manufacturing, and not in packaging or assembly. A balance must be struck irrespective of external pressures.

The reliance on these policies will ensure socio-politico-economic sovereignty, to say the least. In that also lies the solution of roti, kapra aur makaan, and no less the recent ones like water, gas and electricity.

The writer is chairman of Atlas group of companies

Published in Dawn, Economic & Business, July 6th, 2015

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