Incentive package

Updated March 25, 2020

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IT was never going to be a simple balancing act to perform, but the government seems to have done it right.

More details about the trillion-rupee-plus package announced by the prime minister on Tuesday are needed before its true impact can be assessed.

But in walking the tightrope between providing direct assistance to the people and helping industry to weather the tough times that lie ahead, it seems to lean in favour of direct assistance without forgetting industry.

It was stated that for the construction sector, a separate package would come later.

Presumably, the lockdowns announced by the provincial governments have halted construction activity, so coming up with any incentive package for the sector at this time would have no beneficial impact.

For industry, the package is structured to accelerate the release of sales tax refunds and calls for deferring debt service payments.

This is smartly structured because it minimises the cash outlay on the part of the government, but will help improve the liquidity position of the companies that benefit from it, thereby enabling them to maintain their payrolls.

The challenge now is targeting.

Deferred debt-service payments, assuming the government is successful in arranging this for the private sector, means only those who access bank credit will benefit.

Likewise with sales tax refunds.

There is an allocation of Rs100bn for small and medium-size enterprises and agriculture, but the mechanism through which this will be allocated is yet to be announced.

Aside from this, an amount of Rs400bn seems to be allocated for direct support to the working poor; half of the sum is supposed to preserve employment.

Once again, the allocation is good, but the mechanism will be key to success.

If the government intends to put this money into the pockets of rich industrialists under the assumption they will pass it on to the workers as remuneration, then room for abuse and capture is substantial.

It would be worth its while to find ways to directly transfer these funds to the working poor.

As time goes by, it is possible these funds will seem insufficient.

Once disbursement gets under way, the government is also likely to be swamped with complaints and loud calls for more, especially from industry.

Given the unprecedented nature of the challenge we are now moving towards, it would be entirely appropriate for the government to focus its energies directly on the people rather than seeking to route its assistance through industry.

This is a good time to rapidly increase its capacity for targeted assistance, and given the technologies available today, especially with the National Socioeconomic Registry of the Benazir Income Support Programme, as well as myriad other targeted support schemes, this can be achieved.

There is time enough to ramp up the targeting and it should be used for this purpose.

Published in Dawn, March 25th, 2020