THE government’s recently announced curbs on auto financing have put the automobile industry in a situation aptly represented by the anecdote ‘one step forward, two steps backwards’.

These restrictions have come just a couple of months after the announcement of a five-year auto policy, which aimed at promoting the local industry through economies of scale and to gradually enable it to export locally-produced vehicles as well.

Various tax and duty concessions were announced for the local automobile industry to promote investment and long-term growth. A growing automobile industry has a parallel impact on the allied industries as well, thus creating numerous employment opportunities.

Amongst the key changes in auto financing, the maximum limit has been restricted to Rs3 million per individual and the maximum financing tenure has been reduced from seven to five years.

The overall debt burden requirement has also been shrunken from 50 per cent to 40pc of the individual’s income. Financing for all imported vehicles has also been disallowed. An individual can avail financing for only one automobile at a time.

Such sweeping curbs on auto financing, even for locally produced vehicles, will retard the growth of the local automobile industry and deprive the genuine customers of the ability to have a car financed since they will otherwise not be able to afford it. These measures will also adversely affect the automobile and consumer financing businesses of the banking sector.

Instead of putting curbs on car financing, one would have expected the government to crack down hard on the investors and the middlemen who have made it a nightmare for the end-users to readily purchase vehicles at the manufacturer’s listed prices. These middlemen have not only created a shortage of locally assembled vehicles, but are also minting millions of rupees by reselling the booked vehicles at premium prices referred to as ‘own money’.

One fails to understand the vision of the government’s policymakers who keep devising haphazard policies that create uncertainty in the business and investment climate. It is obvious that the measures to slow down the automobile sector along with the massive devaluation of the Pakistani rupee lately are being taken to appease the International Monetary Fund (IMF) in order to secure the next loan tranche.

It is the absence of consistent and long-term policies over the years that has hindered the sustained growth of the automobile industry in the country.

Aamir Malik
Karachi

Published in Dawn, September 29th, 2021