THIS is with reference to the article ‘Debt repayment problem’ (Jan 14), which drew attention to the recurrent current account deficits rooted in the excess of imports compared to exports and remittances. Successive governments have been resorting to external borrowings to finance the current account deficits, resulting in an unsustainable debt burden. For addressing this challenge, the write-up opposed the option of import substitution and suggested focussing on exports only. One cannot agree with this one-sided and flawed approach.
Our exports have high import content, up to 50 per cent or even more. Therefore, increase in exports would cause escalation in the import bill. Most of our manufactured goods are dependent on imported raw materials, ingredients and ancillary items. Thus, import substitution must be accorded top priority to reduce our dependence on foreign sources.
This would encourage industrialisation and facilitate local production of finished goods. The government must follow a restrictive import policy. The Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) signed with different countries have devastated our economy as the trade balance is tilted heavily in favour of our trading partners emanating from the dramatic increase in imports with a marginal rise in exports.
It must be remembered that there is no way the country’s exports can make a big jump in the short term or medium term due to shortage of exportable surplus and capacity constraint.
We have a primitive agriculture and the yields are low. Despite being an agrarian country, the nation has become a food importer in addition to deficit in the cotton crop which used to be the backbone of the textile sector.
The country possesses a very rudi- mentary industrial base and limited manufacturing capacity. It will take time to set up new production units that may join the stream in the next few years. Even for that to happen, the time to begin is now. Time, indeed, is running out.
India from the very beginning implemented an austere import regime until the early 1990s and focussed on import substitution. Today, India has a firm industrial base, being the fifth largest economy in the world with a thriving export sector and forex reserves of $560 billion.
While all efforts should be made to increase exports to earn dollars, there is every need to save the precious dollars that we have, and a major step in this direction is import substitution.
Import of luxury and non-essential consumer goods must be banned altogether for at least three years to turn our current account deficit into surplus. It would provide the much-needed space to service debt payments that are due over the next three years, thus reducing the debt burden.
Published in Dawn, February 9th, 2023
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