ISLAMABAD, Aug 13: The government plans to provide “regulatory mechanism” to the engineering industry to stop large-scale smuggling of electrical goods, including air-conditioners, fans, household appliances, automotive parts and steel products.

Informed sources told Dawn on Monday that the regulatory mechanism was currently missing and was hitting the engineering industry badly.

The government has been proposed by its planners to accelerate the growth of the engineering sector by also rectifying the existing irrational tariff structure.

One of the many reasons for slow growth of engineering sector was said to be the absence of long-term vision for development.

There was hardly any integrated and consistent approach towards the engineering sector. The productive sectors have been marred with irrational tariff structure.

“Now that the government has approved a broader vision for industrial development, our recommendations, especially to have some regulatory mechanism for the engineering industry, will help improve the performance of the sector,” said one senior planner of the government.

The progress of the engineering sector has been described as “less than satisfactory”.

The contribution of engineering industry to the GDP is currently only $2 billion and it provides employment to a mere 600,000 people. Pakistan saves $3.75 billion per annum through import substitution. The rising trade deficit has been attributed mainly to import of engineering sector which is more than $2 billion (Rs132 billion).

The present share of the engineering industry in meeting the total demand is merely 25 per cent while the remaining is met through imports which have almost doubled over the last eight years.

Its share in total imports has varied from 33 to 42 per cent. The share of engineering goods in Pakistan's exports is only three per cent.

Pakistan exports $0.27 billion worth of engineering goods which is negligible share of the world trade. Major areas of imports include equipment for the textile industry, energy sector, cement plants, agricultural machine, electrical machinery and automobiles etc.

The local consumption of steel which is one of the major indicators of industrial development did not rise due to high prices of steel. Moreover, for most of the engineering industries, effective protection was negative.

The main reason for the negative protection was due to high duties on inputs whereas outputs were generally imported duty-free, under various concessionary tariff regimes or outright smuggled. Therefore, local engineering industry has been deprived of a major business opportunity.

The main causes of poor performance of engineering sector was the absence of integrated approach for balanced growth of all economic sectors; lack of consistent policies and political will in developing the local industry manifested in widespread smuggling of engineering goods; ad hoc approach in policy formulation and preferences for turn-key imports of plant and machinery; irrational and discriminatory tariff structure with relatively high import tariff on inputs and low zero rates on output/finished goods along with cumbersome procedures for customs clearance of imported inputs; priority to less value-addition areas for investment and tariff support and lack of incentives to attract investment in high value-added sectors; lack of institutional support and incentives for acquisition and absorption of foreign technologies.

Unfavourable cost structure was due to factors, such as lack of economy of scale in production, high financing cost, high inventory carrying costs, low labour productivity, high utility costs, and high cost of local inputs, particularly steel products.Lack of R&D and design, quality standards and engineering support have resulted in the inadequate vending sub-contracting facilities and lack of entrepreneurship and management skills.