ISLAMABAD, June 20: The utilisation of hundreds of millions of rupees funds allocated under the State Bank of Pakistan's scheme for financing locally manufactured machinery (LMM) has been almost nil since 2004.
An amount of Rs650 million and Rs3 billion had been allocated in the last and outgoing financial years, respectively, under the scheme. However, the utilisation of funds has been almost zero for the last two-three years, having a negative impact on the development of indigenous manufacturing industry.
The issue was discussed in a meeting of the Engineering Development Board (EDB) of the ministry of industries and production here on Tuesday. The meeting, presided over by board's vice-chairman Imtiaz Rastgar, was called on the request of the SBP asking the EDB to pin point reasons for the under-utilisation of funds allocated under the LMM scheme.
The meeting observed that the LMM scheme was started in 1973 and was revamped in July 2004. However, the scope of the scheme was very limited and procedure and demand were tiresome.
Under the scheme, nationalised commercial banks (NCBs) and development finance institutions (DFIs) provide finances to the industries for purchasing locally manufactured machinery on subsidised rates. The SBP compensates the difference between average lending rates worked out on the basis of prevailing yield on short-term federal bonds and the subsidised rate.
The meeting decided that the scope of the scheme should be extended in order to include modern types of imported machines in line with the policy of the government to add value-addition in local manufacturing.
It was informed that the government had reduced duty on machine tools equipments to five per cent in the budget 2006-07, aiming to encourage the local industry for going for integration of local components in imported machinery. Still confining the LLM scheme to the local machinery would be against the spirit of lowering duty on imported machinery.
It was also noted that the limit of 80 per cent local component (in manufacturing of machinery) for grant of loan was too high and it should be brought down to a maximum 20 per cent.
Representatives of the industry demanded the restoration of long-term financing by the banking sector because the manufacturing industry could not develop without this facility. They said the interest rate on financing under the scheme was too high to be afforded by newly-established manufacturing industries.
The representatives raised the issue of 11.5 per cent mark-up on financing under LLM scheme. They said that the mark-up actually came to 17 to 18 per cent after adding insurance and other charges. Earlier, Imtiaz Rastgar described the steps being taken in the new budget for the development of the machine tool sector. He said in addition to tariff protection, the EDB was ready to work as full service providing organisation. He said professional services of the board were available to the industry for export promotion.