People are hard working and the country is resourceful enough to afford better living standards for the multitude, if systems to improve productivity are put in place. Though the thrust of the current budget is populist, it does attempt to address some basic aspects of the issue.
Handouts and subsidies can at best be short-term stop gap remedies, sometimes entailing unjustifiably high costs in economies such as Pakistan. The long- term solution lies only in employing resources of the country more efficiently and avoidance of wastages that plague all sectors in the economy.
The argument of the government's economic wizard Dr Salman Shah that commodity prices in the country are the lowest looks baffling if the hidden costs and level of wastages in farm products are cited. It is senseless to compare prices in markets of any two countries without keeping in mind the poor consumer’s affordability. Yes, n Sweden a loaf of bread may cost three times its rate in Pakistan but there is not a single citizen in that country who cannot afford bread.
In the globalised world of inter-dependence, low productivity has hurt the country's exports, forcing the government to consider low productivity related issues more seriously. The lower ranking of Pakistan on the World Competitive Index prepared by the World Economic Forum has also exposed the gravity of the issue.
Majyd Aziz, President Karachi Chamber of Commerce and Industry when contacted by Dawn acknowledged the need but saw the roots of the problem embedded deeper in the economy that beg for consolidated supportive government policies. He saw productivity dependent on 3Ms_material, men and machines.
“In Pakistan there are problems in all three aspects of productivity. There are problems in attaining the required quality of raw material. There is a major mismatch in the quality of huge manpower pool available locally and requirement of the same by the industry. As for machines, the private sector is still shy to invest in modern machines that cost more for it feels threatened by its overseas competitors. There is need to ensure improvement in all three Ms to be able to achieve better productive levels.”
At the moment, Aziz felt that persistent power outage is the single biggest problem facing the manufacturing sector. The budget has not addressed the issue in a befitting manner. For uninterrupted operations of industry, businessmen found a way out in captive power generation plants but providing electricity in areas where workers reside is not possible for a private business entity.
"Frequent power breakdowns have rendered workers of Karachi not even half as productive as before. If a factory worker returns to work without resting owing to power failures in sizzling June how productive could he possibly be?" He said it would be apt to address the power issue before moving on to some specialised measures to improve productivity.
But some experts were excited over certain budgetary measures and expect these to impact productivity positively. They saw the measures for simplification of tariff regime and abolition of tax exemptions leading to better compliance and improved documentation in the economy. They also felt that certain tax incentives could reverse industrial sector fragmentation.
“Pakistan's industrial sector is entering the consolidation phase. The steps such as 'Group relief' in the tax regime will encourage corporate entities to consolidate that, in its turn, would improve scales and induct more professional management", Samir S. Amir, Director Research, Pakistan Business Council told Dawn.
Abolition of exemption clauses and simplification of the regime can reduce transactions costs that has been instrumental in pushing up the supply side inflation. In absence of sales tax invoices by suppliers of imported components, the assemblers end up paying 15 per cent sales tax at the final stage that is passed on to the consumers by increasing the price by the same rate.
The abolition of the clause of compulsory value addition of at least 10 per cent to qualify for sales tax exemption has been withdrawn as it failed to serve any purpose and encouraged people to mis-declare the value of their imports.
Some reservations were expressed on Custom Valuation Law and setting up Valuation Directorate in Customs. The Customs has been vested with discretionary powers that can provide opportunities for corruption. "There is a need for the valuation to be transparent, fair and verifiable so that it leads to more credible assessment of the value of our imports and fair collection of duties", Samir said.
A few businessmen criticised the government for raising the minimum wages that they said will swell the wage bill, a major component in the cost of exportable items. "This is not a wise decision. The government should have provided for the workers from Workers Welfare and Workers Profit Participation Fund which is under-utilised instead of asking the private sector to bear this additional burden" said a textile tycoon who wished not to be identified.
The competitiveness cannot be achieved by rhetoric and economic inefficiencies cannot be wished away. It is a huge challenge that could only be met by synchronised efforts of both public and private sector. The government needs to be more forthright in providing the right environment and removing infrastructural bottlenecks for the industry to improve labour productivity and face the fierce competition internationally.