(Former Chairman: SITE Association of Industry)

The revival of the economy and to bring it on sound footing is a prime priority of the seven-point agenda announced by Chief Executive, General Pervez Musharraf, in his address to the nation a few days after taking over the reins of the government. He has set up an economic team to guide him and to lead the nation out of the economic quagmire. The despondency and melancholy that spread all over the nation during the Bhutto and Sharif regimes have brought this country to a pathetic situation, where it seems that the very survival of the country is at stake and that the 140 million denizens are living at the edge of the precipice. The nation is desperately seeking a panacea for the economic ills and the onus is now on the present government to deliver, and deliver fast.

The fundamental question that needs to be answered is the mode in which the government can achieve the culmination of this important facet of the agenda. The position at present is that the government has not yet established its bearings and it is more on a jittery ride on a jalopy to nowhere. The dependence on Task Forces is a tried and failed strategy that has been once again adopted to draw the blueprint. The emphasis is to define the macro aspects of the economic policy and channelize all efforts towards the measures essential for the achievement of its objectives. The government should have, at the outset, taken out the economic and budgetary proposals presented all these past years by the FPCCI, the Chambers of Commerce & Industry, such as Karachi, Lahore, and Rawalpindi, etc, and Associations, such as APTMA, SITE Association of Industry, PRGMEA, etc, removed the cobwebs, blown out the dust, and perused these with honest intentions and sincerity of purpose. The government would have discovered a treasure of pragmatic, workable, and sensible proposals, suggestions, and ideas, in short, the very essence of a sure-shot road map to economic prosperity.

The citizens are more concerned with the micro matters rather than getting their minds directed on macro management of economics, devolution of authority, and other measures that sound mumbo-jumbo to them. They are more concerned with some water in their pipelines, enough electricity to light a few bulbs, some sanitary staff to clean the lanes and remove garbage from their residential areas, and presence of even a rudimentary road network that is not unpaved or filled with potholes. They are happy to get their daily subsistence items at affordable prices, and all they want are a good, but cheaper, education for their children, the opportunity to earn enough to bring in the daily vegetables, and some adequate cash for a roof over their families heads.

However, the revival of the economy and to give it the much-needed boost requires the immediate acceptance by the government that the ground realities are such that it cannot wait for the June 2000 budget for the Finance minister to come on national television to announce his vision for the future. There are many steps that must be immediately undertaken otherwise the hesitancy displayed now will lead to a further downslide of the economy. The first premise that has to be kept in the fore is that the prevalent environment is that of extreme pessimism and this is further aggravating the already perilous situation. The initial euphoria that welcomed the change in the government is beginning to fade away. This euphoria was more due to the plummeting popularity of Nawaz Sharif, who was personally held responsible for the worst recession in the country's over five decade existence.

Therefore, the government can, among other measures needed to jump-start the economy ponder over the following proposals:

Capital generally flows where profits are comparatively higher and where there is ample scope for expansion. The government should focus on selected industries and give them maximum incentives and opportunities to ensure that more investment is channelized into these industries. Although it may sound a bit preposterous to many, the fact of the matter is that these industries must be allowed space to maximize their bottom line in order to be effective.

The government is fixated on the tremendous enhancement in tax collection proceeds and it has earned the resistance of the industrial and business community, and now the agriculturists, on this matter. There is no doubt that the tax base must be broad-based, must be equitable, and must be enlarged. Tax net can only be widened if there is formidable economic activity and if the wheels of industry move rapidly. However, at the same time there has to be a laid down policy about the utilization of the revenue. If history is repeated again, then unfortunately, the increased tax revenue will lead to increased non-developmental expenditure. This will bring the country back to square one. It is imperative that a law is enacted that 60% of every increase in tax collection should be spent compulsorily on development projects and that any deviation from this must be a case for the National Accountability Bureau.

The government must introduce a laissez-faire mode of relationship with regard to industry and trade. The over-employment in the government bureaucracy has led to abnormal increase in governmental interference, harassment, and corruption. This has come to a point where about half of the industrialist's time is wasted on government matters such as inspections, audits, correspondence, reports, filling forms, and visits to government offices. The government must reduce the plethora of taxes, the government must minimize punitive measures, the government must lessen the visits of petty officers of myriad agencies, and the government must slash the tax rates if there has to be increased investment in the country.

The government has eliminated all "whitener" schemes, as these were surely major ways to bring into circulation the concealed unrecorded wealth. However, the point to consider is if there are no possibilities to launder the money, how would investors bring in equity to expand their businesses or set up new units if their wealth is off the books. Hence, it would be prudent to state that the government should tax at a concessional rate of, say, 15% on any additional income related to the expansion in business thru infusion of new equity. At the same time, investment tax credit of 5 to 7.50% to the existing industries be given if new investment is based on self generated equity without recourse to banking facilities or governmental finance.

During the Great Depression in the USA, the government resorted to massive spending to bring the nation out of the morass. The setting up of reconstruction agencies paved the way for Americans to come out of the calamity, and today it is the leading economy of the world. Pakistan, though not way down the abyss of darkness, is experiencing the throes of a recessionary economy. It has to accept the fact that in these circumstances, there will be minimal foreign investment into the country. The Augean stables have to be cleansed before external investors drift into the country again. At the same time, the domestic investors too will gravitate towards industry at a later stage if the situation is favorable. Though the National Treasury is wobbling with only US$ 1.6 billion in foreign exchange reserves, and though the tax base is narrow, and though the evasion of taxes is endemic, and though the government's partiality is on non-development expenditures, the Chief Executive must lay down the fiat that immediate efforts be initiated towards development projects, at any cost. The emphasis must be on removing the infrastructure deficiencies, basically for the industrial sector. SITE, Karachi, which is the largest industrial estate in the country, chronically suffers from acute shortage of water, unavailability of new electricity connections, and non-sanction of gas for generators.

Once way to bring inflow of capital is to concentrate on the housing sector. The bricks and mortar sector can be of substantial importance in reviving the economy. In the present dismal economic scenario, the flow of money into real estate can lead to a boom in this field thus instilling optimism in the investors. The expatriates, thru Non-Repatriatable Investment, can be induced to invest in real estate and in the housing industry. Making tax-free the rent income for Pakistanys with dual nationality can do this. Domestic investors can sooner than later put money into real estate rather than in industrial activity. Over the years, the builders, in cahoots with development authorities, have resorted to violating building regulations, erecting unauthorized edifices, and destroying the urban environment. It is rather difficult to tear down buildings and begin anew. Therefore, in order to streamline the housing sector and to condone the past infringements, the government should declare an amnesty by agreeing to regularize all violations for a prescribed fee. It is proposed that if a penalty of Rupees 500 per sqft is imposed then the government will not only receive billions in revenue, but at the same time, the housing industry can then start new projects within the ambit of the defined law.

To curb the increase in bank defaults and to minimize the corruption menace in the development financing institutions, it is proposed that incentives be given to those who bring in 100% equity for their projects. The government should give tax allowances to the tune of 20% for those who follow this avenue. If 100% equity is brought under NRI, then the import duty on machinery and equipment should be zero-rated as this investment will directly bring funds into the official channels. Moreover, the government must ensure that import of luxury goods is not financed thru national foreign exchange reserves. It should be mandatory that importers thru their own externally arranged funds finance items falling under the definition of luxury goods. At present the country earns $1 in exports and spends $1.50 for financing imports. It is proposed that the exporters be given $0.25 for their own use or sale thru banking channels while at the same time, the government should finance half of the import bill and the importers should arrange half. Thus for every $0.75 left over in exports, the government will finance the same amount for imports. This will help bridge the gap between foreign exchange inflow and disbursement.

It is essential that the government seriously consider the General Sales Tax regime in a kinder, gentler way. The present backbreaking 15-18% rate is criminal, it leads to temptation to evade, and is keeping traders and industrialists from registering under the system. The GST must be enforced with determination and must be broad-based with all links in the chain covered. But, more importantly, it is imperative that the GST rate is reduced to not more than 5% otherwise, this scheme will be difficult to implement and will remain hostage to the corruption syndrome. Furthermore, it is also necessary to focus on the elimination of most of the punitive measures and there should be removal of discretionary powers of the auditors, inspectors, and the collectorate staff. The present adherence to lip service by the government in GST matters is the root cause for the vicious campaign against GST.

The government must begin efforts to strengthen local bodies and this can be done by finalizing the date for local bodies elections and eventual devolution of power down to the local level. The balance sheets of metropolitan corporations must be published and must be made transparent so that the citizens can get an opportunity to know what their municipal corporations are earning and spending and in which manner. There is immense amount of corruption in these local bodies. Fly-by-night companies are given contracts for city projects, etc. It is proposed that the government, in the first instance, target five cities, i.e., Karachi, Lahore, Peshawar, Rawalpindi, and Quetta, and divide them into zones. The road construction project, for example, could be given to one construction company for every zone, and that this company should be wholly responsible for the construction of the roads in that zone. If then the roads condition deteriorates, that company must repair it and must be penalized for shoddy work. These companies should be well-established ones, and that one-deal companies are not entertained at all. A bank guarantee could be a pre-condition to keep these companies in check.

A substantial amount of government's expenditure is on vehicle purchase and on POL, repairs, and maintenance. Even petty officers, DSPs, and SDMs travel in expensive cars. It is proposed that there should be a Central Vehicle Administration division under the Federal Ministry of Finance. The CVA should be solely responsible for all vehicle procurements and sales for Federal as well as Provincial governments and agencies. All requisitions, advertisements, and orders for purchases and sales be done thru this division. Moreover, all government officials must travel in Pakistany produced vehicles and there should be little recourse to buying imported vehicles.

The government has to embark upon a program to popularize a web of small industries all over the nation. At present, there are not more than half a million micro, cottage, and small industries and the figure has to zoom up if the objectives of industrialization are to be attained. The entrepreneurial skills of the small industry owners need to be upgraded. This is possible if the Employer’s organizations, in association with government organizations such as Export Promotion Bureau etc, develop programs in simple and easy way for them, especially in the language of that particular area.

The government must provide information regarding accessibility to the international market and must assist in ensuring that foreign firms buy from the small scale owners This internationalization of small industries can be achieved by also organizing exhibitions for their products, exploiting promising markets, taking measures to improve the product image of these units, providing product information to foreign buyer thru free advertising subsidized by EPB, providing samples of foreign produced goods to the small scale owner, and rendering expert advise on achieving international standards of quality. The government should also radically change the strategy of industrial promotion agencies to attune it more towards providing the required impetus to prop up small-scale industries. One way for the government to play a positive role would be earmarking purchase quotas from small industries for all government and semi-government organizations. For example, 15 % of all government purchases should be from the small-scale units. A price preference could also be provided to induce the establishment of more industries in the small sector.

There is a need to provide a friendly system of finances for these industries. There is a need to set up financial institutions that should only cater to the small enterprises and should specifically concentrate more on industries that are exporting or have a potential to enter the export market. The leasing companies and DFIs should enter this field too, and thru the protection of the Small Industry Credit Guarantee Fund that should be set up by the Government provide liberal loans to these industries. The provincial governments can set up small sheds with all infrastructure facilities in designated areas on easy installment basis for these industries. It is the duty of the government to initiate steps that would induce the small industry to come into the fold of the organized sector. This can be done thru simple documentation and by providing various tax incentives to them.

The industrialization of Pakistan should now not be a victim of experiments and oscillating policies. Sustainable growth requires dedication and action. Small enterprise development is of great significance to Pakistan. The prerequisites to achieve these are:

(A) The vision of the government to adopt and declare a comprehensive policy in support of small enterprise development.

(B) Coordinated efforts of the Employers’ Organizations, the Government, and the technocrats to diagnose the present policy and suggest proposals to remove bottlenecks and difficulties.

(C) Promulgation of practical measures and inducement of budgetary support to bring forth the desired change.

(D) Overhaul of the administrative system and removal of all procedures such as red tape, bureaucratic inertia, and unwarranted governmental impediments.

(E) In-depth study of the industrialization process of the existing Asian Tigers with special reference to the growth of small enterprises in these countries.

The Pakistany nation has to be productive and efficient if it is to survive in the new global order where trade liberalization, imposition of social clauses, improved quality, customer importance, and intensive competition will be the fundamental parameters. Governmental inertia, excessive bureaucratic red tape, dismal investment activity, etc will all result in a slowdown on the motorway to progress. The future of Pakistan should not be a hostage to these negative factors. It is now upto the Chief Executive to ensure that this does not happen. 140 million patriotic Pakistanys are with him on that score.