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Old Monday, June 18, 2007
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Not a pro-poor budget




By Tasneem Noorani
Monday,June 18,2007

BUDGETS are a ritual that governments have to go through once every year. They are no longer as exciting as they used to be, when tariffs were high and long lines of cars queued up at petrol pumps on the eve of the budget because of expected increases in the price of petroleum. Now there is no such hassle because budgetary levies are imposed throughout the year in the form of mini-budgets.

This year, there are no significant new hikes in duties or taxes, and if there are, they are camouflaged well. Being an election-year budget, we hear words like ‘subsidy’, ‘poverty alleviation’, ‘salary increases’, ‘increase in basic wage’ etc. The policy has come full circle. In the first seven years, the word ‘subsidy’ was an abuse in the economic corridors of the government and all strategy was based on a market economy. There was talk of following the policy of the survival of the fittest. Now, we hear of subsidy on daal, rice, sugar, fertiliser, electricity etc.

Some years ago, the country had a ration depot system, where the poor could get atta and sugar at fixed rates. It was thrown out of the window some two decades ago because it was difficult to implement and it bred corruption. Now we are planning to set up 5,000 utility stores all over the country within four months. This appears to be the main plank of our pro-poor budgetary strategy. I heard a discussant in one of the numerous discussion TV shows call this a “utility store budget”.

In the year 2000, the writer was the secretary, ministry of industries. Those were the early years of the “privatisation, deregulation and liberalisation” strategy. My minister was insistent on the complete closure of utility stores. Having seen the government function longer than he had, I pleaded that perhaps we should reduce the scale, (there were perhaps 450 or so stores then) but not kill the organisation.

I argued that governments sometimes need to make headlines though utility stores, and seem to be doing something when they can’t solve the actual problem. This difference of opinion generated its own heat, but I stood my ground and the higher forums upheld my point of view.

I was quite satisfied but never thought I would see the pendulum swing. Setting up 5,000 utility stores in four months is a wish which only a genie can achieve. Even a multinational retail marketing company with its enormous human and financial resources would not plan more than a dozen stores in that time span.

If the idea is to franchise these utility stores, it will do harm to the government’ image. When the differential of the price at which daals, sugar and ghee will be sold in at utility stores compared to the market price, is so high, you can certainly expect big windfalls for various ‘smart’ groups of people. What the people are likely to get is poor quality, short-weighted commodities and that also a few days of the month. If the government is really serious about the matter, it may want to re-examine the rations depot system, even though it will tantamount to an economic retreat. It was at least structured and the commodity did get to the poor.

Another way of looking at the utility store initiative in the budget is to make a simple calculation. If out of a population of 160 million, only 50 per cent are assumed to be below the poverty line or fall under the definition of potentially poor, each of the 5,000 stores will have cater to 16,000 people daily.

Also, it is difficult to understand why such drastic steps are required to take care of the poor, when, as claimed in the budget speech, atta in Pakistan is the cheapest in the area and we have reduced the incidence of poverty from 34.4 per cent to 23.97 per cent, since 2001. And to cap it all, our per capita income has almost doubled in that period. This is as baffling as our stock exchange performance.

The positive sign one notices is the attention that government servants have received, especially the lower grades, where not only the salary has been increased by 15 per cent but their current grades have been upgraded, and they have been given the hope of perhaps owning a house one day. This will improve their morale and hopefully their performance.

The government should stop wasting time in setting up commissions to look into making the government servant’s salary market competitive, because after numerous aggressive recommendations, all that the ministry of finance can afford each time is a maximum raise of 15 per cent. The government should instead aim to bring the salary and perks of government servants to realistic levels, in say five to seven years, by giving annual increases which are above the inflation rate.

The car lobby, which was receiving bouncers in the previous two budgets, has connected with the ball well this time and has bounced back. The decision to restrict used car import to only three-year-old cars will result in more expensive used car imports, improving the competitiveness of locally produced cars.

On the macro level one sees very little in the budget to tackle two very serious problems — that of the widening gap in power production and consumption, and declining industrial production. On the power front perhaps it can be said that the ministry of water and power will push Nepra into enticing more investors to get cracking. Merely the announcement of intent, or opening ceremonies, is not going to reduce the agony of the public that is being forced to sweat it out and is resorting to rioting.

As for industrial growth, the growth rate has come down from 18 per cent a couple of years ago to eight per cent this year. Even this figure is not reflected in the export industry where the growth in exports this year was more like six per cent. This is worrisome as the trade gap which the government continues to play down is on the increase.

Surely the increase in minimum wages, however laudable, is not going to encourage the growth of industry and subsequently exports. One of the reasons for the high cost of doing business for the textile industry was the last increase in minimum wages. This one could be the knock-out punch, especially for the labour-intensive garment industry.

I see little good news for the textile industry. While we have been spending over four billion dollars in investment in machinery to prepare for the post quota regime, our competitors India, China and Bangladesh have invested much more. Added to this is the higher cost of labour, both in absolute terms, compared say to Bangladesh, and in terms of productivity, compared to China and India.

One sees more trouble for the value added part of the textile industry in the coming year. With the closure of the more labour intensive garment factories, the government claim of providing one million jobs may go into reverse gear. Some of the doable things, for instance in the textile sector like supporting an entrepreneur set up electronically-managed state-of-the-art warehouses in the country of destination or assisting him purchase international brands, have become casualties of committees and reports.

Unfortunately, the budget exercise each year is the culmination of the hopes of various lobbies and the wealthy, while the have-nots continue to wallow in abject poverty. Let us pray that in future years we start making the main budget for the poor, rather than make them wait for the trickle-down effect.

tasneem.noorani@tnassociates,net

http://www.dawn.com/2007/06/18/op.htm#2
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