The tariffs fixation
The government decision to come to the rescue of domestic industries by slapping tariffs on imported products is debatable. While it will have immediate benefits to the sizzling production base at home, it is hard to guess whether it will bolster the potential to compete in the long run.
The move has surprised many as it has come days after the federal budget. It is tantamount to a mini-financial bill, wherein the government has undergone a partial reversal of its earlier decision to completely abolish or reduce regulatory duties on about 285 imported products. If implemented, the move will reduce the projected revenue loss from Rs200 billion to Rs174 billion. Tariff lines, slated for a total abolition of regulatory duty, will now face a 50% reduction, and the FBR's gains from this rationalisation policy will rise to Rs74 billion. The finance ministry had, in pre-budget sermons, hinted at plans to abolish or substantially reduce regulatory duties on 1,984 tariff lines aimed at slashing protection for local industries by 52% over the next five years.
The crux is that the policymakers are confused, and apparently do not have a plan to bolster domestic production up to international standards. Moreover, the dilemma that basic essentials of production at home are exorbitant, especially the power tariff, makes any produce uncompetitive from exports perspective. Thus, the decision to make imports expensive through tariffs that inevitably comes to ramp up national coffers is not going to pay in the long run. The narrative bought from local and foreign consultants that contrary to the assumptions of faster export growth, exports might grow slowly, was myopic and could have led to erosion of forex reserves and closure of an already struggling industry. Last but not least, the cost of tariffs levied on importers is eventually passed on to the consumers.
The need of the hour is to patronise the domestic industry by facilitating it with state-of-the-art infrastructure, ensuring ample availability of indigenous raw material, and making cost of production viable by drastically right-fixing energy charges.