The dilemma of unnecessary imports
In the wake of dwindling economy and downward spiral in exports, the Federation of Pakistan Chambers of Commerce and Industry has rightly suggested increase in import duty on unnecessary imports and imposition of 100 percent L/C margin on preventable imports to improve the balance of payments situation. Though the government had already taken some steps to restrict unnecessary imports to rescue the depleting foreign exchange reserves and curtail widening deficits, but more measures to cut imports have become imperative. The growing imports, coupled with lower exports, have led to an increase in the overall trade deficit. Importantly, the growth in import of machinery and industrial raw materials is expected to continue, as the activities under the CPEC are steadily gathering pace. In a move to cut trade the State Bank, in recent months, directed banks to hike cash margin for the import of non essential items to 100 per cent. This move would not be an unmixed blessing. It is an attempt to ease pressure on the country’s trade deficit in the wake of dwindling g exports and the expected spike in the import bill on account of the CPEC- induced capital goods demand. 100pc cash margin for imports of 404 items will moderate imports of non-essential items, but it may soak up excess liquidity from the market, sideline retail investors from international trading, increase the price of notified goods and depress the custom duty collection component in revenue collection. However, experts say that more steps are needed in this regard. Industry people say that imports must be reduced, which jumped to $52 billion during the last fiscal year, while exports dropped to $21 billion, which is a huge gap that calls for more measures. The suggestion in this regard include expansion in the list of import items by imposition of 100 percent letter of credit margin, and the list of such items may be finalised in consultation with the FPCCI representatives. This step would compel traders reduce their imports due to liquidity constraints. Moreover, additional duties may be slapped to discourage imports to narrow trade gap, otherwise the country will face serious challenges within next few months. It is better to take strict measures ourselves instead of waiting for the situation to deteriorate, which will leave us with only option to approach international lenders again. Meanwhile, the local industries should be encouraged instead of making Pakistan a dumping ground for other countries, as the free trade agreements (FTAs) and prefrentialk trade agreements (PTAs) signed with other countries are heavily in favour of partners and need to be reviewed. At present, under one FTA, 85 percent goods are imported into Pakistan worth $15 billion, while exports to that country are less than 15 percent or $2 billion. It is high time to make concerted efforts to increase exports from the current $21 billion to at least $25 billion in the current financial year, he suggested. The Federation of Pakistan Chambers of Commerce and Industry supports the demand of the exporters for a reduction in electricity and gas tariffs as per the level prevailing in the regional countries and prompt payment of remaining refunds of sales tax and income tax. Meanwhile, economic gurus say that there is no denying the need for tightening the belt and reducing or even completely banning unnecessary imports. Besides, there is also a dire need to curb smuggling of goods to stop the huge leakage of foreign exchange and to protect the local industry and legal trade from competition. At the same time, greater supervision should be exercised over the customs department to increase government receipts and to curb illegal imports. That again would protect the local industry and trade. A curb on corruption in the customs and other tax departments is also necessary to protect the urban tax payers who have to ultimately bear the burden of increase in taxes. In fact, a whole new approach is needed to revive the local industry and trade and cut our dependence on all kinds of imports. Import of commodities like powdered milk, dairy products, edible oils, fresh fruits and vegetables, clothes, plastic goods, toys, medicines, electrical goods etc., bespeak of serious flaws in economic policies. All these commodities and goods can be produced in the country only if the right policies are framed and forcefully implemented in letter and spirit. On the other hand, the government and especially the Ministry of Commerce, Industries and Planning Commission should extend unwavering support to Federation of Pakistan Chambers of Commerce & Industry so that they can boost their export competitiveness. The TDAP must highlight Pakistan’s various trade fairs to consul generals and their trade representatives of various countries. Trade fairs are an integral step in the economic revival of Pakistan, as it will help us boost the economy of the country. We should support trade activities and particularly those pertaining to growth of export.