It did seem like a case of robbing Peter to pay Paul. As the government scattered largesse on the industrial consumer, cutting the rate at which electricity is supplied by Rs per unit, the electricity tariff was also hiked by Rs 7.72 per unit to Rs 35.50. The tariff hike is expected to net Rs 483 billion, while the reduction in the industrial tariff is expected to cost Rs 23 billion. It is not a subsidy from the government, which will not put up the Rs 23 billion, something which the IMF frowns upon. However, it does amount to a subsidy from the consumer to industry, because if that reduction had not come, the tariff hike could have been reduced proportionally.
That the country’s only path out of its economic woes are to increase its imports phenomenally is easily understood. That the government has chosen this reduction as a means to increase exports is therefore understandable. However, is the government sure that it has selected the best option, that Pakistan’s traditional exports, textiles, are not a sunset industry, that there is enough innovation and breaking of new ground to justify this subsidy. The consumer may not know that he or she is subsidizing industry, but he or she knows that power is now dearer.
For that, the government will be blamed, which will carry a political cost. The PML(N) is axiomatically business-friendly, and Prime Minister Shehbaz Sharif has even served as President of the Lahore Chamber of Commerce and Industry. But will this step earn enough foreign exchange to justify the political loss. Mr Sharif has already spared the traders in the Budget just presented, despite the threatening noises before and after about widening the tax net. Can he afford further friendliness?
Perhaps more relevant is whether he can keep up this policy. It was appropriate that the enouncement of this step coincided with a downward revision of oil prices. However, while this will mean a cut in the Fuel Adjustment Charge, is there any guarantee that it will persist? Oil prices are out of the control of the government, and if they rise, or rather when they do, how will the government protect industry? The government needs to identify high-growth new industry which it must encourage. The unemployment in the textile sector will be partially addressed if exports increase, but will this subsidy from the consumer help?
