Poverty trap

LAHORE: The best way to reduce poverty is to increase the income of the poor so that they are motivated to work hard. In Pakistan's case, this condition has been fulfilled, but the government is depressing the incentive of the poor to work by disbursing monthly cash subsidies to the heads of poor families.

Planners need to decide whether they want Pakistan to be a trading, manufacturing, or agricultural nation. Current policies do not support any of these goals. Trading nations like Singapore, Hong Kong, and Dubai allow imports at a fixed low duty and allow the export of all imported items to any destination in the world. These countries are able to ensure full employment for their populations through services, but Pakistan cannot afford this because it needs to create 4 million jobs a year just to absorb the 4 million people who join the workforce every year, which a trading economy cannot absorb.

This does not mean that we should let our trading potential go. Because of its location, we can become a trading corridor for a number of landlocked countries. Trading activities would create few jobs but a lot of economic activity. However, it would be foolish to depend entirely on trading activities. We need to create a lot of jobs, which can only come through the manufacturing sector.

The state is also planning to support corporate farming. Planners must understand that corporate farms will mechanize and digitize Pakistani agriculture. This will reduce the need for large human resources, which will spare a huge number of agricultural workers. This labor force will have to be absorbed by the manufacturing sector.

However, the manufacturing sector has been left to struggle for survival, and even the infrastructure has been allowed to deteriorate due to lack of funds. The global recession demands a prudent pro-industry approach by the government, but this has not yet been forthcoming. Economic managers should announce enough measures to spur industrial growth so that the nation does not feel humiliated when they beg for foreign assistance.

Two sectors that can absorb a large number of workers are the apparel sector in the textile industry and the construction sector. The government can take several steps to boost the apparel sector. The problem in this sector is the availability of raw materials and inputs. More than 70 percent of apparel exports come through SMEs that buy inputs at a very high cost because they are unable to import duty-free inputs (including fabric and yarn that larger exporters import through bond or DTRE schemes). Simple, transparent, and fair measures like those available to Bangladeshi apparel SMEs could double our SME-manufactured apparel exports in two years.

The government should encourage small housing projects. It should impose heavy duties and taxes on the construction of houses above 120 square yards (5 marla) and eliminate taxes on smaller plots to encourage their construction. Pakistan has a housing shortage of over 10 million units, and most of these shortages are in the small housing sector. This sector would employ the entire unskilled workforce besides engaging numerous self-employed skilled carpenters, electricians, plumbers, and painters.