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Thursday January 23, 2025

Policies for inclusive growth

By Mansoor Ahmad
January 15, 2025
People shop at a market in Lahore, Pakistan on April 30, 2022. — AFP
People shop at a market in Lahore, Pakistan on April 30, 2022. — AFP

LAHORE: The distinction between market-friendly and business-friendly economic policies is critical in shaping economic growth and inclusiveness. Our government must recognise this difference to ensure that policies benefit not just a select group of businesses but society at large.

Planners must understand the nuances between these policy approaches. Market-friendly policies focus on creating competitive markets with minimal government intervention, prioritising efficiency and resource allocation driven by market forces. However, this approach carries risks of concentrating benefits among established players, potentially fostering monopolies or oligopolies.

In contrast, business-friendly policies aim to support businesses of all sizes, including small and medium enterprises (SMEs) and startups. These policies encourage entrepreneurship and innovation while fostering a level playing field through regulations and incentives. The ultimate goal is broad-based economic growth that benefits all segments of society.

Pakistan’s existing economic policies pose significant challenges. These often favour large corporations or well-connected businesses, sidelining SMEs and participants in the informal sector. Regulatory inefficiencies stemming from governance flaws, inconsistent enforcement and lack of transparency create uncertainty that deters smaller businesses. Access to capital remains a critical issue for SMEs. High credit costs and limited financial access hinder inclusive growth. Furthermore, weak infrastructure, including inadequate transportation, energy and digital access, disproportionately affects smaller enterprises.

To achieve sustained and equitable growth, the government must prioritise transparency and good governance. Transparent tax and subsidy regimes are essential to ensure equitable benefits and eliminate preferential treatment for select businesses. SMEs and startups must be supported by simplifying access to finance through microcredit schemes and fintech solutions. Technical training and capacity-building programmes should be provided, while SME-focused industrial zones with the necessary infrastructure and tax incentives should be established.

Policies must address underserved sectors such as agriculture, small-scale manufacturing and informal enterprises, while promoting the participation of women and marginalised groups through targeted initiatives. Serious efforts are required to strengthen competition laws to prevent monopolistic practices, streamline business registration processes and reduce bureaucratic hurdles for SMEs.

The government must invest in digital platforms to facilitate e-commerce and supply chain integration for small businesses. Digital tools should also be leveraged to enhance tax compliance and bring informal sectors into the formal economy. Collaboration with the private sector is essential for developing infrastructure, vocational training, and research and development (R&D). Public-private partnerships (PPPs) should be inclusive, ensuring diverse regions and industries benefit.

Regular evaluations of the social and economic impacts of policies using data-driven insights will help refine approaches over time. The inclusiveness of economic policies in India, Bangladesh and Pakistan varies significantly due to differences in governance, economic priorities, and institutional effectiveness. India’s initiatives, such as ‘Make in India’ and ‘Startup India’, empower SMEs and startups, which contribute approximately 30 per cent to the GDP and employ a significant labour force. Programs like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Jan Dhan Yojana focus on rural and underprivileged communities, while policies like “Digital India” aim to bridge the digital divide.

Bangladesh’s garment sector has transformed the country into the world’s second-largest apparel exporter, employing millions of women and boosting female labour force participation to 36 per cent, compared to Pakistan’s 22 per cent. The country is a global leader in microfinance-driven poverty reduction. Targeted initiatives in health and education, such as stipends for female students, have significantly improved literacy and maternal health metrics.

By distinguishing between market-friendly and business-friendly policies and adopting these measures, Pakistan can create an economic environment that fosters inclusive growth, enhances job creation and benefits all segments of society.