LAHORE - The business community on Friday came up with mixed response to the federal budget for 2017-18, some saying the budget will promote unemployment, as no incentive has been announced for industry while some of the view is that the budget is an agenda for economic revival, resolving energy crisis and promoting investment and agriculture sector.

However, Institute for Policy Reforms (IPR) experts termed the budget just a full of promises, as the finance minister’s budget speech was a mix of claims of economic success and promises of further growth. PRGMEA Central Chairman Ijaz Khokhar said the budget has ambitious tax collection plan, saying the budget has little to address the real issues of the economy or to revive growth. He said that the budget does not set a strategic direction, as fiscal deficit is too ambitious and the government has relied again on withholding and indirect taxes. He said that the textile sector contributes up to 60pc towards export earnings and generates millions of jobs but the government has announced nothing for the revival of this sector.

The finance minister, in his speech, accepted decline in export but did not announce any measure to take the responsibility of it. Khokhar said that that tariff of gas and power as well as wages must have been brought down on a par with regional competitors to make exporters competitive in the world market.

Moreover, the value-added textile industry had demanded allocation of Rs60 billion under PM package but it seems the government has nothing to do with improving exports and generating employment. These measures could have benefitted the entire manufacturing chain.

While addressing a press conference after Federal Budget Speech, LCCI President Abdul Basit said that a number of good announcements have been made in the Federal Budget 2017-18 while some features need attention. He said increase in allocations for water and power projects would help get rid of energy crisis. Funds for infrastructure development would also attract foreign investment. He said that increase in defence budget was need of the hour as country is facing security challenges.

Basit welcomed supportive measures for agriculture, poultry, textile sectors and human resources. He said that business community was expecting zero-rated facility for food sector to get due share in the international trade. He said that establishment of infrastructure bank would give immense benefits to the agriculture sector. He said that 10,000 additional electricity in the system would help overcome energy crisis. He said that increase of taxes for non-filers is good but taxpayers should be given maximum facilities. He said that over Rs1400 billion have been allocated for debt servicing that shows the bad effects of debts to the economy. He said that Kalabagh Dam is once again ignored.

FPCCI former president Mian Idrees said that though cut in corporate tax is a good step but it is not enough and should be brought down further. He said that concessions for poultry and livestock sectors would go a long way. He said that measures for renewable energy sector would help promote alternative energy resources. He said that focus on railway is a good omen would help development of this important department. He said that continuation of zero rated facility for five sectors is a good step and would help enhance exports of the country. He also welcomed the announcement to release pending sales tax and income tax refund claims, but raised concern that the government has not fulfilled the promise made in the last budget.

IPR experts stated in a report that the budget was presented in the shadow of protests by farmers. The protests should not have been a surprise. They show the disconnection between economic policy making and realities of the productive sectors. The report said that Industry and agriculture need fundamental reforms to grow. The government responds with adhoc measures.

A day earlier, the finance ministry released the Economic Survey 2017-18, which showed several weaknesses in the economy. Considering these, the government’s claims of economic success sounded particularly jarring. The minister said that “sustained and inclusive economic growth” was anchored in successful completion of structural reforms. He did not list the specific reforms. In IPR’s view, the government has not touched the structure of the economy or its political economy.

“By favouring indirect taxes over direct taxes, we continue with regressive taxation. Continued increase in public debt means that the whole nation pays for the profligacy of the few. The federal PSDP prefers to invest in highways over all other expenditure.”

The report said that let us first look at this year’s framework in light of last year’s outcomes. Fiscal deficit of 4.1pc in 2017-18 would certainly be breached. An understated current account deficit does little to instill confidence in the numbers. FBR tax collection is estimated to grow by 14pc and non-tax revenue by 7pc. The real value of current expenditure has been kept at the level of 2016-17. However, expenditure increase on defence, subsidy, and development may force an increase in the total or a cut in PSDP. This year the cut on PSDP was 11pc, which brought it down to Rs715 billion from Rs800 billion. The government will not achieve the estimate for provincial surplus.

Stabilisation is no longer the goal. GDP growth rate is targeted to be 6pc and inflation will be same as this year’s 6cp. However, some measures will stall growth such as withdrawal of exemptions on construction. The inevitable increase in government borrowing would affect credit available to the private sector. The government’s savings and investment targets do not support growth. Public debt has reached 62.3pc of GDP. GoP’s promise last year to observe provisions of the fiscal responsibility law was forgotten. External debt is 23.4pc of GDP.

The budget 2017-18 lists many initiatives for growth, especially for agriculture and textiles sectors, as well as for poverty reduction. Past record of such initiatives shows that they have minimal effect. The report hoped the government will succeed this time.

Referring to measures to revive agriculture and industry, IPR stated that even if these measures work, their contribution would be one off. The need was for long term efforts to build competitiveness and increase productivity. While reduction in input cost will help, agriculture suffers from neglect of water resources and management. The proposals for agriculture do not address the real issue of improving seeds and restricting virus. This year’s PSDP provides Rs25 billion for the water sector. This is 20pc below last year’s allocation and Rs20 billion less than the allocation of 2014-15. Water must receive higher priority.

It is good to see a 25pc increase in the development budget to Rs1 trillion from the original Rs800 billion. Funds for highways have grown by 100pc from Rs165 billion to Rs330 billion. About one-third of all development budget is for highways. The growth in allocation of the federal PSDP is an improvement, but at 3.3pc of GDP is nowhere close to meet the large infrastructure and social deficits that constrain the economy. It was expected that with limited funds government would spend PSDP judiciously. Funds for the power sector have reduced from Rs75 billion in 2016-17 to Rs60 billion in 2017-18. This is primarily for completion of the two LNG power projects. IPR would have preferred higher amounts for hydro projects. The PSDP does not at all address the two major constraints of transmission and distribution. CPEC projects get Rs180 billion. Take away items that logically belong to the current budget, such as settlement of IDPs and PM’s youth programme, leaves a smaller effective PSDP. The number of projects have grown from last year’s 813 projects.