The automobile industry is presently providing direct and indirect employment to millions of people in the country, contributing about 3 percent of the total GDP of Pakistan. Alone, auto parts manufacturers are contributing to nearing 1 percent of GDP. The automobile industry was flourishing in the country; many new automobiles players entered into this growing market of 220 million. The government also announced some incentives not only to mainstream Original Equipment’s Manufacturers (OEMs) but to aftermarket subsidiaries. Along with luxury automobiles, motorcycles, rickshaws and tractors are being produced locally to reduce our import bills.
The narrowing trade gap is on the top of the hierarchy of preferences set by Khan’s government. Unfortunately, in our country, every effort to lift the economy is subverted by the hands never seen. The same has happened with the present effort of the government to lift the auto industry, which is not only meeting our national needs but also earning foreign exchange to support foreign reserves and narrowing the trade gap. Only one tractor manufacturing firm exported 850 tractors in the first half of this year. Rebates on export have already been withdrawn by the government under the international contractual obligations.
Moreover, instead of promoting and supporting the industry, the government has surprisingly been withholding the sales tax refunds of the tractor industry since March 2020. The amount is now towering to over Rs6 billion. Amidst a long delay in sales tax refunds, the tractor industry has now reduced its production substantially, which is likely to be halted totally. Moreover, the tractor makers have also stopped orders for parts supply from the vendors. As a result, more than 250 tractor parts manufacturers and thousands of downstream suppliers have been forced to shut down their industrial operations, rendering many without jobs. The vending industry has already drained out all the liquidity it had, which is also affecting OEMs and aftermarket requirements of the tractor industry.
The present crisis of the tractor industry could also destroy the informal agricultural sector, which is the backbone of the country. The tractor vending industry was already operating only on marginal profitability and working hard to supply parts to the tractor industry aimed at increasing inputs. They have limited financial resources and working capital lines from banks. Besides clearing the overdue sales tax refunds at the earliest, the Federal Board of Revenue also needed to ensure that SRO 363(1)/2012 should be followed in the spirit of the ERS of FBR, which binds the government to refund the sales tax in three days.
The Covid-19-hit auto parts industry is now on a ventilator due to this unprecedented crunch. A catastrophe is hovering over the heads of the entire tractor industry and farming community, LSMs, agro-growth and food security. Trade shortfall has started increasing again because of such mismanagement.
Under the above circumstances, it’s never a judicious approach for the government to disturb the industries. The Prime Minister should intervene to rescue the tractor and vendors’ industry by releasing their funds held by the government to achieve GDP targets.
The writer is industry expert with major focus on Pakistan auto sector.