Wednesday, May 11, 2016

Government encouraging pseudo-industrialisation

Manufacturing sector – victimised by politics and energy crisis – has been further damaged by the government's equal treatment to raw materials and finished products.
The government has been encouraging deindustrialisation by levying equal customs duty on raw materials and finished products, according to business fraternity. The government levies equal tax on most of the raw materials and finished products, which is discouraging the industrial sector, according to president of the Confederation of Nepalese Industries (CNI) Haribahkta Sharma.
There is a need to eliminate negative protection, he said, adding that industries have to pay equal customs for import of raw materials and finished products.
Most of the business groups have entered into trading business in recent years, pulling down shutters on their industry due to equal treatment to finished products and raw materials apart from deteriorating investment climate.
On one hand politics in labour unions has reduced productivity of employees and on the other lack of energy has squeezed production capacity of the plants, he said, adding that prolonged political transition will only increase the pace of deindustrialisation despite the government promise to encourage industrialisation in the country.
Likewise, the increasing cost of energy due to lack of regular power supply has made the domestic products expensive, eroding comparative and competitive capacity of domestic industries, added Sharma.
Managing director of Nimbus Ananda Bagaria seconded Sharma. According to him, the government has to immediately revisit its tax policy on raw materials.
The government is preparing the budget for the next fiscal year aiming to increase agriculture productivity and kick-start industrialization. However, without changing the existing tax policy that has failed to encourage industries, it seems Nepal will not see any industrialisation, said Bagaria.
The business fraternity has also asked the government to set separate customs duty for raw materials and finished products. "In many cases, import duty for finished products and concerned raw material are same," Bagaria said, adding that such policy does not protect domestic industries. "To promote industrialisation, there must be level playing field while converting raw material into finished products."
The industrialists have requested the government, which is preparing budget for the next fiscal year aiming at encouraging industrialisation, to adopt a clear policy of 2 tier difference in import duty on raw materials versus finished product.
The government policy in the past has encouraged industries based on duty difference with India, like the vegetables ghee industry. The government has to promote industries that have local raw material strength, according to Bagaria.
He opined that the country has been trapped into pseudo-industrialisation, fueling imports and increasing trade deficit, despite have huge local resources with competitive advantage over imported finished products.
According to the Central Bureau of Statistics (CBS), the manufacturing sector will contract by 9.86 per cent in the current fiscal year 2015-16. "The negative growth is likely to reduce manufacturing sector's contribution to the economy to 5.53 per cent in the current fiscal year from as high as 9.03 per cent in 2000-01," the CBS data revealed.

No comments: