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BUDGET '95- 96 : TWO VIEWS

An Attractive Budget but with Big 'Ifs'

by Dr Hafiz GA Siddiqui
WE believe that if im plemented properly this budget will help the manufacturing sector to produce finished goods at lower costs, help the traders increase import/export and will make the consumers happy because they will get products, imported and/or domestically produced at cheaper rates Many promises are made and, no wonder, many people call it an "election budget ' "Election budget ' or not, it has been presumably prepared to ben efit the nation and the peo Ele We should look at it eeping this in mind There is no doubt that many promises have been made and hopes expressed in the budget The question is: can they be real ized? The answer is a cautious 'yes, with big ”ifs" They can possibly be realized provided other supportive actions are taken well in time and effec tively
Finance Minister proposed a Tk 24,707 crore national budget with laudable alloca tions to most sector*. Education, the most important pre requisite for human resource development has rightly been given highest priority again with a combined allocation of Tk 3750 crore. The budget has rightly, emphasized the appropriate strategy for poverty alleviation although it has not assigned strong enough priority to agricultural development which will greatly influence the process of poverty alleviation. In general, the finance minister has been able to please most of those who matter to him but not his political adversaries. He seems to be confident that this budget will cause the GDP to grow by 6 per cent, although he did not specify what would be the savings and investment patterns..One should note that national savings have increased from 6 per cent in 1990-91 to 9 per cent in 1993-94, but investment has lagged behind. It is true that contribution of indus-"trial sector to GDP has increased and that of the agricultural sector decreased, but this structural change itself does not guarantee an increase in GDP growth rate. Given the poor performance of agricultural sector and lackluster performance of the industrial sector, it is difficult to be enthusiastic about anticipated 6 per cent growth rate. Beside, he does not indicate the long-term growth: given this growth rate, in how many years, our per-c^pita income will increase to some respectable level. He also as-
sures the nation that the budget will reduce our de pcndence on foreign aid: about 43 per cent of ADP will be financed from domestic resources. This indicates an improvement of domestic re source mobilization process. However, domestic resources could further be mobilized by tapping potential tax-rev enuts from agriculture One wonders why the minister is so silent about adequately taxing the agricultural sector! Additional domestic resources could be amassed through privatization of public enterprises which drains out Tk 2500 crore per year. He avoids the discussion on the failure of the privatization process This seems to be motivated by political consider ation.
There have been tariff cuts in 1994-95 budget. Further tariff-reductions in 1995-96 budget is a step towards right direction but it needs to be supported by additional mea sures to safeguard the inter ests of domestic producers and consumers. Incidentally, the argument that since "trade liberalization" in 1994-95 budget has not only increased imports but also increased exports more than imports, therefore, further duty reduc tions or "trade liberalization" will increase our exports fur ther is not tenable. If one analyses the reason for our better performance in the export trade one will find that ready made garments, knitwear, etc. played the most important role. The import-duty reduction of "trade liberalization" did not significantly contributed to the ex port growth of RMGs Some other factors contributed to its growth This simply means that we need to be able to produce and export new non-traditional items to equalize our gains with those of our trading partners. For this the government must provide various supports needed, and create congenial environment. Only tax-reduction, is not enough.
Due to the wide ranging tax cuts, the manufacturing cost of products will certainly come down. But it does not mean that the products will be competitive either in the domestic or international markets. The total cost of product includes not only imported raw materials, components, spares, etc, but also power, transportation, managerial and administrative costs as well. If these costs remain higher than those of foreign competitors, the import substitution industries
wi1l not be able to compete with imported goods
The exports-oriented industries will face additional problems if our trading part nets do not implement Uruguay Round provisions as speedily as our finance minister might have sought. Under UR agreements all the tariff and non-tariff barriers are to be eliminated In response to this, we have acted quickly and reduced tariff barriers substantially Has this hap pened in those countries which can be good markets for our floods? We import of ficially many consumer and industrial goods from India, Malaysia, Singapore, Hong Kong, etc. Can we export books, fish, etc. for example, to India without any tariff and non tariff barriers? Have we succeeded in getting "reciprocity" from our trading partners? In the absence of re ciprocity, Bangladesh will lose And on the top of it, do we have enough new ex portables to equalize our benefits with those of the countries which are gleefully selling their products in our markets? These must be taken into consideration.
Another question must be answered: Duty reductions on many items will make the consumers happy provided the tax cuts are properly re fleeted in price reductions. But will it happen really? Our past experiences indicate that when taxes are raised, prices are increased more than proportionately, but when taxes/duties are reduced , prices hardly go down. The government will have to apply effective devices which will force the busmess sector, particularly the wholesalers and retailers of consumer goods lower the prices m concord with the duty cuts.
In the budget, the agricul tural sector has not been given adequate attention. The growth of agricultural sector is deplorably low although it contributes close to 37 per cent of GDP. There is no as surance that the farm-gate prices will be at a level which will sustain the farmers' interest. The reduction of duties on irrigation pumps is a commendable proposal. But the cost of electricity, diesel and fertilizer will continue to inflate the farmer’s production cost. The recently experienced fertilizer crisis has crippled agricultural sector. But there is no mention about this problem in the budget.
The writer is a professor of North South University Dhaka.