Motorcycle Imports: Square peg for a round hole

Not to be outdone by the Parliaments tendencies to act like a chicken without a head, the Planning Commission (PC) appears to be reaching into its tool box to fit square pegs in a round hole.
What else can explain the PCs recent move, suggesting a cut in import duties on motorcycles from 90 percent to 50 percent?
In a misconstrued attempt to ease the burden of rising prices on the common man, the Commission has suggested that this move will bring down the cost of two-wheelers, letting the masses speed on a budget.
But given the fact that the prices of two-wheelers have rationalised considerably in recent years, the PC appears to be barking up the wrong tree.
The proposal has met staunch opposition from the Engineering Development Board (EDB), whose representatives claim that such a sudden and sharp reduction in the prices of imported bikes will jeopardise gains made by local assemblers and manufacturers.
Since the first wave of the influx of foreign competition in the early 2000s, local players have been forced to enhance localisation and cut costs. "A Honda CD70 that cost over Rs70,000 in 2004 now costs about Rs65,000," a motorcycle dealer told BR Research. Over the same period, the price of the 800CC Suzuki Mehran has risen by 64 percent from Rs329,000 in FY04 to Rs538,000 in FY11, according to a local auto dealer.
The decrease in motorcycle prices has come about despite consistently rising input costs and depreciation of the local currency against both Japanese Yen and Chinese Yuan.
Lower prices have also attracted many more buyers. The members of Pakistan Automotive Manufacturers Association (PAMA) have increased production from about 171,000 units in FY03 to more than 737,000 units in FY10. Independent sources claim that cumulative sales of the industry have crossed 1.5 million units per annum at present.
Despite the banes of international competition already witnessed in the sector, a drastic reduction in import duties as the one proposed will likely cause more harm than good to the economy. Heres why:
While inflation has been a constant cause of concern in the country, it has resulted primarily due to excessive government borrowing from the central bank and higher commodity prices, which invariably raised rural incomes. Prices of motorcycles have actually gone against the tide during this period.
Successive periods of low economic growth mean jobs are harder to come by. So the focus of fiscal policies should be on facilitating the expansion of private industries that can generate more employment.
China, which is the most likely competitor to take advantage of lower duties, subsidises its own industries through lower utility bills and artificially low Yuan-Dollar parity, so the playing field is not really level, anyway.
"Rome was not built in one day," remarked general manager EDB Dr.Zubair. Talking to BR Research he said, "Import duties should be lowered in stages, perhaps 5 percent per annum, so the local industry has time to gear itself up as well."
Industry experts concur adding that, "Instead of lowering duties on CBUs, the government should come up with an attractive new-entrant policy to attract more industrial growth in the country".
God judges actions by intentions, but everyone else is not so kind. As the PC has been tasked with formulating policies aimed at long-term growth and stability, they must shed ideas of turning Pakistan into a trading hub at the expense of an industry that has cropped up despite mounting odds.
It would be a lot more prudent to initiate policies that will pull in new entrants to the local industry. Moreover protectionist policies should be phased out systematically instead of such abrupt changes.
Now if only the local motorcycle industry could make as much noise as the textile sectors blue-eyed boys of policymakers, this debate would be a foregone conclusion already.