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It is a confidence booster budget and the direction is right. Commerce and industrial policies are attempted to be decoupled from the influence of finance and there are signs of central planning. Yet the planning ministry is not in the scene. The groundwork for the policies - related to trade and tariffs, automobile, refinery, and others have been going on for some time.

But for the first time, revenues are not the prime consideration. Targets are elusive. Threat of Covid-19 is still there and the IMF is giving further time-out. The beauty of the budget is that there are numerous small and token steps taken where the revenue opportunity loss is probably less than potential economic gains. The optics are really good.

It is evident that the government is betting on the manufacturing sector. The industry needs to invest. And foreign investments must come into exporting sectors. The risk is growing global commodity prices which puts the current account into jeopardy. But if it is to be financed by FDI, then there is no harm in running a deficit for a few years. The economic model can move on a sustainable path despite that.

Not to mention that there can be many a slip between the cup and the lip. There is no other way but to open the economy to face the challenges upfront and rely on the private sector to generate growth. Foreign capital likes openness. The fiscal deficit is not coming in control. Then add the energy sector's circular debt problem. The risks are certainly not small. And the solution to both generating revenues and solving the energy surplus capacity problem is by attaining consistent economic growth. For growth, the budget must be business friendly and that is what the PTI government understands well.

In fact, the PTI government's policies from day one were pivoted on reviving industrial growth and engaging private sector through fiscal and other incentives. The approach contrasts with what Ishaq Dar had adopted. After a decade or so, exporting sector is investing and billion-dollar private sector projects - not IPPs, are in the making.

There is also an awareness at the top government level that existing taxpayers can no longer be burdened with more taxes and compliances, while businesses cannot grow at higher electricity tariffs. But to develop a sustainable growth structure, the circular debt build-up will have to be arrested. For that, the economic wheel must spin fast in manufacturing and formal services. Agriculturists are getting mouthwatering support price. In livestock, there are pledges of removing duties on vaccine and feed imports.

A feel-good factor is being created. Stock market is bullish. Earnings are better. Capital gains tax and turnover taxes have been lowered. This will help trade volumes to grow further. The question is when will price multiples be rerated. If the foreign portfolio investment pours in at the PSX, then there are higher chances of these coming into manufacturing, agriculture and IT. Having said all that, the backbone of the economy is SMEs - manufacturing, and trading/retailing. Here one has high taxes and burdensome compliance and the other operates in shadows. The fundamental shift in the taxation implementation policy is to simplify returns, inculcate a culture of self-assessment, and bring in automated and third-party audit. Incentives are there for digital transactions and spread of Point of Sales (POS) machines. The attempt is to bridge the gap between manufacturing and trading/retailing SMEs.

The other issue of SMEs is lack of formal finance. For that, overall economic formality has to enhance. The math is simple. Banking deposits are around one third of formal economy. Half of these are invested in government securities and rest is credit to the private sector, within which SME's share is minuscule. One way is enhancing SMEs within the limited pie. Other is to expand banking sphere. Here some steps are taken. One is removal of withholding tax on banking transactions - the formal has been shrinking ever since it was imposed. That is over now. This coupled with digital incentives, the formal banking deposits may grow and the cash economy can potentially be curtailed.

The question is what is there for the common man suffering from high inflation? Well, not much directly. As FM said, it is traditional trickle down. Nonetheless, salaried class is happy to not have any increase in taxes. The minimum wage is increased to Rs20,000. The poor are being supported under the Ehsaas programme which is becoming more effective. Here the use of technology is doing the trick. Soon electricity subsidies will be routed through it and small farmers should be provided subsidized inputs through this window.

But all this may not be enough for the middle class. The economy must grow consistently for years before there is something for the common man which is a shame, but let's remember that it is a budget, not a magic wand.

Copyright Business Recorder, 2021


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