EDITORIAL: Large-Scale Manufacturing Index (LSMI) year-on-year (July-May) 2020-21 against the comparable period of the year before was positive 14.57 percent as per the recently released data by Pakistan Bureau of Statistics (PBS). Prior to expressing satisfaction at this significant improvement and attributing it to the Khan administration’s considerable easing of monetary and fiscal policies to deal with the onslaught of Covid-19, policy decisions that are continuing and are reportedly the reason behind the sixth International Monetary Fund (IMF) review talks remaining inconclusive, it is relevant to note three disturbing trends:
First and foremost, the monthly quantum index of manufacturing reveals that in May 2021 it was 139.55 which compares unfavourably with 145.25 in March 2021, 168.50 in February 2021 and 175.47 in January 2021. However, it compares very favourably with the plunge in LSMI during 2019-20 that reached a low of 86.23 in April 2020 attributable to severely harsh monetary and fiscal policy decisions. Second, the rise in LSMI is attributable to the low base the year before and sourced to the Ministry of Industries (MoI) data rather than OCAC (which rose by 16.22 percent July-May 2021 with a year-on-year impact of no more than 0.86 percent) or provincial board of statistics (which registered a growth of 9 percent July-May 2021 but only 2.63 percent year-on-year impact). MoI data notes a growth of 16.88 percent July-May 2021 with an 11.08 percent year-on-year impact; however, indices for May 2021 show a growth of 36.84 percent compared to May 2020 but a decline of 3.93 percent when compared to the month before, i.e., April 2021. The key question would be whether this decline continued in June or whether it was reversed. Third, the LSMI data comes as no surprise as the government had already declared a growth rate of 3.9 percent for 2020-21 – from 41,565 billion rupees in 2019-20 to 47,709 billion rupees in 2020-21. A look at the components of the growth rate, however, shows that while total consumption rose from 38,268 billion rupees in 2019-20 to 44,426 billion rupees in 2020-21 gross capital formation rose only from 6369 to 7255 billion rupees. In other words, there was a sharp rise in household and government consumption after the lockdown last year particularly with respect to the automobile sector which further benefited from the reversal of government policy to disallow purchase of cars as well as immoveable property by non-filers.
The largest weightage in LSMI is (i) textiles at 20.9 percent which rose by 15.64 percent July-May 2021 against the low base of negative 10.7 percent July-May 2019-20 attributable no doubt to the shifting of export orders from India due to Covid-19; (ii) food beverages and tobacco at 12.4 percent which rose from negative 3.15 percent to 11.71 percent (and this rise is in spite of Finance Minister Shaukat Tarin constantly pointing out that Pakistan is now a food importer); (iii) automobiles with 4.6 percent weightage rose by 409.3 percent in May 2020-21 though in July-May 2020-21 it rose by 47.8 percent against negative 45.6 percent in July-May 2019-20 with a small cumulative year-on-year effect of 2.032 percent; and (iv) non-metallic products (including cement) rose by 26 percent July-May 2021 against negative 3.9 percent in the comparable period of the year before. A decline was noted in electronics, leather products (no doubt because of a decline in sales in the West due to Covid-19), engineering products (in spite of a rise in automobiles), rubber products and wood products. It is, therefore, important to note that the time for complacency though one would hope that the government not only succeeded in fuelling the growth momentum further in June but continues it in the current month.
Copyright Business Recorder, 2021
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