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Reassessing protection of domestic industrial sector  

| Updated: May 29, 2022 21:20:04


File photo used for representational purpose File photo used for representational purpose

As a step towards further liberalising trade and promoting competitiveness, some local manufacturing industries may see reduced fiscal protection in the upcoming budget for FY2022-23. Among such businesses, there will be manufacture of mobile phone, refrigerator and air-conditioner, a report carried by the Monday issue of this paper says. In the process, the government may impose 5.0 per cent Value-Added Tax (VAT) on the said types of items at their production stage in the next budget, the report further went. Such a government move, it goes without saying, has been long overdue. In fact, some industries, which have meanwhile grown mature enough to compete in the international market, are still under fiscal patronage. This is not only a mere wastage of government favour, but also crippling for the industries so protected.  

The good news is that far from objecting to the move, some highly successful local industries, for example, those that make mobile phones, have welcomed the proposition. Such a realisation on the part of some of the local industries is doubtless laudable. It is expected that others, especially, in the export-oriented sector who have been enjoying such government protection for far too long would wean themselves off such dependence on fiscal support. It is worth citing the outcome of a study conducted by the National Board of Revenue (NBR) on this score. It shows that every year such protectionist tax exemptions enjoyed by local businesses eat up 2.28 per cent of the country's Gross Domestic Product (GDP). This is a huge amount of state resource that has to be freed, obviously, in a phased manner, to offer the domestic industry a healthier growth environment. It could not come at a better time than now when the economy is on its way to achieving its status as a middle-income economy by 2026. 

Also, it is exactly at this time that diversification of the export sector has become an inescapable imperative. And that is for the simple reason that with graduation from the category of a Least Developed Country (LDC), Bangladesh will lose some preferential treatments including the duty-free and quota-free access to the markets of the developed countries. In that event, the country should be able to produce diverse exportable items of better quality and in greater quantities to be relevant in the global market. However, some enterprises, the small- and medium-scale ones, in particular, would require the protective fiscal measures for a longer period of time. But, in any case, caution needs to be exercised regarding entitlement of such fiscal privilege by a business. This is necessary to avoid any kind of political patronage in this regard at the expense of the public exchequer. In any case, the government policy should be to encourage the beneficiaries of such state protection to become competitive and soon grow out of the need for official backing.  

While it is acknowledged that the time is up for withdrawing the protective umbrella from the domestic industries, there is still no room for doing that on an ad hoc basis. In fact, it should be based on an impact analysis of the protective measure so far granted to the different industrial sectors. Equipped with the information, the government should reassess the existing protection and tariff structures that are unhelpful for growth of the domestic industries outside the Readymade Garment (RMG) sector. In the light of such re-evaluation, the country's trade policy has to be restructured. 

 

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