Spearhead Analysis – 20.09.2013
By Enum Naseer
Research Analyst, Spearhead Research
The Stock Market Responds
The announcement of “pro-business” budgetary proposals spelled celebration for the leading bourse which gained 433 points (1.9%) in the very next session of FY14. The government’s efforts to have a fair mix of IMF and growth measures in the blue-print for revitalizing the economy were appreciated as it unveiled a federal budget of over Rs. 3.5 trillion. Stocks closed at an all time high in the post budget rally as corporate tax was cut by 1pc to 30pc. Ambitious targets were set: the government would work on settling circular debt in 60 days and bringing the fiscal deficit target for 6.3pc of GDP. The Taxation Committee of the Board of the KSE also presented its recommendations to the government, part of which were accepted.
Though the reforms introduced in the budget are popularly termed to have a “pro-business” orientation, with power tariffs increasing and taxes burdening the end consumer, there is significant reason to believe that the reforms will raise the stakes for the business community.
The textile industry has experienced the shock waves and things are likely to get worse in the coming days with the power tariff and fuel price increases raising questions about productivity, pricing and efficiency. It would be disappointing if the country were to lose $12.5 billion of its export revenue and its rank as the 8th largest exporter of textile products in Asia especially at a time when it finds itself eyeball deep in an economic quagmire. The sector contributes 9.5% to the GDP and generates employment for nearly 15 million people (30% of the 49 million work-force).
The ever-growing mobile industry with a consumer base of 125 million nationals will also have to undergo a test of resilience. The PTA’s report that with the statistics updated till May 2013 points out that despite tele-density reaching an all time high of 70%, mobile phone companies are not happy with the new regulations and new sales had become hard to earn. Cell phone manufacturers are also trying hard to keep up with shifting demographics. Taxes have reduced the purchasing power of the consumer and will have an impact on sales in the “ULC (ultra low category)” where prices assume the greatest importance for consumers.
The budget, however, does focus on encouraging entrepreneurial ventures by measures such as providing easier loans and engaging individual entities for economic revival. There is also the argument that affluent classes that it allegedly protects are usually the ones that spearhead business activities and make investments, which in turn, creates jobs and helps set the foundation for growth.
A final word
Much like Everett Stonequist’s marginal man who was “poised in psychological uncertainty between two or more social worlds, reflecting in his soul the discords and harmonies, repulsions and attractions of these worlds”, the nation finds itself swinging back and forth between two extreme ends. The nation roots for remedies and yet demands release. It is willing to give up luxuries and comforts for a better tomorrow so that things are corrected once and for all while it asks for immediate gratification. The onus lies on the government to use the power of its mandate wisely and keep reinventing itself each year with a dynamic economic plan.Sources: Usman Gaba(Yarn Industry);Hassan Taqi (Akhuwat Foundation); Ali Omer(SPM Consulting); Osama Sabih and Adil Murtaza (Samsung Pakistan);Affan Manzoor (DealToday).
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