SITE president criticizes devaluation of rupee
KARACHI: Saleem Parekh, President, SITE Association of Industry, Karachi, while commenting on the recent massive rupee devaluation by the Government of Pakistan, has said that in spite of the fact that we are in the freefall basket of currencies, yet the currency is controlled by government through State Bank or directly through Finance Ministry. If we are to act as per free-fall basket of currency, then we have to see that it has to fluctuate as and when the rupee appreciates or depreciates. In this manner fashion, when we do a massive devaluation of 8-9 rupees, it really disturbs the entire system and the inflation goes just unbounded and no strings can be attached to control the inflation in the local market, says a Press release.
He said that the industries are affected in the most severe manner as the raw materials suddenly becomes very expensive. Industries have contracts of sales locally and international for 6 months and sometimes they are even of more than 6 months. So there is remote possibility that one can get a price hike especially in the international market where you are covered under agreements with the buy- ers. To have this kind of a blow where the cost increases by 10 to 15 pc, is a nightmare for the manufacturing sector.
Due to high hopes of the industrial sector especially exporters towards the sympathetic approach of the government to boost exports, many exporters have already booked latest textile machinery to take advantage of government's positive policy towards exports but after massive devaluation, cost of machinery will be unbearable and that will slow down the BMR process.
He further commented that even for the export sector, it would be a big setback. Other than natural cotton based commodities, all other commodities are 70 pc import-based. The imports would become expensive. The input would become expensive and the industry would again suffer and this 30 pc would not serve the purpose. On the other hand, hearing the news of depreciation of rupee and appreciation of dollar, the buyers immediately float the idea of reducing the price which actually hurts the industry most. If we look at the recent past, in the last 10 years, there have been massive devaluation in last 4 years, made overnight. At one point in time, a correction was made. But at the most of the time, corrections were never made.
He further commented that this is a big blow to the Pakistan's economy. The debt burden has increased by 900 billion in rupee terms and the ability to pay back debts has also effected. When we are doing everything in rupee, the taxation would not serve the purpose and we would not be able to retire our debts. It is a vicious circle. Then we need more money for which we need more taxes and increase in utility prices. So this will end up in lesser exports. We would be higher in cost as compared to our regional competitors, especially Bangladesh where according to previous dollar parity, we were 40 pc more in gas price and almost similar in electricity, minimum wages and so many other things which actually played pivotal role in terms of cost.
So how to run a factory? How industry can be sustainable? Can we sustain with this kind of instability in foreign exchange? he questioned. Can we sustain this attitude of the government to tackle the issues and put the industries in such terrible position.
He said that the govern- ment should go for the consultation with the industry & stakeholders. On the one hand the government intends to narrow down the trade deficit and on the other hand, it is creating such kind of situation whereby the massive devaluation has been made. These are all together two different things and if the government thinks that by devaluation, they will be able to increase exports, it is not like this. Specially, in textile sector, the industries which do little business in local markets and more in exports, their local sales will drop and exports sales will suffer as buyers would think that supplier is getting 10 pc more and would ask for price reduction.
"We have started receiving such requests to reduce price in the current orders and quote new prices. If case of no, they are not ready to buy from Pakistan. Today, the government should realize that commodities having logo 'Made in Pakistan' are hard to sell in the world markets. If we increase our cost, we will not be going in the right direction." He added.
He further said that consultation is the keyword. Even if you build a road, you think about diversions