The finance minister said tax deduction and tax holidays will ensure job retention and increased investment will create employment. With this outdated theory in mind, corporate tax had been reduced for conglomerates in two fiscal years. This time, tax was reduced by 2.5 per cent. As a result, corporate tax decreased by five per cent in two years. Tax rate on business turnover decreased too. Investment didn’t increase. Retention of jobs using such an outdated method has not created investment anywhere in the world. Rather, aggregated demand has been increased by providing cash assistance to people and businesses through proper use of government spending in different countries. Tax is increasing too. A replacement of 28 per cent corporate tax has been proposed in in the USA.
There is no explanation on the cause of slow progress in implementing the previously announced stimulus in cottage, micro, small and medium enterprises (CMSME) sector or about a remedy. Had taxation been varied on export products, market diversification, and region and sector-wise, the structural transformation of economy would have happened and new employment would have generated.
On the other hand, the new budget had placed dependence on the trickle-down theory to tackle new poverty. Sectors like social safety net programmes, health and education saw less allocation than before. Allocation in social safety net programmes has increased by 13 per cent, but the amount of allowance per person didn’t rise. In fact, most parts of the allocated fund will be spent on pension of government employees and for the interest of savings certificate.
And expansionary policy-structure has been adopted globally to increase the aggregated demand for economic recovery from the impact of Covid-19 pandemic globally. Cash transfers are go going to the people and businesses through revenue policy and monetary policy. There is no alternative to the arrangement of universal social security programme to face the new poverty.
Cottage, micro, small and medium industry
Big businesses have received most of the stimulus funds. Big businesses managed to get loan but credit flow to cottage, micro, small and medium enterprises (CMSME) sector is slow. Credit flow was not as expected despite the deadline of loan distribution being extended frequently. Tk 55.38 billion (5,538 crore) from Tk 200 billion (20,000 crore) stimulus still remains undistributed. Not a single penny from the Tk 20 billion (2,000 crore) credit guarantee scheme has been distributed as yet. No guidelines have been formulated as yet on a possible refinancing fund worth Tk 100 billion (10,000 crore).
Increase of credit flow to CMSME sector was necessary to retain people’s jobs in this sector, but many obstacles remain. Firstly, various documents and bonds are required to get a bank loan. Since people working in the informal sector don’t have these documents, they can’t get the loan. It is necessary to launch credit guarantee scheme immediately.
Secondly, banks are not interested in providing loans to the CMSME sector due to flat lending rates, because it increases banks' fund expenses. For example, a bank has to bear less costs if it lend Tk 1 billion (100 crore) to 10 big businesses instead of distributing the same amount to many small companies. Providing many companies with loans decreases the banks' profit. Interest rates will have to be changed for bank profit and macroeconomics stability so that banks receive a profit at a rate of 1-2 per cent against their institutional costs. This difference can be adjusted in the revenue system.
Production of export-oriented industry and diversification in export
The impact of the coronavirus pandemic is felt more because of dependence on one industry and no diversification in export products and markets. Eighty eight per cent of exporting goods are apparel and textile products. Besides, apparel and textile products also lack diversification. Sixty eight per cent of exporting readymade garment products is limited to 10 types only. Export market are centralised on West Europe and North America. Since market is mono-centric, work orders of the 50 big factories have dropped by 30 per cent in the first couple of days as the economy of the exporting countries takes impact of second wave of the pandemic. For export, attainment of generalised system of preferences (GSP) facility will have to be given emphasis not only in western countries but also in other countries’ markets. It is also necessary to invest to increase labour productivity along with diversification of export and production. No specific initiative has been noticed in the budget.
Countrywide production and investment network
Migration was the main reason for the expansion of rural economy. Workers have migrated from the villages to the cities, from the cities overseas. As a result, their income and consumption have increased and poverty decreased. Infrastructural development and revival of rural economy was necessary to create new employment to overcome this situation. It is necessary to expand city and village-centric investment and production activities in a creative way by building an expansion centre at each village. Though it requires stimulus and revenue allocation, there is no arrangement for this in the budget.
Finding new path for investment
Emphasis on labour-centric industry generates employment of huge people in the labour market. If effective measures are taken on loans with low interest, training to gain technological excellence for entrepreneurs and establishing industrial park, job expansion will happen. Emphasis on technical and vocational education is necessary to increase skills and productivity of workers. There is a general disinterest towards technical and vocational education due to the perceived lack of 'dignity' in such jobs.
Besides, emphasis will have to be given on consumer demand-based trade while maintaining relations with various countries. We have to connect ourselves to production, technology and finance networks of the countries where consumer demands are high. If trade increases, the country’s earnings will rise too.
It is necessary to remove discrepancies in data and information related to the budget and make this easily accessible to ensure transparency and accountability in budget management. Democratisation in budget management is necessary. As there is no scope for debate and change, nepotism and centralisation of group-based wealth get preference in the budget every time. That is why an adequate framework to fix the unprecedented damage inflicted by pandemic on life, livelihood and the economy, is absent in the budget.
* Rashed Al Mahmud Titumir is a professor at the Department of Development Studies, University of Dhaka and chairperson of Unnayan Onneshon. He can be reached at [email protected]
*This article appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna