- ECC ‘defers’ government promise
The government has been giving off mixed signals about the electricity tariff, and the Economic Coordination Committee (ECC) of the Cabinet failed to approve restoring a subsidy to ensure textile manufacturers got a tariff of Rs 6.60 per unit. The subsidy’s removal had forced the textile industry up in arms, and to demand the subsidy be restored, so manufacturers might reduce prices, and export more, as the country needs to reduce its forex deficit. It does not suit them to shut down, as they threatened. The ECC failure to approve, disguised as a deferral to the next meeting, was caused because both the Finance and the Water and Power Ministries simply said they didn’t have money for the subsidy. The subsidy had been promised by the government to the textile exporters’ representatives, and the objections by the two ministries most closely involved, is a sad, indeed worrying, comment on the government’s functioning, especially its economic management team.
That is not the only problem the government faces on the economic front. The interest rate is expected to be cut by 25-50 basis points, not so much in fulfilment of the clamour by industry for some time now, but because the inflation rate seems to have declined, and also because interest rate cuts are the steps being taken in both developed and developing countries to stimulate an economy faltering because of the coronavirus epidemic. Another sign of the decline can be seen in the lower bids by the banks for government paper. However, that means that ‘hot money’ will leave for greener pastures, as had been predicted, with $263 million already having left, and more likely to follow. Simply denying that ‘hot money’ is ‘hot’ will not stop it leaving, and the interest rate as a means of propping up forex reserves will be exposed as the broken reed it is. The government has no apparent fallback for this.
Textile makers will find it hard to export even with lower interest rates and power tariffs, because with the global economy in turmoil from the epidemic, markets will be tougher than usual. That is just symbolic of the times. At such as time, the government has to ensure its word can be relied on.
