Last week, the National Assembly’s Standing Committee on Statistics expressed its concerns over the delay in Census of Manufacturing Industries (CMI) in Sindh. This piece of news may not have gotten the attention of Pakistan’s, and especially Karachi’s, chattering class. But failure to get the CMI properly done in Sindh could have far reaching economic consequences that could take another ten years to fix.
The measurement of GDP is an exercise of estimation. That estimation is based on numerous surveys and census of various sectors of the economy. One such survey based on which the Pakistan Bureau of Statistics (PBS) calculates the share of Large Scale Manufacturing (LSM) is the CMI.
The CMI is done by provincial statistics bodies or any other body chosen by the PBS. The provincial statistics bodies get it done through the department of industries who in turn take the name and contact details of respondent industries from the labour department. The department of industries sends the survey forms to the respondents and awaits their responses.
Originally supposed to be done at least every three years, the last CMI was done in 2005-2006, based on which the PBS calculated the share of LSM in the current base of GDP. Another CMI was conducted in 2011 but that CMI was scrapped because the response rate from Karachi was terribly poor.
A similar situation is emerging now. The NA’s standing committee was informed that only 24 percent of the distributed forms were retrieved so far in Sindh, which was not a representative sample. The retrieval issues were mainly in seven districts, including six in Karachi and one in Hyderabad. Ideally, the form retrieval rate should be at least 80-90 percent to ensure adequate representation of the industries on ground.
Why is this national issue? The PBS has been given assurances that Sindh will be able to get the forms filled by June or July 2018. The PBS will also be well within its rights to choose any other public body to get these forms filled if Sindh is unable to get the forms filled. But if this year’s CMI meets the fate of its last round, and Sindh’s forms are not filled, then the PBS will have no option but to use the CMI of 2005-06 for its ongoing exercise of GDP rebasing. And that would be quite a problem.
The current LSM index, which is based on 2005-2006 CMI, understates the size of Pakistan’s manufacturing GDP. Globally, the LSM comprises of 22 broad categories of industries. However, in Pakistan it captures 15 sectors.
The data pertaining to manufacturing of wearing apparels & dressing; publishing, printing products & recorded media; fabricated metal products (except machinery & equipment); office & accounting machinery and computers; medical precision & optical instruments; and recycling of metal and non-metal waste scrap, plastics, and packaged food, are not included in Pakistan’s LSM. As a result, Pakistan’s size of economy is understated making it less appetizing for foreign players than it could.
In addition, there are coverage issues in the LSM. For instance, the production of buses and trucks by some of the players are not included in the LSM, or the production of Engro Chemicals, which caters to one-third of the entire domestic demand of caustic soda, is not included in LSM data.
Therefore, if the PBS is forced to rebase its GDP on the basis of 2005-06 CMI, the size and periodic measurement of Pakistan’s would remain flawed until the next rebasing exercise, which will be 10 years later as per practice.
Where does Karachi fit in all this? Karachi (together with Hyderabad) boasts nearly the entire bulk of Sindh’s large-scale manufacturing. If the response rate of Karachi’s CMI ends being bare minimum to be included in the survey; or if the respondents understate the facts and figures in the survey form, then Karachi could potentially stand to lose its share in the country’s GDP.
City and province wise GDP currently not being officially estimated by either the centre or the provinces. At best there are independent estimations by the World Bank, the Lahore Chamber of Commerce and Punjab Economic Research Institute. However, these estimations are eventually based on the results of the CMI. If respondents of the CMI do not fill the form truthfully, then we are the risk of under or over estimating the manufacturing GDP of the provinces. Likewise, there is also a risk of under or over estimation of the various sectors – especially considering that there are no third-party audits of these surveys.
It is, therefore, important for businesses and associations in Karachi and Hyderabad to help Sindh government departments in correct filling out of the CMI forms by private sector manufacturing respondents. Equally important is for the PBS to slap fines if the respondents are not filling out the forms. The PBS also needs to ensure that the various surveys that feed into the GDP rebasing are audited by a third party.
The CMI and GDP rebasing may be the stuff that makes economics boring. But eventually political issues spring forth from these boring, seemingly irrelevant geeky affairs. Following the devolution, there is an increasing desire for provincial GDP, whereas the battle for resources has pitched one sector against the other – each saying it contributes more to the GDP and therefore more important. In such a scenario, neither a province nor an economic sector should be over or under represented in the national GDP.
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