The Punjab government has recently announced two stimulus programmes for the people of the province in an overall effort to enhance economic activity, increase exports, and reduce poverty.
Details here being, firstly, the launch of ‘Assaan Karobar Finance’ (AKF) or ‘easy business finance’ programme, in which interest-free loan to the tune of Rs 1 million to Rs. 30 million is being provided to active tax filers for any kind of business, with a budgetary allocation of Rs 36 billion.
Secondly, budgetary allocation to the tune of Rs 48 billion is being provided as interest-free loans for start-ups, and small businesses through ‘Assaan Karobar Card’ (AKC) or ‘easy business card’ programme, where Rs 1 million is the maximum loan amount for an individual. Moreover, loan amount to be returned within five years in the case of AKF programme, and within three years under the AKC programme.
No doubt, there is a strong need for stimulus provision for not just the province but also for the entire country, yet given weak economic institutions, sub-optimal underlying organizations, and highly inefficient markets, and overall resulting in high transaction costs, and poor price discovery, it is difficult to see much success rate of the loans in terms of creating any meaningful level of business activity.
Moreover, a highly difficult situation with regard to ‘ease of doing businesses’ and very costly imports – which are generally needed in running a business, since mostly machinery for a business has to be either purchased directly by the business owner from abroad, or has to buy imported machinery locally, given the overall weak level of industrialization in the country – due to weak domestic currency against the dollar for instance, all not only make the two programmes a ‘non-starter’ in the overall, but also run a heavy risk whereby these loans becoming ‘bad loans’ because of low probability that given the challenges indicated above the borrowers can establish a business to earn a meaningful return from the loan over the medium-term.
Worse, it will on one hand likely create a large number of debt defaulters and, on the other, generate fiscal challenges for properly managing the provincial budget, especially given the country is under strict International Monetary Fund (IMF) conditionalities with regard to reaching primary surplus, which in turn, means that the provincial governments bear serious responsibilities towards the federal budget.
Hence, there is no announcement from the provincial government over its tenure up till now as such of economic policies that will allow improvement in the economic institutional quality, which, in other words, means improving the efficiency of provincial departments for subjects that the province has complete provincial autonomy – and there are a significant number of them since extensive devolution of subjects to the provinces took place under the 18th Constitutional Amendment – in providing effective legal framework for underlying organizations – for instance, agriculture department being an institution, and various entities working under it being the organizations – so that they can reduce the transaction costs, or ‘search or information costs’ for people interested in doing business through either of these two loans, not to mention in general as well – given they are quite similar in their purpose of overall enhancing business activity among provincial citizens — and overall reduce their cost of doing business.
Moreover, in addition to improving the quality of institutions, and organizations, much-needed greater rationalization of costs require better price discovery, especially since very high rate of inflation over the last few years has skyrocketed prices to very high levels, for which there is a need for better management of market processes of supply, and demand that in turn determine prices.
It would have made sense if the provincial government announced for mation of a ‘Price Commission’ for removing bottlenecks in these processes — for instance, introducing price controls, for instance on the nature of ‘dual-track’ pricing by China – and overall reducing market imperfections so that more rationalized prices are reached for means of production, and of intermediary-, and final goods of businesses.
In addition, given these difficult economic institutional, organizational and market challenges, it would have made sense that provincial government not only left it totally open-ended for borrowers to do projects in any sectors, but also provided meaningful business incentivization, and announced projects in a number of sectors with either support facilities like one-window, establishing special economic zones (SEZs), or placing projects in the already existing SEZs – not to mention coming up with mission-oriented plans to improve the otherwise not-so-good state of SEZs – and/or through offering public-private partnerships in a number of sectors.
Last but not the least, the provincial government should also have provided opportunity for individuals to work with bilateral-, and multilateral development partners since there is a plethora of such programmes in a variety of sectors in the province.
The technical expertise already existing due to involvement of development partners, along with better economic institutional quality available to these prominent projects in general, would have benefited the borrowers on one hand, and on the other, expanded the finances available for these projects for their possible enlarged developmental reach.
Moreover, involvement of local investors would have likely brought the added advantage of inclusion of greater local knowledge through the utilizers of these two loan programmes; not to mention involvement of these borrowers into these well-established projects would have likely increased for these borrowers the chances of return of loans, and within the given time period.
Hence, not only has the provincial government been seriously short on policy (giving money is nice, but requires much more capacity/effort involvement by government), they have also lacked innovativeness, whereby the provincial government could have created total government projects, and involved these individuals with loans to work towards projects, which better serve the overall economic goals of the province, like education, health, economic resilience against climate change, and ‘Pandemicene’ phenomenon.
Moreover, investments could also be attracted of those individuals with loans among the overall borrowers that have little entrepreneurial capacity, and given them an opportunity to invest in stock exchanges created for the overall provincial economy, or for strategic economic sectors like education, health, environment, among others, which need a lot of finance in the wake of huge challenges in these sectors.
Sadly, just like stimulus, and welfare-oriented programmes of the past, like the PTI government’s flagship ‘Ehsaas’ or ‘care’ programme, the two subsidized stimulus providing programmes do not come with much-needed policy support, and innovativeness, and have very short return periods in view of highly challenging economic environment.
Copyright Business Recorder, 2025
The writer holds a PhD in Economics degree from the University of Barcelona, and has previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7
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