Rice exporters' grouse

Appreciation of the rupee has caused a lot of frustration among the exporters, constraining them to make certain demands on the government. Chela Ram, Senior Vice Chairman of Rice Exporters Association of Pakistan (Reap), while addressing the media at Karachi Press Club, deplored the fact that their plight was completely ignored in the Finance Minister's budget speech wherein he failed to mention the word "rice" at all. "Rice exporters were expecting some relief package in the budget for 2014-15 as they had suffered huge losses owing to rapid appreciation of the rupee value, resulting in losing their traditional markets to Indian and Thai rivals, but the Finance Minister did not come up with any relief for this vital sector," he lamented. If the government fails to provide relief in the form of subsidy or cut in power rates, a large number of rice units will close down. Speaking on the occasion, former Chairman Reap, Javed Ghouri said that rice sector was badly damaged by poor law and order situation and its processing units were unable to operate normally, which increased their costs and rendered them uncompetitive, especially when the Pak rupee was rising. According to him, rice export sector had never asked for any favours from the government in the past but the situation had now changed. "If there was no support, rice industry will shut down," he warned. He also stressed that the government should provide rice seed on subsidised rates, deduct all taxes and levies including EOBI, WWF and social security through banking channels in order to eliminate corruption and provide "one window" facility to rice export sector as exporters were not ready to come in direct contact with the government departments who harass them.
Seen objectively, complaint of Reap is fully justified. Normally, rice exporters purchase paddy from growers almost three months in advance and the price is also set at that time, keeping in view the domestic conditions and the prices prevailing in the international market, assuming, of course, that the parity of the Pak rupee would fluctuate in a narrow range. However, the rupee appreciation was so rapid this year that it rose to Rs 98 to a dollar from Rs 110 in a short period of time, inflicting huge losses to rice exporters. Such losses could only be partly neutralised if the government could provide subsidy to the exporters and certain other facilities like a cut in the power rates. Nevertheless, such facilities could only be provided at a great cost and very selectively since there is hardly any space in the budget and power sector is already burdened with huge losses, necessitating huge amount of subsidies from the Federal budget. Coming to the "one window" facility and collection of various taxes and levies through banking channels in order to reduce harassment of the tax collecting machinery, the request could be considered favourably but it needs to be stressed that the real solution does not lie in the acceptance of such demands but vast improvement in the working of the tax machinery itself. The government, nonetheless, seems so helpless in removing corruption from the system that the Finance Minister had to recognise this fact in the recent budget speech, and in order to eliminate the possibility of harassment and corruption, had to simplify sales tax regime for retailers in Tier II, envisaging 5 percent sales tax for retailers having electricity bills of Rs 20,000 per month and 7.5 percent for those with higher electricity bills. Such a mechanism would eliminate the contact between the retailers and tax officials.
The problem caused by the fast appreciation of the rupee is not limited to the rice exporters but extends through the whole foreign sector. Finance Minister seems to be obsessed with maintaining rupee parity below Rs 100 to a dollar, without realising that there is always a trade-off between various economic policies and his choice seems to be frustrating for the exporters and unsustainable in the long run. Overvaluation of the rupee in the exchange market would reduce the level of exports, encourage imports and induce domestic savers to keep their liquidity in foreign exchange. All of this would continue to keep the foreign sector under pressure. On the other hand, one-off receipts, privatisation proceeds and foreign borrowings through Eurobonds etc could fill the external sector gap temporarily but cannot be regarded as long-term solution of the structural disequilibrium in the current account. All in all, we would urge upon the Finance Minister not to be unduly concerned with the rupee rate in the exchange market and let the Pak currency find its own value without outside intervention. Of course, State Bank could buy and sell the foreign exchange in the market but such an activity should be undertaken to remove excessive fluctuations in the rupee rate and discourage speculators from manipulating the market to enrich themselves. It is only through such a policy of free-floating exchange rate that exporters could be kept reasonably satisfied and current account position of the country could be improved on a sustainable basis.