Not just Pakistan but the whole world is in the grip of inflation. In situations like this the best the government can do is to manage the situation since much of the cause of the inflation (high oil and commodity prices, a weak dollar) are outside its control.
In this context I have to say that certain government measures have only added to the inflationary trends and these are as follows:
a. The raising of the minimum wage to Rs6,000. Wages in neighbouring South Asian countries (India and Sri Lanka) are less than in Pakistan.
All over the world governments are in negotiations with their workers to ensure the minimum possible wage increase, so as not to fuel inflation. We have done the opposite.
In India the minimum wage per federal law was set at Rs80 per day in September 2007. Even allowing for the fact that their currency is worth around 45 per cent more than ours, this should equate to Rs116 per day in Pakistani terms.
In Bangladesh the latest rate set for garment workers is a minimum wage of $25 per month (PKR1,800).
Sri Lanka refuses to set a minimum wage because they feel that this will be a disincentive to work since both good and bad workers will be on an equal footing.
The Rs6,000 level set by our government works out to Rs230 a day on a 26-day month. I am not surprised that our exports are having a tough time competing in the international market.
b. The other point to note is that when you set things like minimum wages, you establish a bureaucracy to audit and check whether it is being properly implemented. In our case this is an inefficient and corrupt bureaucracy, which adds to the cost of manufacturing.
c. For over 61 years our various governments have not learned that wages are a question of supply and demand. A well-educated work force is also an exportable asset. If they fail to get decent employment at home, they will take themselves off to somewhere more lucrative.
This will force employers to pay them a good market wage. Unfortunately we have neither invested in our educational infrastructure (while all the time never failing to instruct the private sector educational institutions how they should be running — more bureaucracy) nor in any proper vocational training for our manpower.
How then can we justify charging so much more than neighbouring countries and that too for a less qualified worker?
d. Another unjustified inflationary tactic has been the raising of the sales tax rate by one per cent to 16 per cent. This means that the end-price of a product has risen.
This, at a time of falling consumption due to high prices and inflation. We are an import-dependant country, both for our raw materials and for our basic needs. With the declining rupee and the rising prices all over the world, customs duties and sales tax revenue will increase in Pakistani rupee term anyway.
There is no need to increase the rates of taxes (in fact, there may be some room to lower them). This is a further blow to our manufacturing sector at a time when employment prospects are dimming.
The sensible course would be to backtrack on both these decisions.