A Case Study of Auto Industry in Pakistan (Draft Note for Discussion)

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A Case Study of Auto Industry in Pakistan (Draft Note for Discussion)

Vision for Economic Transformation

This is a Draft Note for Discussion authored by PRIME’s Research Economist Mr. Tuaha Adil. The policy note comprises valuable inputs from the members of the Economic Advisory Group.

The transformation of an economy is contingent upon the utilization of resources in the most productive manner. Sectors of the economy will operate at maximum potential when business conducive ambiance is created through favorable and ease promoting government policies. The economic transformation policy based on the identification and resolution of contemporary structural and sectoral inefficiencies and futile economic policies is inevitable for the prosperity of the country. The performance of the auto sector is analyzed as a case study to evaluate the efficiency of government industrial policies. The government’s policies and initiatives to expand the auto industry are based on the assumption of latent comparative advantage. Therefore, domestic auto companies are protected from international competition through tariffs and tax cuts. However, the outcome of policies and performance of the sector have been unsatisfactory due to confinement to assembly of vehicles and nonexistent localization of products. The policies adopted by countries having developed automobile industries have also been discussed to evaluate shortcomings of the policies adopted in Pakistan.

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Pakistan Prosperity Index: March 2021

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PRIME’s latest Prosperity Index reveals an encouraging picture of Pakistan’s economic rebound. The new year began with Pakistan Prosperity Index (PPI) standing at the highest mark, 126.1 (January 2021). A special feature of this edition is simultaneous improvement in purchasing power, credit to private sector and growth in large-scale manufacturing.

The financial and business uncertainties of 2020 have been carried forward in 2021 across the globe. However, Pakistan’s economy appears to be struggling less relative to its regional counterparts with key economic indicators on the rise. The report establishes the increase in prosperity as a result of the improvement in three out of four indicators aggregated to calculate PPI namely, purchasing power, private sector credit and growth of large-scale manufacturing.

Purchasing power saw a modest increase as Y-o-Y inflation further eased in January 2021 hovering at 5.7%. This decelerating inflationary pressure has been characterized by a fall in the prices of basic food items. Large-scale manufacturing had consistently been on the rise since August 2020 growing by 9.13% Y-o-Y in January 2021. The recently approved electricity support package for industries and an extension in tax amnesty scheme besides the restoration of business confidence have largely been sustaining LSM’s recent growth.

Private sector borrowing also maintained its growth momentum standing at an all-time high of Rs. 249.9 billion in January 2021, largely driven by subsidized borrowing rates, restored business and investment confidence. In terms of trade, muted global demand had a ripple effect on country’s trade volume, which after increasing for two successive months last year, dipped to Rs. 1.12 trillion in January 2021.

Despite the 3rd peak, the relaxed Covid-19 restrictions have played an imperative role in keeping the economic wheels moving. The country cannot afford to go under another stringent lockdown. Therefore, the best case scenario would be to pursue a mass vaccination drive in order to sustain the gains made in industrial and financial sector. To read more, download the file attached below:

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Pakistan Prosperity Report (PPR) August 2020

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Pakistan Prosperity Report (PPR) is a monthly review of Pakistan’s macro-economy based on the analysis of four periodic data sets- industrial production, trade volume, price levels, and private sector lending.

For July 2020, the month-on-month inflation, quantum index of LSMI, total trade volume, and loans to private sector (LTFF) increased by 0.8%, 16.8%, 28.8%, and 8.2% respectively.

The prosperity index estimated by using the June 2020 data on four indicators is 109.2. This figure is close to the February 2020’s index value of 109.6, indicating that the dent in prosperity following the Covid-19 outbreak in Pakistan has now achieved a recovery.

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Policy Research Institute of Market Economy

آزاد معیشت – خوشحال پاکستان