Budget 2015-16: Sonar Bangla & sustainable human development

Dr. Mohammed Farashuddin
Published : 28 May 2015, 01:42 PM
Updated : 28 May 2015, 01:42 PM

The Finance Minister is going to place the budget for the year 2015-16 before the Parliament on June 04, 2015. This budget marks a point of transition for the Bangladesh economy. Despite a senseless and mainly hurtful to the economy but fruitless political agitation throughout the second half of 2013 and the first quarter of 2015, the resilient Bangladesh economy recorded its impressive annual GDP growth rate, well in excess of six percent for seven years in a row. Per capita income has increased to USD 1340 and 2780 in purchasing power parity (PPP) dollars.

The social transformation of the economic growth has been spectacular: life expectancy at birth rose to 71 years, infant mortality dropped to low 30s per thousand live births, TFR came down to 2.2 and the Human Development Index (HDI) climbed to 0.585. The number of people under the poverty line dropped to 24%. The electricity situation has reached a tolerably stable level. Another apparently positive indicator is a foreign exchange reserve of USD 24 billion. The annual exports have risen to USD 30 billion and remittances to USD 15. Near food autarky is a major accomplishment.

Success in primary education: a nearly hundred percent enrollment, achievement of gender parity, and drop-out rate fell to 34 percent. A century old problem is being resolved by separating the water and the sewerage lines in the capital city. Economic Participation Rate of women has risen to 40 percent and other gender empowerment successes have taken place (still a long way to go though). The social safety net and the re-operationalisation of the community health centers are the other two steps towards welfare state. An ever more useful ICT network connecting the rural areas and a seventy percent people's access to electricity add further to the success story.

This year's budget is also a welcome change for the better global scenario of economic recovery. The crude oil price has dropped to a third of the level compared to a decade ago. Steel and commodity prices are low as well. These help reduce budgetary subsidies allowing additional developmental allocation, preferably in education and health sector. USA and European countries have been welcoming labour from the developing world because of the saturation point reached in substituting labour with capital machinery. This opens up a huge vista of possibilities in reaping the benefits of the Demographic Dividend for Bangladesh, with 50 million youths between the age group of 15-35 years.

Resolution of the 41-year-old LBA problem with India, prospect of adequate Teesta water flowing to Bangladesh again and a possible land and waterways agreements connecting India, Nepal and Bhutan are all positive vibes towards a peaceful developmental co-existence with our old friend India. In a strategically important location such as Bangladesh, winning sea-area disputes with India and Myanmar at ITLOS has created enormous resources for a thriving blue economy.

Solid success in economic diplomacy has catapulted the country into an enviable position of three of the four largest economies of the world; China, Japan and India actively seeking friendship and economic cooperation with Bangladesh. The possibility of the self-financed Padma Bridge giving a major fillip to the economic integration benefits by as early as 2018 along with the successful implementation of the big infrastructure projects would hopefully accelerate the pace of economic growth to double digit levels by 2020-21.

Budget 2015-16 would perhaps do better in focusing on domestic resource mobilisation and much better utilisation of the huge external assistance pipeline towards financing its Taka 3 billion appropriate size. We need to come out of the twin shame of pathetically low Tax:GDP ratio (10 or 12!) and a ridiculously low number of taxpayers (1.1 million out of 165 million). There is no reason why 4 million families in possession of more than a third of income and wealth cannot be persuaded in a friendly manner to pay taxes towards financing the overall infrastructure and socio-economic development umbrella under which all of us survive and prosper. A carefully crafted regulatory mechanism amidst the ongoing liberalisation process should make it possible to raise tax and non-tax revenues to increase Tax:GDP ratio by one per cent every year to climb to 17 or 18 per cent by the year 2019-20.

Time is ripe now to allow the tobacco industry to fix its own price per brand so that the government can suitably raise tax tariffs and thereby add significantly to the current tax revenue on tobacco. This also fits in well with the WHO dictum to discourage tobacco consumption. With the implementation of a big pay rise, the stage is set to carefully plan and implement a vastly enhanced payroll taxation which is inexplicably low in Bangladesh.

Income from honorarium, consultancy, and corporate sector perks (much of which is not even declared) has to be brought under the tax net. Compensation escalation for the salaried persons should add several hundred new tax payers. There is no reason to yield to the demand for raising the existing minimum level of taxable income. An enlargement of the taxable income slabs for the 10 and 15 percent income tax would encourage the honorarium, consultancy fee and perks income earners to declare their full income. Tax deduction at source for these categories of income could be effectively putting the onus on the employers.

Real estate in urban areas may yield higher registration fee revenue, even with a lowering rate, 100 percent coverage including the non-registered cooperative housing units can be ensured. It's perhaps appropriate to bring uniformity to all advanced income tax deduction rates. A phenomenal increase in internet sales is also due to non-taxation of such transactions. VAT net should focus particular attention to the sweets and pharmaceuticals. Why is the automation of the tax administration taking so long! Capital flights and tax evasion could be curbed by stricter surveillance on the under- and over-invoicing. How far is it true that e-TIN system is a flawed one. Is it time yet to tax the commercial agricultural income?

The forthcoming budget may be used as the foundation for furthering the sustainable human development (SHD) in Bangladesh. Industrialisation for big GDP growth, employment as well as income generation (including a strategy for growth with equity) and poverty reduction should receive a big push. So far the structural change in GDP causing a relative reduction in the share of agriculture favoured the tertiary sector because of the trade and commerce being easier and more profitable. The reversal of the trend may start with major enlargement of investment in the textile sector from yarn making to cloth making to dyeing-finishing.

The optimal way to break the somewhat sluggishness of private sector investment may be to provide fiscal incentives comparable to those provided to the RMG sector. Local value addition and employment intensity will go up. This is also likely to help RMGs because the 42 day waiting period would all but vanish. The trade concessions such a GSP and quota facilities would be available because of the Rules of Origin compliance. It is also high time to diversify RMG to newer markets and to the upper end of design. Why is the RMG sector so reluctant to access FDI?

Recent opening of the US market for the hard-working and efficient pharmaceuticals entrepreneurs (high value addition and employment intensity) should generate a USD 10 billion global market size, USD 600 billion in the next five years.

Shifting of the leather industry to the CETP facility rich Savar Industrial projects should be completed by the latest deadline of July 1, 2015; this would kick up the leather product exports from USD 1 billion to USD 7 billion by 2020. There is still scope for Bangladesh to benefit from an export-led strategy in the medium term. Several other sectors such as ceramics, light engineering products, sports goods, electronics, shipbuilding, handicrafts, food processing and so on.

A policy review would help in moderating the monetary, exchange rate, and reserve policy towards an expansionary growth path; strict vigilance on inflation, as has been very effectively done in recent times, will also be necessary. A big reserve and an appreciation of the Taka causes our import prices in foreign currency to rise, thereby denting the comparative advantage in view of the deliberate depreciation of the currencies for the trade competitors. This may also adversely affect future remittances. Along with export promotion strategies, import substitution may be sought through fiscal measures to expand the domestic demand for Bangladeshi products.

The major opportunity of transforming our large population into human capital, including the 50 million youths, would help reap the Demographic Dividend. In particular, through an amicably negotiated arrangement, the Qaumi madrasa stream students could be brought under vocational training at government expense, keeping intact the existing core curricula. So trained Qaumi madrasa human capital would have ready accessibility to Middle East job markets.

A strengthening of BOI: more qualified human capital, empowerment to allocate 2 percent of the new gas and electricity connections, a 5 working-day one-stop service and mandate to amicably settle the long pending dispute with the KOREAN EPZ will send the appropriate signals to attract FDI of at least USD 10 billion (currently we access only USD 1 billion out of the total FDI of USD 1800 billion). Present thought of dismantling the Privatisation Commission is an excellent idea, but should it be merged with the BOI, or should the relevant components merge with the respective ministries? This may be thought over further. In any case, the huge land wealth discovered in the recent survey should remain GOB property until allocated to Special Economic Zones or for other use.

Budget 2015-16 and beyond will have to put major priority on the transport sector. For one thing broad gauging and double tracking of railways and possible electric trains will have to be introduced phase by phase by 2021. Waterways regeneration talked about for long would need implementation sooner rather than later. Taking the rail-link underground from Tongi to Dhaka would release existing tracks, and construction of upper level roads wherever possible would be moves in the right direction.

One major area of concern needing continuous attention is to the diminishing but still apparent disparity of income and opportunities. The Budget 2015-16 may initiate further steps towards a solution. Through concerted efforts as listed above and by other means, it should be possible to reach the objective of a middle income country by 2019, to reach Medium HDI level by 2021, and High HDI country by 2030.

Dr. Mohammed Farashuddin is the former governor of Bangladesh Bank, and is East-West University's founding Vice-Chancellor.