Pragmatic policies to increase competitiveness

The Budget 2010 has been presented by the Government to achieve long term economic benefits to the country by accelerating development activities along with public welfare programs. Under the Mahinda Chintana development framework several long-term development activities which aim to boost the economy of the country have been introduced, emphasizing on economic growth through industrial development, especially SMEs development.

Through the Budget, the Government expects to implement the islandwide integrated development strategy introduced by the Mahinda Chintana, to minimize regional disparities.

Encouragement

The Budget has focused on infrastructure development to attract foreign investment, which is a vital factor to stimulate economic growth. It also introduces a simple, lower and broadbased tax regime which gears towards an investment-friendly environment.

In addition, the interest rate has been reduced from 25 percent - 30 percent to 14 percent - 16 percent within the past year which is a further encouragement to investment.

A special emphasis has been made by the Budget 2010, for the development of the Northern and Eastern provinces which have not been able to benefit through the development programs implemented by the Government, due to the war situation which prevailed in the area.

The Government hopes to mobilize the human and other resources which had long been abandoned in the Northern and Eastern provinces, along with the national development activities. As a person who was directly affected by the LTTE terrorism who had to undergo much suffering through displacement of our families from our homes and lands, the rebuilding of this country has a special significance for me. The UPFA Government’s endeavour is to build a peaceful and prosperous nation where all communities can exist together in harmony.

In spite of the war situation that halted the economic activities of one third of the country, Sri Lanka has been able to maintain a stable growth rate close around 6.4 percent as well as other economic and social indicators which signify an upward trend.

It should be noted that even during the recent global economic down turn, the growth rate did not go down beyond 3.5 percent, which is remarkable.

The above figures signify a stable and predictable macroeconomic environment which is conducive for the acceleration of economic activities as well as attract foreign and local investments.

The Government has stressed the importance of expediting the infrastructure and other development activities in the North and East, which are essential to stimulate and encourage investments to uplift the standards of living on par with the other areas of the country. Concession schemes for investments in development projects of the Northern and Eastern Provinces have already been proposed.

Reaping benefits

Due to the war situation, especially the North was not in a position to get full advantage of these programs at that time. Since the rehabilitation, resettlement work and provision of infrastructure are underway and nearing completion I believe that people in those areas are ready to reap the benefits of those programs now.

Therefore it is our duty to provide concessions to attract investments to those provinces, which had lost an opportunity earlier, for this purpose we have already submitted a Cabinet Paper and made arrangement to open a sub regional office in Vavuniya. This I hope would expedite the various programs with proper coordination.

Further, the Government has planned to rejuvenate 100 new and existing industrial development programs within the next three years in the Northern Province. These include palmyra and rice based industries, fish processing, fishing gear manufacturing, salt and salt based industries, construction material manufacturing, as well as handloom and textile industries.

Several activities with regard to the training of weavers and trainers, design development and the provision of yarn, handloom spares have already been carried out in the North and East by the ‘Kantha Diriya’ program aiming the skilled and non skilled labours in abundance, especially the large number of widows. Activities in relation to technology improvement and product development, supply of backward and forward linkages would also be carried out to support the said programs.

To increase salt manufacturing of the Manthai Salt Limited, the Government has planned to extend the Mannar saltern by 50 acres to increase the production by an additional 3000 MT’s per annum. In addition, plans have been laid to re-activate the Kumburupitiya saltern in Trincomalee which has the capacity to produce 7000 MT per annum.

Industrial boom

Since the war that devastated the economy of Sri Lanka for 30 years has come to an end, the Government has been able to grant many concessions on the industrial sector.

During the past year, a significant growth in the industry sector has been observed. At present, even with the global economic down turn, the industrial sector has managed to contribute 4.2 percent to the GDP and 25 percent to the total employment in Sri Lanka.

Also, many developments have taken place recently, which has contributed to the advancement of the industrial sector.

The scheme for exemption from excise duty (for locally assembled/ manufactured motor vehicles with at least 30 percent local value addition) has encouraged several investments in the industry which has resulted in many locally assembled motor vehicles being available in the local market at competitive prices.

As a result, significant development in the automobile components manumitting industry has been observed. At present, many local industries are in a position to

manufacture high quality components which contribute to the saving of foreign exchange through import substitution.

To encourage the local electrical items and home appliances manufacturing industry, the local value addition requirement to receive benefits under the scheme for exemption to excise duty has been reduced from 50 percent to 30 percent.

Taking into consideration the severe raw materials shortage faced by the local foundry industry, the Government will introduce a licensing scheme to restrict export of ferrous and non-ferrous metal scrap and ingots/billets which do not have a sufficient local value addition.

To facilitate local industries, the import duty on raw materials and intermediate inputs has been brought down to zero, so that they could be imported duty free.

As a result of the duty reduction, the cost of production of local industries would come down, making their products more competitive in the local and international markets. This would also promote import substitution and export growth.

The high capital cost has been identified as a major barrier to investments.

As such, the Government has taken steps to reduce the import duty on machinery to zero and to remove the VAT of several items of machinery and equipment. The Government has also taken several steps to promote local production of machinery and equipment.

The cess imposed on most of the raw materials and intermediate inputs used for local industries has been removed, improving the competitiveness of the local industries in the local as well as international markets.

In addition to the above, the surcharge on all imports has been removed.

The Government has made significant headway in the are of Regional Development through Regional Industrial Estate Development Program and the Gamata Karmantha 300 Industries Program. At present 26 Industrial Estates in various parts have been established providing more than 250 Industrial estates and 15,000 direct job opportunities. Six more industrial estates are under construction.

They are scattered in regional areas and concentrate on the usage of local raw material, technology transfer, employment generation and investment promotion in rural areas.

To be continued