Why policy continuity is indispensable
Afzal Khan
An entrepreneur who feels confident about the continuity of favourable governmental policies will also feel assured about the viability or profitability of his enterprise. But if he cannot feel so sure about governments policies and finds reasons to doubt that sudden policy changes may be carried out that would render his enterprise unprofitable, then he may not feel motivated enough to set up his enterprise in the first place. Policy continuities on the part of the government, therefore, are important for encouraging the taking of investment decisions .
How policy continuity is vital for enterprising and hence for more economic activities and the consequent economic growth, can be seen from the tax holiday policy of the government. Successive governments in Bangladesh have been providing long term tax holidays or tax exemption facility for new industries and this has been a major factor that worked in favour of the industrialisation of the country.
But a move is noted to have this facility withdrawn or to shorten it. In the face of much persuasion, government retracted the decision it was about to take and retained the tax holiday scheme for five years. But businesses have been shaken up by the earlier contemplation of the government to withdraw the tax holiday concession and they now aspire that the government should indicate in rather clear terms its willingness to maintain the tax holiday scheme long into the future or beyond the five years time-frame. They expect such a declaration of retention of the tax holiday scheme for a long period in the upcoming budget. They view this as a major fiscal incentive on the part of the government and without it the rate of investments in industries could fall drastically. There is no way for the government to underestimate the very great importance of not only taking fiscal and monetary steps that would be regarded as helpful by the private sector but also to keep them unchanged over a reasonable length of time to successfully persuade the investors.
Another example of the impact of continuing helpful fiscal and monetary policies, or not, can be seen in the central banks pursuing of tight monetary policies in recent months which were explained as designed to curb inflation. But whether the taming of inflation for which such policies were put into operation in the first place has been achieved, is questionable.
The central bank had earlier adopted a policy of decreasing interest rates on credits and the same was very well received by businesses. The lower interest rates created a momentum in investment activities and there was noted
record investment growth in the last two years in succession. But tighter monetary policies were reapplied from late last year on the plea of controlling inflation and on suggestions from the donor organizations.
The continuation of monetary policies seen as sound and favourable by businesses are basic to the latter remaining enthusiastic about their investment plans with which are vitally associated the issues of economic growth and income creation. But businesses are not inspired when key monetary policies are quickly discarded or altered.
Only favourable policy continuity can keep businesses sufficiently motivated about investments in the shorter and, more significantly, in the longer run.
The writer is a freelance journalist
