Importance of linkage industries for economic growth, employment

Md. Saifur Rahman

Bangladesh needs a strong focus on backward linkage industries. This matters most for forward and SME industries in rural and marginal areas. Building a sustainable industrial and economic base depends on this focus.

The government has issued various Statutory Regulatory Orders (SROs) over time. These orders give duty, VAT, and tax relief at the import and production stages. The goal is to help forward linkage industries grow and create wide scale employment.

However, some SROs set strict conditions to check a company’s production capacity. They require specific machines, equipment types, and worker counts for producing certain inputs. These conditions block the desired growth of forward and backward industries nationwide, especially at the grassroots level.

Reducing import dependence and raising the value addition rate requires strong backward linkage industries. These industries make raw materials and inputs available locally at competitive prices for forward and SME industries. The current SROs only benefit finished product manufacturers. They do not give equal duty, VAT, and tax benefits to backward industries that import basic raw materials and produce industrial inputs. This goes against the basic principle of building a sustainable industrial base.

The government could remove the strict conditions on specific machines, equipment, and worker numbers. Instead, it could require that a company either produce all listed inputs itself, or source them from real local manufacturers registered with the Ministry of Industries or BIDA, holding Industrial IRC, VAT, and TIN registration.

This change would boost forward and backward industrial growth nationwide, especially at the grassroots level. It would increase foreign investment in large scale backward industries. It would create wide employment opportunities. Easy access to raw materials would allow quality product manufacturing at competitive prices. Consumers would then prefer local products over foreign goods. Import dependence would fall, and export opportunities for diverse products would grow.

The government should provide equal or specially attractive duty, VAT, and tax benefits to all backward industries. This applies to companies importing basic raw materials and using them to produce inputs for forward industries. Otherwise, entrepreneurs will avoid investing in costly, large scale backward industries.

Without securing local production, easy availability, and fast supply of raw materials, it becomes hard to reduce import dependence. It also becomes difficult to ensure competitive pricing, market expansion, wide employment, and higher revenue. As a result, the desired growth of forward and SME industries remains difficult despite the SRO benefits.

Fixing specific machine, equipment, and worker requirements limits industrial growth to a few large companies. This blocks the nationwide, especially grassroots level, growth of forward and backward industries and the employment that would come with it.

Such restrictions create room for a few large companies to form a monopoly or syndicate for higher profits. If growth is not limited to a few firms, and instead spreads nationwide, especially at the grassroots level, this monopoly risk disappears.

The government granted these tax benefits with good intent, to boost forward and SME industries and create jobs, especially in marginal areas. But keeping strict machine and worker conditions defeats this purpose. The benefits will stay limited to a few companies. If local production of raw materials matches SME industry demand, both foreign and local investors will show more interest in large backward industries.

In a free market economy, a market controlled by a few firms denies consumers access to quality goods at competitive prices. It also limits consumer rights. In contrast, easy and competitive access to raw materials would allow small investors nationwide, especially at the grassroots level, to enter various manufacturing industries. SME entrepreneurs would also feel encouraged to produce goods based on local and market demand.

Lack of competition can cause serious neglect in pricing, quality control, and product development. This may push local buyers toward imported goods instead. In contrast, equal benefits for all levels of forward and SME producers would push them to focus on quality production and better customer service at competitive prices. This would protect consumer rights and ensure quality goods and services.

Currently, only specific finished product industries get import and production stage benefits. Local backward industries producing raw materials and inputs for these industries do not receive equal treatment. This discourages foreign and local investment in backward industries. If the government offers equal or highly attractive duty, VAT, and tax benefits for importing basic raw materials and producing industrial inputs, local value addition will rise sharply. This would boost the ability to produce quality goods at competitive prices and expand diverse export markets.

Higher investment and capital costs without these reforms will limit industrial and service sector growth and employment nationwide, especially at the grassroots level. In contrast, broad industrial and service sector growth nationwide would create massive employment and revenue opportunities at the grassroots level.

Therefore, the government should remove the machine, equipment, and worker count conditions from the relevant SROs. This applies to products mentioned in the SROs and other forward and backward manufacturing and service industries nationwide, especially at the grassroots level. The goal should be creating employment, enabling competition, ending market monopolies, ensuring quality local production at competitive prices, and expanding export markets.

Instead, the SRO could simply require that a company have the capacity to produce the listed inputs itself, or source them from genuine local manufacturers to produce finished products.

To build a sustainable industrial and economic base, the government could offer special or equal duty, VAT, and tax benefits to backward industries that import basic raw materials and produce industrial inputs for manufacturing sectors.

In conclusion, developing backward industries producing raw materials, parts, components, and other inputs alongside forward and SME industries nationwide, especially at the grassroots level, would reduce import dependence, raise local value addition, enable competitive quality production, create massive employment, attract investment, boost revenue, and expand diverse export markets.

The writer is Chairman, SKB Stainless Steel Mills Limited.