Inflation, power tariff destabilise local industrial sector

By Bandula Sirimanna

The Ceylon Chamber of Industries (CNCI) has warned that Sri Lanka’s industrial sector which accounts for 17 percent of the country’s Gross Domestic Product and employs 1.5 million workers will be adversely affected by escalating inflation.

Speaking to The Sunday Times FT, CNCI chairman A.K. Ratnarajah said that the cost of inputs for production of goods and services will increase as a result of high inflation.

He added that the production costs in the island are highest in the region.

He noted that wages of workers should be increased to enable them to cope up with the present economic situation. On the other hand the industrialists will have to raise their selling prices of products to meet these costs and to stay in the business.

Instead of taking steps to lessen these impediments and help enhance competitiveness in a free market economy, adding up further hardships on industries by way of increased electricity tariffs would certainly destabilise the industrial sector, with disastrous consequences for the national economy, he said. It has been revealed that some 100 small and medium factories have closed down and 350 to 400 factories were operating at present.

However Ratnarajah said that industrialists will have to find ways to manage costs and increase revenue when overall inflation was also rising and interest rates were high.

He added that this will be a gigantic task as the interest rates, cost of transport, services, various taxes and levies are also rising making it an additional burden on the industrial sector. Export industries are now facing a genuine problem of rising wage and other costs while the exchange rate has also appreciated in the face of strict monetary policy,” he said.

Ratnarajah pointed out that the industrial sector has been burdened with over 12 taxes adding fuel to the fire. He predicted that inflation is expected to remain high, at 21.6 percent, in 2008. Partly because of this, the Sri Lanka rupee will depreciate by 5.6% against the US dollar this year. Inflation and depreciation rates will ease in 2009. Inflows of remittances will limit the current-account deficit to the equivalent of 4.5% of GDP in 2008 and 4% in 2009, he said.