Charter of the Economy Clearly, there is a strong case for returning the import tariffs to somewhat higher levels and to withdraw simultaneously the ad hoc imposition of regulatory duties. The recommended transition is as follows: From tariff slabs 0, 3%, 11%, 16%, 20% To tariff slabs 0, 5%, 15%, 20%, 25% This will raise the average rate of effective protection from 33 percent to almost 50 percent. The containment policy on imports through larger or smaller increase in tariff hinges on the income elasticity of imports and the respective contribution to growth and production, as shown below. Commodity Group • Non-Basic Agricultural Items • Crude Materials, excluding Fuel • Transport Equipment • Other Manufactured Goods • Chemicals • Machinery • Basic Food Items • Mineral Fuels& Lubricants Income Elasticity of Demand 0.85 1.88 1.72 1.05 1.02 1.11 0.87 0.75 Recommended Increase in Import Tariff Bigger Bigger Bigger Bigger Medium Smaller Smaller Smaller Therefore, four categories of goods mentioned above need the biggest absolute increase in import tariffs. Regarding the exchange rate policy, the experience from 2015-16 to 2017-18 provides an important lesson. The exchange rate was kept almost nominally stable during these years. There was an upsurge of imports, and the current account deficit reached the highest ever level of$20 billion. Clearly, the policy must be to avoid any significant overvaluation of the rupee. The movement of the exchange rate should, of course, be market based. The policy of raising import tariffs somewhat may be criticized by the believers in trade liberalization. However, this must be seen as a step towards achieving a degree of self­reliance. This appears to be the policy adopted by other South Asian countries who have all maintained a more restrictive trade regime. The path to import substitution must be led by Pakistan’s agriculture, especially in wheat and cotton. This should be followed by more import substitution in manufactured consumer goods. The time has come for the slogan of: 172