Industrial Policy Introduction

What is an Industrial Policy??

Definition:
The industries policy plan of a country , its
Official strategic efforts to encourage the
development and growth of Manufacturing
sector of economy
 Why a comprehensive industrial policy
Important
 Due to industrial development,
 Overall economic development increase
 Living standard of people improves
 Overall economic position become very bright
& hope
 What is an Industry

Definition of industry:
An industry makes a products from raw
material by the use of manual labor or
machinery that is usually carried out
systemically with division of labor
 Objectives statement of Industrial Policy

 The government is always in the process of

developing and releasing different types of public
policies
 Popular demand is that it should not only be a
comprehensive one but should also be based on
long term perspective.
 The government must asked the ministry of the
industries to release mission statement relating to
a particular policy
 Draft of industrial policy

 The draft of proposed industrial policy should

be released and publicly discussed by
stakeholders.
 The input should be collected and then
reflected in to a nation consensus before
implementing the same.
 Industrial development sector, growth

 Target for a period of some years should be

set in respect of growth of industrial sector.
 This target should be properly mentioned and
monitored.
 Scope of Industrial sector

 A vital question is in respect of nature and

types of industrial units to be established.
 The nature of demand and supply determines
the establishment of industrial development.
 Examples
 Engineering and Electronics
 Fisheries
 Leather goods
 Garments
 Meat processing
 Dairy industries
 Marble processing
 Fruits and vegetables
 Conclusion

 There is need to give a serious thoughts

development
 A strong and attractive industrial policy for
Pakistan with the objective of,
 Accelerating industrial growth which can have a
profound effects on the economic well being of,
 The overall public in general and,
 Marginalized communities in particular
 Overview of Industrial Policy
• In the past policymakers in Pakistan were
inclined to keep two objectives in view while
designing public policy aimed at industrializing
the country.
• The first was to gain self-sufficiency in items of
basic manufacturers
• This approach is adopted after first indo Pak
war of 1949
• The second, was to exploit the country’s
comparative advantage.
• This approach was adopted during Ayub Khan
regiem
• Neither of the two approaches created an
efficient industrial sector.
• Pakistan needs to adopt an approach based on three
considerations
• Selecting the winners, both industries and
enterprises, that could exploit niches for themselves
in the rapidly changing global system of production
• Decentralizing industrial policymaking to the
provinces so that each province can take advantage
of its strenghts, choosing the industries that can play
a role in creating a large number of jobs for the
country’s rapidly increasing work force
• With this approach the country will have not
one but a number of industrial policies – at
least four, one for each province of the
country
• In Punjab, to take one example, the policy will
aim at expanding the food processing sector
as well as small and medium industries
focused on small engineering.
• In Sindh, to take another example, the industrial
policy should take advantage of the large industries
that are located in the province. The aim of policy
should be to develop further the industrial base so
that the existing industries and corporate entities
working in the sector can acquire scale and
expertise that would help them to compete with
the tens of thousands of multinational
corporations that are now operating in the global
economy.
• The Indian industrial enterprises have been
able to enter the global production system
though mergers and acquisitions. Pakistan,
however, has been left way behind.
 History of Industrial Policy Making in Pakistan

1: The first was made in 1948, soon after Pakistan

gained independence, and was developed
further as a consequence of the Indian decision
in 1949 to place a trade embargo on Pakistan.
2: The second was embedded in the Second
(1960-65) and Third (1965-70) Five-year
Development Plans adopted by the
government headed by President Ayub Khan,
the county’s first military ruler,
 History of Industrial Policy Making in Pakistan

3: The third was adopted by the administration

of President (later Prime Minister) Zulfikar Ali
Bhutto (1973-1977)
4: The fourth was formulated by the several
democratic governments that held office in
the eleven years, 1988-1999
5: The fifth was adopted by the government of
President Pervez Musharraf, the fourth
military ruler.
 First Approach of Pakistan Industrial Policy

• The first generation of Pakistani leaders was

extremely concerned with the Indian attitude
towards the country they had created.
• There was an impression that the Indian leadership
would attempt to smother Pakistan by using
economic means.
• This feeling was reinforced by some of the early
decisions taken by New Delhi regarding the release
of funds that were due to Pakistan as a result of
the Partition Agreement.
 First Approach of Pakistan Industrial Policy

• The Indian government blocked the transfer of

funds that fell in the category of what was
called the “Sterling Balances”5 . When, in
1949, Pakistan chose not to follow other
countries of what was then called the Sterling
Area (now the Commonwealth) in devaluing
its currency with respect to the American
dollar, India retaliated by launching a trade
war against its neighbor.
 First Approach of Pakistan Industrial Policy

• Pakistan at that point was dependent on India

for the supply of basic goods of consumption;
a significant proportion of its imports came
from India and a significant proportion of its
exports went to that country.
• The government responded by adopting a
series of policies that were to have a lasting
impact on the development of the country’s
industrial base
 First Approach of Pakistan Industrial Policy

• Karachi, at that time the country’s capital,

encouraged private leadership in the process
of industrialization, provided incentives to
private entrepreneurs to invest in the
production of consumption goods, and gave
the fledging private sector protection from
external competition.
 First Approach of Pakistan Industrial Policy

• All this resulted in the rapid growth of the

industrial sector and rapid increase in the rate
of increase in industrial output.
• It is interesting to note that while India had
chosen to industrialize by encouraging the
establishment of heavy industry in the industrial
sector, Pakistan went in the opposite direction.
• It encouraged the development of private
enterprise and growth of consumer industries
 Second Approach of Pakistan Industrial Policy

• The government of Ayub Khan continued with

this approach but with two differences.
1. It used the industrial licensing policy to bring
about a wider dispersal of industrial ownership.
2. It used development finance companies such as
the Pakistan Industrial and Commercial
Investment Corporation (the PICIC) and the
Industrial Development Bank of Pakistan (the
IDBP) to influence the scope of industrialization.
 Second Approach of Pakistan Industrial Policy

• PICIC and IDBP received generous financial

support from the World Bank. Development
thinking at that time was in favor of using
publicly owned development finance
corporations to quicken the pace of
industrialization.
• An important consequence of this policy was
to encourage the establishment of small units
in the areas other than Karachi
 Third Approach (1973-1977)

• During this period, a new democratic

government of Bhutto came into power and
adopted the principles of mixed economy.
(A mixed economy consists of both private
companies and government/state-owned
entities. Both have control of owning, making,
selling, and exchanging goods in the country.)
• Government ruthlessly nationalized 34 industrial
units belonging to the following basic units
 Third Approach (1973-1977)

• Nationalization is the process of taking

privately-controlled companies, industries, or
assets and putting them under the control of
the government. Nationalization often
happens in developing countries and can
reflect a nation's desire to control assets or to
assert its dominance over foreign-owned
industries
 Third Approach (1973-1977)

• (a) Vegetable ghee and oil industries (26

industrial units)
• (b) Shipping industry
• (c) Iron and steel industries
• (d) Basic metal industries
• (e) Heavy engineering industries
• (f) Assembly and manufacture of motor
vehicles
• (g) Tractor plants
 Third Approach (1973-1977)

• (h) Heavy and basic chemicals

• (i) Petro-chemical industries
• (j) Cement industries
• (k) Public utilities including electric
generations, gas and oil industries.
• 3. The nationalized industries were put
under the management of Board of Industrial
Management (BIM)
 Third Approach (1973-1977)

• 4. Pakistan Industrial Development Corporation

(PIDC) was established.
• 5. Other reforms were taken by the government
were:
• (a) Labour reforms
• (b) Reduction of sales tax on imported items
• (c) Revision of import policy
• (d) Establishment of industrial units in less
developed / rural areas.
 Fourth Approach (1977-1988)

• 1. A new martial law government by Zia came into

power in 1977.
• The new military government in 1977 announced the
reversal of previous government’s nationalization
policy and introduced a new industrial policy.
• 2. The federal government offered for the transfer of
shares of nationalized industries to their former
owners, under Economic Reforms Order 1978, and
thus the new open way for denationalization of
industries.
 Fourth Approach (1977-1988)

• 3. Government announced revised import

policy.
• 4. To boost private industrial development,
following measures were taken:
• (a) Reduction in interest charges by banks.
• (b) Removal of taxes on issuance of bonus
shares.
• (c) Fixing standard rebates of excise duty.
Rebates means a partial refund to someone who
has paid too much for tax, rent, or a utility
 Approach 5 (1988-2008)

• During the first half of this phase, i.e., 1988 to 1999 the
country had faced worst political conditions in the
history of Pakistan
• During the second half of this phase (i.e., 2000-2008),
industries of Pakistan faced greater influence of cheaper
goods imported under WTO agreements.
(WTO: is an intergovernmental organization that
regulates and facilitates international trade.
Government use WTO to establish, revise and enforce
the rules that govern international trade)
 Approach 5 (1988-2008)
• The highlights of industrial policy of this phase are as below,
• (a) Deletion Policy: Although this policy was announced
during Phase 4 in 1987 but also pursued by the governments
in later phase. The objective of deletion policy was to obtain
self-reliance in engineering sector.
• (b) Deregulation Policy: Almost the whole industrial sector
was exempted from the requirement of government
sanctions except:
• Arms and ammunitions
• Security printing, currency and mint
• High explosives
• Radioactive substances
 Approach 5 (1988-2008)

• (c) Privatization Policy: To reduce the

financial burden imposed on government and
to reduce loose utilization of resources,
privatization policy was adopted and is still
continued. The main objectives of
privatization were to improve the overall
performance of state-owned industries and to
promote healthy competition
 Industry, Trade and Growth in Pakistan

• Pakistan’s industrial policies were either

formulated in response to a crisis, or as part of
the medium-term development plans, i.e. a
comprehensive strategy to promote overall
growth was never at the top of the agenda.
Projects were chosen on political and not
economic grounds
 Industry, Trade and Growth in Pakistan

Past development planning strategies in

Pakistan have had the following similarities
1. They focused on the illogically set growth and
investment rates
2. They provided relatively detailed projection
for public sector investment with only
general indications of private sector
investment
 Industry, Trade and Growth in Pakistan

3. They relied on the government playing a lead

role through sector picking and market
controls
4. They relied on a lead role by the government
even when privatization and trade openness
were required
5. Inadequate attention was paid to raising
productivity which was important to obtain
higher output at each investment level
 Industry, Trade and Growth in Pakistan

6. The governing institutions were not keeping

pace with markets that were struggling to
develop with increasing modernization and
liberalization
7. Meanwhile, corruption and mal
administration further lead to achieve higher
growth
8. Pakistan has experienced phases of import
substitution, export orientation and the
resurgence of protectionism. Thus trade and
industrial policy in Pakistan was never
supported by broad-based growth model
 Industry, Trade and Growth in Pakistan

• Pakistan has experienced phases of import

substitution and the resurgence of protectionism.
Thus trade and industrial policy in Pakistan was
never supported by broad-based growth model
• Broad-based growth: The term broad-based
growth first came into usage in the World
Development Report 1990 (World Bank, 1990),
indicating growth that involved a range of sectors
across a country's economy
Industry, Trade and Growth in Pakistan
• How can broad based growth be achieved?
• We believe we can measurably contribute to
this by supporting policy reforms in key
economic sectors; by strengthening economic
and political institutions critical to good
governance; by encouraging the effective
functioning of markets; by investing in human
resources, especially the education and health
of people
Industry, Trade and Growth in Pakistan
• The stagnant share of industry in overall GDP
is further explained by the near constant
structure of Pakistan’s exports (Figure 44). The
trade sector has remained stagnant over the
past three decades; the export to GDP ratio
has declined from the average levels seen in
the 1990s. Since the textile protection in the
1960s, the industrial sector has not diversified
its exports away from textile products
 Industry, Trade and Growth in Pakistan

• Finally, policy in Pakistan aimed at boosting

exports through domestic market controls
including hold back on domestic consumption,
resource allocation and irregular market
development efforts.
• Pakistan’s key exporting countries have not
witnessed rising imports during the 2000s