The need for a national industrial policy

The absence of a comprehensive and integrated industrial policy in Pakistan for over two decades has significantly hampered the country’s industrial and economic growth. The promise of a new industrial policy, reiterated as recently as May 2024 by the federal minister for industries and production, remains unfulfilled.

Despite assurances of its imminent announcement following the 2024-25 federal budget, seven months have passed, and the policy has not materialised. Recent updates suggest that the much-needed policy is still in the drafting stage, with officials indicating that its finalization could take several months.

Pakistan’s current predicament highlights systemic challenges in governance and policymaking. Officials from the concerned ministry have expressed frustration over their inability to focus on long-term policies due to persistent crises and fire-fighting measures. Businesses, too, have been accused of prioritising their interests over national economic stability, further complicating the policymaking process. This situation raises critical questions about the political will and administrative capacity required to address the industrial sector’s pressing needs.

Historically, Pakistan’s industrial sector has suffered due to the absence of a cohesive national strategy. Drafts of an industrial policy were prepared in the late 1990, in 2007, and 2011 but were never implemented due to vested interests and bureaucratic inertia. In the meantime, sector-specific policies such as the Fertilizer Policy (2001), SME Policy (2021), Auto Industry Development and Export Policy (2021-26), and Mobile Device Manufacturing Policy (2020) have provided limited relief to select industries but failed to stimulate broad-based industrial growth.

The consequences of this policy vacuum are evident in the poor performance of the industrial sector. Large-Scale Manufacturing (LSM), which currently constitutes 69.3 per cent of the manufacturing base and contributes 8.2 per cent to overall GDP, has been in decline. In the first five months of the current fiscal year, growth in the industrial sector remained sluggish, mirroring past trends of contraction and stagnation. There was nominal growth of the LSM by less than one per cent while several sectors, including textiles, electrical equipment, iron & steel products, and automobiles, declined.

In general, key industries such as textiles, automobiles, steel, engineering, cement, chemicals, and pharmaceuticals have continued to face challenges, including high production costs, outdated technology, and a lack of adherence to international quality standards. Devaluation of the rupee, high-interest rates, high inflation, and expensive energy, besides the political instability, have further eroded the sector’s competitiveness.

Foreign Direct Investment (FDI), another critical indicator of industrial health, has also shown dismal performance in recent years though the first five months of FY2024-25 recorded a modest increase in FDI compared to the same period in the previous year. Export growth, too, has remained marginal, failing to reflect any significant structural improvements in the manufacturing sector. Without a robust industrial policy, the government’s ambitious targets for industrial growth and economic development are unlikely to be met.

A comprehensive and forward-looking National Industrial Policy is therefore imperative to address these challenges. Such a policy must prioritise the expansion and diversification of the manufacturing base, support technological upgradation, and promote value-addition. Key sectors like textiles, automobiles, fertilizers, chemicals, capital goods, and steel require targeted reforms to enhance productivity and global competitiveness. Import substitution should be actively pursued by incentivizing local manufacturing and discouraging the import of finished goods where domestic production is viable.

The policy must also integrate existing provincial industrial policies, such as the Khyber Pakhtunkhwa Industrial Policy (2020-2030) and Punjab Industrial Policy (2018), to ensure a cohesive national strategy. It should create an enabling environment for innovation and entrepreneurship, focusing on quality control, product design, and adherence to international standards. This approach would not only boost exports but also generate employment opportunities across various skill levels.

Effective management of the policy should also address the structural inefficiencies plaguing the industrial sector. This includes introducing fiscal and financial incentives to support technological innovation, reducing the cost of doing business, and improving the ease of access to credit for the selected industries. There must also be a focus on fostering public-private partnerships to attract investment and enhance industrial capacity. Encouraging collaboration between academia, research institutions and industries can also play a crucial role in advancing technology and innovation within the sector.

The government must also ensure that the policy is dynamic and adaptable to global economic trends and technological advancements. Pakistan’s industrial sector cannot thrive in isolation; therefore, it is essential to align domestic policies with international trade agreements and global best practices. Developing export-oriented industries and integrating them into global value chains should be a central focus. This will not only diversify the country’s export base but also shield the economy from external shocks.

The policy should also emphasise sustainable industrial development by incorporating environmental considerations. Promoting green technologies, energy-efficient practices and waste management solutions can help mitigate the environmental impact of industrial activities. This will also enhance Pakistan’s competitiveness in international markets, where adherence to environmental standards is increasingly becoming a prerequisite.

The long delay in formulating and implementing a National Industrial Policy is a glaring oversight that continues to hinder Pakistan’s industrial and economic progress. The government must urgently prioritise this policy’s finalisation and implementation to set the country on a path of sustainable industrial growth. Implementation of such a policy will also create the much-needed employment opportunities. It is ironic that now the services sector, instead of the industrial sector, contributes more to the employment structure.

A coherent, pragmatic, and integrated approach to industrial development is no longer an option but an absolute necessity for Pakistan’s economic revival and prosperity. Without such a policy, the country risks falling further behind in an increasingly competitive global landscape, squandering its potential for industrial and economic transformation.

The writer is a retired chairman of the State Engineering Corporation and former member (PT) of the Pakistan Nuclear Regulatory Authority.

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