It’s all in the implementation

INDUSTRIAL POLICY

After more than two decades of policy drift, Pakistan has finally announced a comprehensive industrial policy for 2025–26, although a formal document has yet to be made public. Framed as a 10-year roadmap for industrial revival, the policy includes a review mechanism every 18 months, an encouraging signal of its intended continuity and adaptability.

The announcement comes not a moment too soon. Pakistan’s industrial sector has steadily lost ground, with its share in GDP falling from 26 per cent in 1996 to around 23 per cent in 2025. Large-Scale Manufacturing (LSM), once seen as the engine of national development, has either stagnated or declined across key sectors. Textiles, automobiles and pharmaceuticals remain flat, while iron and steel, engineering, electrical equipment and chemicals continue to underperform. In 2025, LSM contracted by 1.5 per cent. The sector, which contributes around 13 per cent to GDP, still employs over 16 per cent of the labour force.

At face value, the policy is a positive step. It acknowledges what business leaders and policy experts have long warned: Pakistan’s industrial base is eroding, and without decisive intervention, the consequences — rising unemployment, sluggish growth and increased economic vulnerability — will deepen. Key features of the new policy include enhanced credit flows to small and medium enterprises (SMEs), revival of sick industrial units, legal reforms to protect investors and a phased reduction in corporate tax from 29 to 26 per cent over three years.

However, despite these positive intentions, serious questions remain about whether this policy is bold enough to deliver a structural shift. Pakistan’s industrial sector is burdened with high production costs, outdated technology, energy shortages, erratic regulation, weak innovation and limited export competitiveness. The overall investment climate remains fragile, hampered by high interest rates, currency volatility and chronically low levels of foreign direct investment. Addressing these challenges requires more than a policy framework; it demands long-term institutional reform, fiscal restructuring and strategic coordination across various sectors.

The proposed tax relief, for instance, appears modest. A three-percentage-point cut, while symbolically useful, is unlikely to offset what many corporates consider a prohibitively high tax regime. Super taxes, withholding taxes and double taxation on dividends push the effective corporate tax rate to nearly 60 per cent in some cases. Without broader tax rationalisation, this concession alone is unlikely to stimulate significant new investment.

Similarly, the commitment to revive sick industries and support SMEs is commendable, but implementation remains a formidable hurdle. Unless banks and financial institutions are mandated to provide predictable, lower-cost credit and are supported with enforceable credit guarantees, little will change on the ground. Proposed amendments to the Corporate Rehabilitation Act 2018, which governs the restructuring of distressed companies, are welcome — but they must be matched by administrative follow-through and judicial efficiency.

Pakistan cannot build a stable, job-creating economy through services and consumption alone. A dynamic and globally integrated industrial sector is essential for export expansion, technological advancement and long-term economic resilience

What remains missing is a transformative industrial strategy that can reposition Pakistan as a competitive manufacturing hub. In this context, lessons from emerging economies such as India, Malaysia and Vietnam offer valuable insight. India’s policy since 2020 has focused on scaling up specialised manufacturing units to create jobs and substitute imports. Malaysia and Vietnam have deployed a range of tools — strategic planning, market access regulations, R&D support, and domestic technology promotion — to grow their local industries and attract foreign capital. These countries have directly linked tax benefits and subsidies to output, job creation, and export performance, yielding measurable results in employment, skills development, and fiscal growth.

Such approaches align industrial growth with national development goals. They also stem brain drain by creating opportunities for skilled labour at home. China successfully employed this approach in the early 2000s, establishing competitive manufacturing clusters that significantly boosted GDP and exports. In contrast, Pakistan’s new policy appears cautious, with fewer targeted incentives or clear mechanisms for technological modernisation.

Another concern is the apparent lack of alignment with existing provincial industrial strategies. Punjab and Khyber Pakhtunkhwa have already formulated industrial policies; however, there is limited public clarity on how these will be integrated into a national framework. Without this alignment, fragmentation, duplication, and inefficiency are likely.

The policy also falls short in highlighting forward-looking sectors, such as digital manufacturing, green technologies, and renewable energy-driven industries. As global markets increasingly favour low-carbon and sustainable production, Pakistan must modernise its industrial base to meet new international trade and environmental standards. Industrial expansion must be matched by energy efficiency, environmental compliance and adherence to global quality benchmarks.

Ultimately, the success of this policy will not be measured by its announcement but by its implementation. If it remains a statement of intent without execution, it will do little to halt de-industrialisation. Real impact depends on building institutional capacity, ensuring inter-agency coordination, and maintaining consistency across political cycles. Monitoring must be transparent, independent, and accountable. Investors, both domestic and foreign, must see predictability and seriousness of purpose.

Pakistan cannot build a stable, job-creating economy through services and consumption alone. A dynamic and globally integrated industrial sector is essential for export expansion, technological advancement and long-term economic resilience. The new policy offers a much-needed opportunity, but whether it becomes a turning point or another missed opportunity depends entirely on the courage and clarity with which it is implemented.

The writer is retired chairman of State Engineering Corporation.

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