NEW INDUSTRIAL POLICY

 

The focus of government efforts will be on the small and medium enterprises in the private sector

From Shamim Ahmed Rizvi, Islamabad
Mar 06 - 12, 2000

The Economic Advisory Board (EAB) during its 2-day meeting in Islamabad last week considered and approved the broad guidelines of the New Industrial Policy which may be launched by the next financial year.

The second day meeting of the board which was presided over by the Finance Minister Shaukat Aziz was informed that the new policy which will be announced in April aims at removing major regulatory distortions, technological deficiencies and various other impediments that were confronting the industrial sector.

According to a handout issued after the meeting, the board was informed that in the industrial sector, the focus of government efforts will be on the small and medium enterprises in the private sector. It was noted that this sector represented vast potential for employment generation and exports expansion. But at present small and medium enterprises were suffering on account of low technological base, poor credit allocation, weak infrastructural support, poor marketing conditions and low value addition.

For a concentrated support to the sector, it was planned that in the beginning four sub-sectors, namely fisheries, textiles, farm-based industry and marble, were selected for a targeted intervention.

Based on detailed analysis, these sectors will be provided support through credit availability, technological information, establishment of institutional stakeholders that bridge information gaps about markets and cost effective methods of value-addition. The board was further informed that there were still certain areas where public sector had a role to play in industrial development. For instance, many of the processing facilities to enhance non-traditional exports were required to be developed in the vicinity of areas where private sector would not easily set up industry.

For this purpose, Pakistan Industrial Development Corporation (PIDC) will act as a catalyst, through joint venture arrangements with the private sector. All other public sector corporations will gradually dissolve as soon as their units were privatized.

Earlier, the Secretary Ministry of Industry and Production Abu Shamim Arif while addressing a seminar, revealed that a long-term industrial policy was under preparation by the government. According to him several committees have been constituted comprising representatives of the private sector associated with the various types of industries in the country, for formulating appropriate recommendations. The disarray and lack of adequate base of capital investment in the industrial sector was attributed by Arif to inconsistencies in fiscal and other policies of the previous governments which ultimately bore heavily on the growth process of industry which he felt deserved redressal in the upcoming new policy.

It is true that industrial development in Pakistan has left much to be desired especially after the sixties for one reason or the other. There can be no two opinions that rapid industrial growth can alone contribute to attainment of economic goals such as sustainable economic growth, reduction in unemployment, dynamic export growth, full-scale development of human and material resources of the country and the ultimate achievement of a self-reliant economic base. At present, the share of industrial sector in the GDP has remained low at around 17 to 18 per cent lagging far behind the agriculture sector's 24.5 per cent. This it indicative of the fact that even after 52 years of independence, the country has largely remained an agrarian economy—a glaring evidence of underdevelopment and low per capita income in dollar terms.

The factors responsible for the slowdown in industrial investment in the country may be varied and many, the foremost among which was the sweeping nationalisation of well established, privately-owned large scale industrial units with the result that in subsequent years at leastfor 6 to 7 years, private investment in industry remained conspicuous by its absence.

It is also true that Industrial Development in Pakistan has left much to be desired as it remained neglected specially after the sixtes for one reason or the other. This apathy created a damaging gap in the pace of industrial development at a time when developing nations in the South East Asian Region were actively engaged in the promotion of industrial investment. The period from the late 1970s to 1980s was marked by renewed official policy pursuits including formulation of industrial policy measures to encourage investment in the private sector. However, no attention was given during this period to disinvest the government's ownership in the nationalized industrial sector although private investment was permitted in industries which were under state management. The era was also marked by closely regulated industrial investment through official approvals which entailed long delays in procedural rigmarole, and hence the conspicuous slow pace of industrial investment.

The period beginning in 1990s was noted for deregulation of sanctions in private investment in industry. However, despite attractive concessions like areawise and industry-wise tax holidays and other concessions, the investors concentrated on textile, leather and a few other industries. The goal of broadening the base of industrial sector especially through establishment of capital-intensive industries like chemicals and engineering continues to be far from reach. At the same time the existing industrial sector comprising mostly textiles and a few other types of industries was quite often shaken in so far as its profitable operations are concerned, by what is now described as inconsistency in the government's economy and fiscal policies such as abrupt removal of fiscal incentive, frequent increases in power and fuel charges, tight credit policy and high interest rates. The regular depreciation in the exchange rate of rupee contributed to a rise in cost of imported raw materials and spares and led to closure of a large number of industrial units.

While preparing a new policy, this, among other factors, should also kept in mind that most of the changes in the economic policies of the previous governments was largely due to the pressures and conditionalities of the international financial institutions. It should be assured that the new policy takes care of them to prevent any boottleneck in its smooth implementation.