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Dawn

Published Date: Jul 30, 2012

Mulling industrial policy

DESPITE
prolonged deindustrialisation which is still continuing, the government is not
yet clear whether to implement its National Industrial Policy 2011 or do away
with it. The draft policy was approved in May 2011.

The
policy document is a good piece of research which comes up with some ambitious
targets like eight per cent industrial growth per annum (with interrupted power
and gas supply), creation of more than four million new jobs and 100 per cent
value addition in the manufacturing sector. It further claims the policy would
turn Pakistan into a ‘world factory’ rather than a ‘shop’ in next 10 years.

The
broad areas covered in the NIP 2011 are: reducing dependence on imported inputs
(specifically, chemical, steel, and mining); promoting knowledge-intensive
industries (electronics, machinery, pharmaceutical); performance-based import
protection (mainly automobiles and electronics); value-addition-based export
subsidies; and removing supply-side bottlenecks such as energy shortages and
deficient transport infrastructure.

It
also seeks to double the manufacturing output in the next 10 years and expand
the stagnant industrial employment from the current 13 per cent of the
country’s total labour force to 20 per cent. While the policy looks good on
paper, it raises the question as to how will the targets be achieved.

Lack
of political commitment, direction, availability of funds, and structural
lacunas in the policy documents are some of the snags in its implementation.

The
political will is largely missing to either review the NIP or implement it in
its present form. Though the policy was evolved and approved by the higher
authorities, the ministry of industry is more into monitoring the prices and
focused on few industries like sugar, fertiliser, automobile, etc. The broad
policy issues have been put on the back- burner.

The
industries’ ministers appointed in the past few years are running the affairs
of the utility stores to ‘stabilise prices’. These stores have become
attractive destinations for political appointments by industries’ ministers and
bureaucrats.

Another
factor for the non-implementation of industrial policy is that textiles, the
most powerful sectorm, is no more under the ambit of ministry of industries.
The NIP is silent on textile and clothing industry, which constitutes 46 per
cent of the total manufacturing sector. A separate ministry for textile
industry promotes the interest of the textile and clothing industry through
separate policies.

Commenting
on the draft policy, Dr Vaqar Ahmad, head of the economics wing of the
Sustainable Development Policy Institute, said the NIP follows the distorted
approach of the past. The policy favours the protection of specific industrial
sectors like steel, fertilisers and chemicals etc. The NIP is based on the
premise that free market and free trade policies have not been successful, thus
protecting certain sectors is necessary to place them on the path of indigenous
broad-based industrialisation.

In
Pakistan, textile, automobiles and fertilisers sectors still seek budgetary
subsidies but remain uncompetitive globally even after over 40 years of fiscal
support. The support incentives now can only be given to ‘new activities’ with
a clear benchmark of success and failure, Dr Vaqar argued.

The
economist is not alone in criticising the NIP, but the State Bank of Pakistan
in March last also advised the government to rethink the industrial policy as
in the present form it would not yield the desired results. The central bank
pointed out two stumbling blocks in the implementation of the policy– energy
shortage and under-developed mining sector.

In
the policy document, industrial consumers were given preference over the
domestic consumers, resetting the priority for gas distribution. For a
democratic government it is neither possible nor workable. For instance, the
textile industry in Punjab went without gas for 172 days in recent past.

The
central bank also advised revised incentives structure in the mining sector for
which the provinces have to be on the board.

In
short, the role of industrial policy is to create an enabling environment for
broad-based industrialisation, encourage innovation in a wide range of sectors,
rather be focused on a few traditional types of industries always looking for
incentives rather than improving quality of their products at a competitive
prices.