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Industrial Policy

Industrial Policy

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Industrial Policy

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  1. Industrial Policy

  2. Objective • Study the process of industrialization during: • The Zia period; 1977-88 • Post-1988 era

  3. Backdrop • In the Zia era, Pakistan witnessed: • Return of growth rates • Increased role of private sector • Post-Zia period is distinct both politically and economically • Return to democracy (1988-1999) • A great deal of continuity in policy • Structural adjustment programs • Pakistan’s economic program since 1988 has totally capitulated to the requirements of IMF and World Bank

  4. Industrial Performance during Zia Years • During 1980-88, GDP growth rate = 6.5% pa • Manufacturing GDP grew at 9.5% pa between 1977-86 • Investment in medium and large scale industry grew at 18.2% pa

  5. Industrial Policy (1977-88) • ‘Only epoch in Pakistan’s history when an industrial policy was formulated and executed for any length of time’ • 77-81: • Cautious attempts at dismantling existing government policies and restoring private sector’s confidence, while simultaneously trying to gain political legitimacy

  6. Industrial Policy (1977-88) • 82-85: • A more forceful drive towards Islamization which followed the regime’s consolidation of power • 82-85: • Attempt to disengage the government from direct political control of the economy.

  7. Industrial Policy (1977-88) • Private sector was to play the leading role in the industrial sector • Some specific features of the industrial policy: • Denationalization • Agro-based industry • Small engineering units • Chemical and cement industries • Export rebates • Reduction in interest rates • Easing of economic controls and regulations, including procedures for sanctioning of private sector investment.

  8. Industrial Policy (1977-88) • Deregulation and Liberalization: • Sixth five year plan seen as a departure from government’s earlier policies on industry. • For the first time emphasis moved from purely sectoral investment planning to one which also incorporated incentives and institutional reforms to enhance the efficiency of the industrial sector. • Export-led industrialization was mentioned as a policy goal for the first time • Emphasis on moving manufactured exports towards higher value added.

  9. Industrial Policy (1977-88) • Difference between export-led and import-led industrialization.

  10. The Age of Structural Adjustment: 1988 onwards • Adoption of SAP had a significant influence on industrial sector. • SAP: access to an extended fund facility from IMF as well as sectoral loans from the World Bank in exchange for many structural adjustments in the economy • Major emphasis of structural adjustment program was on enhancement of growth by encouraging the private sector

  11. The Age of Structural Adjustment: 1988 onwards • IMF/World Bank’s induced conditionality (1988-91) outlined the following industrial policy for the government: • De-regulation • Reducing the level of protection accorded to different industries • Reducing the list of restricted import items & those subject to quantitative restrictions.

  12. The Age of Structural Adjustment: 1988 onwards • Apart from these industry-specific recommendations, IMF’S macroeconomic prescriptions had a direct impact on industrial development • Increase in level of indirect taxation • Withdrawal of subsidies on gas, electricity, telephones and fertilizers • Increase in producer prices of crops and petroleum products • Reduction in public sector development spending • Restriction on government borrowing and concessional credit to private sector.

  13. The Age of Structural Adjustment: 1988 onwards • The debate on credit allocation to industry • Multi-lateral financial institutions: The use of concessional and targeted financing distorts capital allocation and causes financial repression. • Level of exports determined by competitiveness, quality, tariff policy, and exchange rate policy. • Interest rate subsidies cannot compensate for lack of competitiveness, poor quality, - only creates further distortions.

  14. The Age of Structural Adjustment: 1988 onwards • Pakistani planners: • Local machinery manufacturing and the export sector have relied heavily on concessional financing.