Industrial Policy

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
• Pakistans 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 Pakistans 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
  sectors confidence, while simultaneously trying
  to gain political legitimacy

6
Industrial Policy (1977-88)

• 82-85
• A more forceful drive towards Islamization which
  followed the regimes 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
  governments 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 Banks 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, IMFS 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.