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The industrial policy of any country plays a decisive role in shaping its economic future. A strong industrial base not only creates employment opportunities but also generates valuable foreign exchange through exports. Recently, during a presentation delivered at the National Institute of Management (NIM), Karachi, to senior officers of the 39th Senior Management Course, important insights were shared on Pakistan’s industrial journey—insights that are worth sharing with a wider audience.
Industrial Beginnings After Independence
At the time of independence in 1947, Pakistan inherited only 34 industrial units out of 921 in the subcontinent. These included textile mills, sugar factories, cigarette production, rice and flour mills, and cotton ginning units. The foundation of industrial Pakistan was laid when Quaid-e-Azam Muhammad Ali Jinnah inaugurated the first textile mill in Karachi in October 1947.
The Golden Era of Industrial Growth
Pakistan witnessed impressive industrial growth between 1958 and 1968 during the era of planned economic development. The second Five-Year Plan (1960-65) played a key role, supported by institutions like PIDC and development finance institutions such as PICCIC, NDFC, and IDBP. These institutions provided long-term financing for industrial projects.
Under this framework, major business groups established more than 60 large industrial units in sectors such as fertilizers, cement, shipbuilding, textiles, and sugar. This period is often referred to as the golden era of Pakistan’s industrial development.
Impact of Nationalization
However, the nationalization drive of 1972–74 reversed much of this progress. Industries were taken over by the state, discouraging private investment and slowing industrial expansion. Although new financial institutions such as Pak-China, Pak-Oman, Pak-Libya, and Pak-Kuwait were established, their role in industrial financing remained limited.
Political interference and non-merit-based financing further weakened institutions like PICCIC and IDBP, eventually leading to their closure and limiting access to long-term industrial financing.
Current Challenges Facing Industry
Today, the industrial sector contributes around 20% to Pakistan’s GDP, with a target to increase it to 25%. However, several challenges continue to hinder growth:
- High electricity and gas tariffs
- Elevated bank interest rates
- Rising cost of production
- Policy inconsistency
- Heavy taxation and delayed tax refunds
- Import restrictions on raw materials
- Declining cotton production
- Uncertain business environment
These factors have led to the closure of many industries and reduced the global competitiveness of Pakistan’s exporters, particularly in the textile sector. Competing countries like China, Vietnam, Bangladesh, and India enjoy lower production costs due to cheaper energy and financing.
The Role of SMEs
The Small and Medium Enterprises (SMEs) sector, often described as the backbone of the economy, has not reached its full potential in Pakistan. While SMEs contribute about 40% to GDP and provide nearly 80% of employment, their share is significantly lower compared to countries like China, India, and Malaysia, where SMEs contribute up to 85–90% of GDP.
Industrial Policy 2025–30: A New Direction
During a recent consultation at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), discussions were held on the upcoming Industrial Policy 2025–30. Key proposed reforms include:
- Reduction in corporate tax from 29% to 26%
- Gradual reduction and eventual elimination of super tax
- Increase in tax thresholds for industries
- Incentives for new and sick industries
- Abolition of 1% advance tax on SMEs
The policy aims to address business community concerns and create a more favorable investment climate.
Investment Opportunities and Future Outlook
Amid regional geopolitical tensions, Pakistan also has an opportunity to attract investment. To capitalize on this, reforms in financial regulations are needed to encourage overseas Pakistanis to bring back their capital.
It is estimated that nearly $20 billion was declared under previous amnesty schemes but was not repatriated. Restoring investor confidence through incentives and stable policies will be crucial in bringing this capital back into the economy.
Pakistan stands at a critical point in its industrial journey. With the right policies, consistent implementation, and a supportive business environment, the country can revive its industrial sector and move towards sustainable economic growth.
The upcoming Industrial Policy 2025–30 offers hope, but its success will depend on practical execution and long-term commitment to reform.
