Industrial policy on Malaysian model nearing completion

Ministry of Industries and Production (MoI&P) is giving final touches to the long-awaited Industrial Policy on Malaysian model, to be submitted to the federal cabinet for approval during the current month. This was stated by Prime Minister's Advisor on Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood while talking to Business Recorder.
Presently, thousands of industrial units have been closed due to 'unfriendly' policies i.e. high cost of doing business, regulatory hurdles and more recently fear of the initiation of an investigation by National Accountability Bureau (NAB).
The MoI&P had prepared a draft Industrial Policy 2010-11 and uploaded its draft on its website which had been removed later on after the business community criticised the Ministry for not taking them on Board for this purpose.
The country's LSM output increased by 0.95 percent in October 2018 compared to October 2017 and 5.33 percent compared to September 2018. LSM growth was just 0.65 percent during the first four months of the current year (July-October 2018-19) as compared to corresponding period of 2017-18.
Official sources told this scribe that provincial governments have been requested to send their recommendations for revival of sick units. The policy will comprise short-term, medium-term and long-terms measures to revive the industry.
Pakistan Business Council (PBC), which is supported by the PM's Advisor, is playing a key role in drafting an Industrial Policy which will bridge the fundamental disconnect between the government and the private sector and bring coherence within the industrial sectors.
The focus will be on value-added exports and imports substitution, i.e., textiles; pharmaceuticals; agriculture; oil & gas sector; engineering - iron & steel; other sectors including ceramics, footwear, tires, mining & furniture; Integrated petrochemicals complex; IT & Business Process Outsourcing (BPO).
"Contours of a new industrial policy" has revealed that the contribution of manufacturing to GDP was 12.1 percent in 2018 down from a high of 17.5 percent in 2005. This decline in share of manufacturing has seen Pakistan's share of global exports flat lining as high input costs have impeded competitiveness of relatively low value-added, heavily textile-reliant exports, while those of competitor countries have seen large increases.
The role of manufacturing in the economy has declined and its rate of growth lags far behind India, Bangladesh and Sri Lanka. As a result Pakistan has lost its share of world exports whilst Bangladesh's share doubled and Vietnam's grew seven-fold during the same period.
The sources said Ministry of Industries and Production would identify some sectors which included LSM and SMEs which would be given regulatory as well as financial incentives. However, the rest of industry will also get some incentives.
IMF has projected 4 percent growth in coming years in Pakistan which implies that the country will lose 1.5 percent of GDP that, in turn, will hit revenue and jobs. The government has to keep in mind these factors before finalization of new industrial policy.
The new Industrial Policy will focus on import substitution, exports, technology, capital and risk-intensive sectors rather than on short payback, domestic consumption oriented industries that reap the demographic dividend of Pakistan's large and growing middle class.
PBC has suggested following key enablers for new Industrial Policy: Fiscal Policy Reforms: The tax burden needs to be evenly spread out with all sectors paying their due share. Manufacturing with a 12.1 percent share of the GDP cannot contribute 58 percent to tax collection. Fiscal policy making should be separated from tax administration. Taxes should be on profits as opposed to any other proxies of profit, further the number of taxes need to be reduced, and multiplicity of tax authorities must be rationalized through the creation of a National Tax Authority. Tax rates need to be regionally competitive and brought down significantly to ensure that there is a level playing field between the formal and informal sectors.
A cascading tariff structure for imports where tariffs are highest on finished products domestically produced while being lowest on raw materials and intermediate products not available locally is also recommended. This cascading tariff structure is essential if Pakistan is to become part of global value chain. Similarly, the National Tariff Commission (NTC) has to take a more aggressive approach when it comes to protecting domestic industry; it needs to take inspiration from similar institutions in India, Indonesia and Turkey.