A meeting of the Task Force on industrial policy was held in Islamabad on 12th August, wherein the Minister of State for Industries and Production reportedly emphasised the need to enhance the industrial share of the economy from 18 to 30 percent. Few would challenge the inherent economic logic behind this emphasis: the growth and consequently the development of nations has been closely associated with a developed industrial base.
Even significant agricultural sectors of the developed countries account for a very small percentage of their Gross Domestic Product (GDP). For example, the Australian farm sector accounts for only 3.5 percent of its GDP, in spite of being considered a major agricultural producer and exporter.
Thus, if Pakistan is ever going to join the annals of developed nations, instead of being labelled as being on the cusp of the developmental take-off stage, as defined by many a biased Pakistani head of government, it is critical to shift focus from farm output to industrial output that is less dependent on the vagaries of weather. While President Zardari and Cabinet members have periodically voiced their intent to focus on the development of the farm sector, as that represents the vulnerable sections of society, yet few economists would advise a single-minded focus. In this context, it is gratifying that the Minister of State for Industries and Production has outlined a vision that must be supported.
Federal Finance Minister Dr Hafeez Sheikh, in his budget speech, identified six objectives, which unfortunately did not directly and specifically include industrial development. His six objectives were: (i) protect economic recovery with focus on fiscal austerity, (ii) check inflation, (iii) self-reliance through better domestic resource mobilisation, (iv) reform and enhance social protection regime, (v) reduce the burden of state-owned enterprises, and (vi) employment generation. It is unfortunate that all these objectives are now unachievable subsequent to the devastating floods. Be that as it may, he did indicate his focus on the farm sector in his budget speech: "our focus is food security, with emphasis on the development of agriculture and food sources...agriculture must find more productive solutions based on more efficient markets that provide incentives for improved technology, with better water and input utilisation. In addition to food availability, we seek to ensure that the poor have the means to purchase food."
Supporters of the Finance Minister would no doubt argue that the industrial sector does not come within his purview and that the major responsibility for improving the domestic business climate rests with the Ministry of Industries and Production, which is engaged in this task as shown by the draft industrial policy that is in circulation after nine consultations with the stakeholders. This, to some extent, is true but some of the major impediments facing the industrial sector in this country are related to harassment by the staff of the Federal Board of Revenue, which is under the Ministry of Finance. In addition, the tax system in practice is considered by many industrialists as anomalous, as different tax rates for the public and private sector, engaged in producing the same product, are commonplace.
What is being ignored by many other related ministries, including water and power, is that utility rates charged to the industrial sector are the highest, a fact that seriously compromises the ability of the industrial export sector to compete internationally. To start business still requires a cumbersome bureaucratic procedure that must be a daunting task for many would-be-industrialists. These issues are over and above those related to the continuing law and order problems, the high interest rate regime that continues to this day and the severe energy crisis. It is evident that to enhance industrial contribution to the GDP, several ministries need to co-ordinate and come up with policy options that have been lacking so far. One would hope that the draft policy in circulation is also commented on by other relevant ministries to ensure that realistic improvements are made to it.