Pakistan Studies Assignment #1

Problems and Solutions of Industrial Sector

SUBJECT PAKISTAN STUDIES

SEMESTER FIRST

SECTION E1

Roll No. 251

SUBMITTED TO MAM KANZA

SUBMITTED BY Usama Ahmad

SUBMISSION DATE

GOVERNMENT COLLEGE UNIVERSITY LAHORE

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Contents
 Historical Background
 Definition
 Problem and solutions of Industrial Sector
Problems of Industrial Sector
a. Controversial Industrial Strategy
b. Shortage of Capital
c. Limited Markets
d. Lack of Technical Know-How
e. Lack Of Infrastructure
f. Lack of Industrial Research
g. Unbalanced Industrial Structure
h. Labor Unrest
i. Nationalization
j. Lack of Specialization
k. Inflationary Pressures
l. Biased British Policy
m. Scarcity Of Minerals
n. Political Instability
o. Frequent Power Breakdown

Solutions of Industrial Sector

a. Clear Strategy For industrial Sector
b. Provision of Industrial Finance
c. Provision of Infrastructure
d. Development of Capital Goods Industry
e. Industrial Research
f. Fiscal Incentive
g. Technical Education And Training
h. Optimum Diversification
i. Offer Peaceful Environment
j. Expansion of Markets
k. Tax Concession
l. Supply of Raw Material
m. Establishment of Government Enterprises
n. Incentive To The Industrialists
o. Lenient Policy of Credits
 Conclusion

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 Reference
 Bibliography

 Historical Background
The industrial sector has a larger potential to contribute but is on hold due to poor
policy initiatives, lack of innovation and diversification in products for meeting the needs for
domestic and global consumers.

Industrial sector, the second largest sector of the economy mainly comprises light
and large scale manufacturing and small and medium enterprises. It contributed 18.9% towards
National GDP during the last fiscal year compared to its share of 19% during FY 2007-08 and
53% share of services sector and 20.6% share of agriculture sector. The textile sector has been
earning around 60% of the FX earnings from exports traditionally but during the last fiscal year
it earned 54% of the total FX earnings with a decline of $1 billion in its earnings compared to FX
earnings during FY 2007-08. The industrial sector has a larger potential to contribute towards
National GDP but is on hold due to poor policy initiatives, lack of innovation and diversification
in products for meeting the needs of domestic and global consumers, high cost of production
and low quality of products.

The Government and stake holders in public and private sector need to resolve the following
issues on priority basis:

1:- Establishing stable political and security environment and pro-business fiscal and monetary
policies.

2:- Setting clear objectives of industrial revival and growth strategy.

3:- Infrastructure deficit that includes road and rail network, sea ports and power supply.

4:- Implementing research, development and good governance.

5:- High cost of capital required to boost investment.

Industrial sector is of great importance for economic development of country. It is historical fact
that countries with strong industrial sector have showed more economic growth and
development industrial sector have showed improvement in national income and promoted
living standard of population. Industrial development plays a vital role in economic uplift. It
raises the productive capacity of the people and creates ever increasing employment
opportunities. The people thus can have more goods and service, leisure and better health
denied the previous generations.

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Industrial development reduces dependence on agricultural exports to earn badly-needed

foreign exchange. An industrialized nation is always economically stronger and thus capable of
defending itself against any aggression.

 Definition
“Industry’’ refers to that sector of economy which is related with manufacturing and
production of different products.

 Problems of Industrial Sector

British policy at the time of partition, only 34 units given to Pakistan out of 921.

1:- Controversial Industrial Strategy

The slow growth in industrial sector is mainly due to rapid changes in the industrial
development strategies. The planners have not yet been able to solve the central issues such as:

i. Sectorial balance between agricultural and industrial sector

ii. Balanced regional development
iii. Growth versus distribution strategy
iv. Small scale versus large scale
v. Capital intensive versus labor intensive
vi. Public sector versus private sector
vii. Rural versus urban
viii. Nationalization of industries
ix. Import substitution versus export promotion

2:- Lack of Capital

In Pakistan, the saving and investment is very low. The capitalists are regularly
withdrawn and hesitant in investing their capital in new industrial ventures. Private foreign
investment and foreign aid has other adverse effects. There is inadequate facility of industrial
credit in the country and the expansion of industries are handicapped. No doubt, deficiency of
capital is a problem in Pakistan but the major problem is that existing capital is not properly
utilizing.

3:- Limited Markets

Limited domestic market increasing foreign competition is another obstacle in the way
of industrial development. The purchasing of common man in the country is low, due to low
wages and unemployment.

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Therefore, the demand for industrial goods in the country is not conductive to industrial
growth. Market is also limited due to low quality and lack of standardization.

4:- Lack of Technical Know-How

Another problem in the way of rapid industrialization is the lack of skilled labor.
Modern machinery needs trained, technical men and laborers. Our labor is uneducated and
untrained and does not work hard.

5:- Lack of Infrastructure

The transport system of Pakistan is still under-development. The existing system does
not cope with the industrial and commercial requirements. Sources of power like electricity,
coal, gas, oil have not yet been fully developed. The power capacity available is not sufficient to
cover the need of growing industrial sector.

6:- Lack of Industrial Research

Lack of industrial research is also a problem which is responsible for high production
cost. Industrial research discovers new techniques of production and introduces new varieties
of products.

Due to lack of industrial research, improvement in production techniques has not been
made possible and as such production costs of our industrial products are high and we are
unable to compete with producers from other countries.

7:- Unbalanced Industrial Structure

There is no balance in consumer goods and capital goods industry. The taxation
system favors the consumer goods industries. It gives no protection to intermediate and capital
goods industries. The result is that capital goods industries are still underdeveloped.

8:- Labor Unrest

The rapid growth of the large scale manufacturing sector in Pakistan led to the
existence of a substantial labor force employed in this sector. However, the standard of living of
the labor force and the real wage did not increase.

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This led to trade union movements and strikes. This resulted in tension between
entrepreneurs and laborers which distributed industrial production and efficiency.

9:- Nationalization
The nationalization of industries in 1972 inflicted heavy damages to private industrial
sector in Pakistan. The total investment in private sector dropped from Rs.1358 million in 1970-
1971 to Rs.650 million in 1976-77. The pace of industrialization is still slow. The privatization,
the decontrol, and other fiscal and monetary concessions.

10:- Lack of Specialization

A very peculiar feature of industries in Pakistan is that all the process of production are
done on a single unit with a result that the benefit of specialization is not available to reduce
the cost and improve the quality.

For example, the motor car industry must be split into spare-parts industry, assembling
industry tire and tube industry, etc. All these industries are called subsidiary to the car industry.

11:- Inflationary Pressures

Rate of inflation is very high in Pakistan. The prices of imported machinery, oils,
chemicals and spare-parts are rising very sharply. These factors contribute towards industrial
backwardness. Very high rate of inflation is 14.1 % in Pakistan.

12:- Biased British Policy

The British Government adopted a wrong and biased policy with regard to the
industrial development of Muslim majority areas. This bias particularly manifest in the Muslim
majority areas of Northern India which provided good soldiers to the British army as the
industrialization of these areas would have deprived the British of excellent fighters and
soldiers. Thus when Pakistan came into existence it had to take a start from a scratch.

13:- Scarcity of Minerals

Pakistan also lacked badly in the mineral resources needed for the production of
certain industrial items. The Government, therefore, had to spend a substantial amount of
foreign exchange on the import of minerals and chemicals required to produce industrial goods.

14:- Political Instability

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The political conditions remained unstable for a very long time after independence.
Political chaos and unrest were rampant in the society which left their unhealthy impact on
every aspect of our social life. The Government could not formulate and implement its policies
whole-heartedly due to unstable conditions which prevailed in the country. The recurrent
strikes and lock-outs and political parties meddling with the industrial sector disrupted the
industrial peace resulting in great loss of production.

15:- Frequent Power Breakdown

Power resources such as electricity and gas are very vital for running factories to
utilize maximum industrial capacity in a country. Most of our industrial units run on these
power resources. But there are too frequent power breakdowns/ failures adversely affecting the
industrial production. The new phenomena of load shedding is also playing havoc with
productivity level.

 Solutions of Industrial Problems

1:- Clear Strategy for Industrial Sector
For revival and growth of industrial sector, the controversial issues have to be solved
once for all. Unless the danger of removed and the lost confidence is resorted, the progress in
the industrial field will remain slow.

2:- Provision of Industrial Finance

Establishing a well-organized capital and money market in the country can solve the
problem of the lack of capital for industrial sector. The government of Pakistan established
Pakistan Industrial credit and Investment corporation (PICIC) in 1957 to provide loans to the
private sector.

Moreover, an industrial development bank of Pakistan (IDBP) was established in 1961.

Recently, Investment Corporation of Pakistan (ICP), National Development Finance Corporation
(NDFC) Equity Participation Fund (EPF) and Bankers Equity Limited (BEL) are also helping in the
industrial development.

3:-Provision of Infrastructure
Industrialization requires adequate amount of transportation communication and
energy facilities to be provided by the government.

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The government of Pakistan should issue open route permits to transporting agencies so
that their number may increase and a competition ensures among them. This will improve the
quality of service and reduce the fare.

4:- Development of Capital Goods Industry

It is required to establish well-equipped workshops in large number so that the idle
period of machines may be reduced to the minimum.

It is also necessary to establish a number of tools and machine manufacturing plants

to meet the demand of spare parts industry.

5:- Industrial Research

Industrial research discovers new techniques of production and introduces new
varieties of products. This results in lower cost of production. More laboratories must be
established in the country for industrial research in order to improve production techniques and
invent new varieties of products.

The government of Pakistan in 1953 established Pakistan Council of Scientific and

Industrial Research (PCSIR) at Lahore, Karachi and Peshawar.

6:- Fiscal Incentives

Taxes of various types increases the production cost and in many cases
discourages production. Tax holidays may be given to infant industries and those established in
undeveloped areas.

7:- Technical Education and Training

To improve the productivity in the industrial sector, it is essential to establish
technical training institutions to give training to the laborers. The government made necessary
arrangements and helped in the establishment of Pakistan Industrial Technical Assistant Centre
(PITAC), other vocational and commercial institutions including Pak-German and Pak-Swedish
Institutes of Technology.

This is going to provide technical assistance to industrialists, to helping the

dissemination of modern knowledge and improved techniques among artisans and craftsman.

8:- Optimum Diversification

We should establish every type of industry in every line so that we will able to
produce every product in our country and in this way, we can maximum imports.

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9:- Offer Peaceful Environment

Government should maintain law and order in country so that security of life and
property will be given to business and they will fed comfortable and will be ready to invest in
country.

10:- Expansion of Markets

There should be expansion of markets at domestic and foreign level, of industrial
goods.

11:- Tax Concession

Tax concession is also needed to increase the investment in new industries.

12:- Supply of Raw Material

In time, supply of raw material is necessary for the improvement of industrial sector.

13:- Establishment of Government Enterprises

The Government should take immediate steps for the solution of industrial
problems by setting up a few Government enterprises controlled and run by the Ministry of
Production. The major objective of these enterprises was to provide maximum assistance to
industrial sector for its growth. Besides this objective, these enterprises took over the
management of those industrial units which the private sector had abandoned.

14:- Incentive to the Industrialists

To provide incentive to the industrialists the Government announced a Five Year Tax
Holiday and allowed remission in the import duty on machinery to be installed in those
industries which are to be established in the under- developed areas. Lavish reduction in various
taxes have been allowed to encourage the investment in the industrial sector .

15:- Lenient Policy of Credits

The Government adopted a lenient policy in giving loans and credits to the
industrial sector. The commercial banks have been authorized to extend credit facilities to
industrialists. Price control has been lifted from most of the industrial products to set an
incentive to the investors.

 Conclusion

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If the above steps are taken by the government sincerely and at proper time and with
full commitment, maximum problems of industrial sector will be solved. Without Industrial
Sector, no country can make progress in this modern world. If Pakistan wants economic stability,
it has to eradicate all the germs of corruption, terrorism and political disputes that are the big
hurdles in the economic development of our country.

 Reference
www.learningall.com (11 December, 2015)

www.slideshare.net/nightseem/causes-and-removal-of -industrial-backwardness-in-Pakistan
(11 December, 2015)

www.cssforum.com.pk (11 December, 2015)

Industrial sector of Pakistan-CSS Forums (12 December, 2015)

www.urdumania.net Industry of Pakistan and its Problems (12 December, 2015)

https://www.google.com.pk (12 December, 2015)

Problems and solutions of Industrial sector (12 December, 2015)

Muhammad Ihram Rabbani, Introduction to Pakistan Studies, (Lahore: Caravan, 2010. Page No.
340) (13 December, 2015)

 Bibliography
Rabbani. Ihram. Muhammad. Introduction to Pakistan Studies. Lahore; Caravan. 2010

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