Industrial Development in Pakistan
Since the Industrial Revolution, industrialization has been regarded as essential for a country's rapid development. The countries that solely rely on agriculture have remained poor and underdeveloped, whereas the nations that gave priority to rapid industry growth to industry achieved high rates of development. The advanced countries of the world, America, Germany, Great Britain, Japan, and Russia, encouraged industrialization on large scale. The advantages of technological change were channeled into agriculture. They developed industry, which also brought a revolution by mechanizations in the agricultural sector. Their national incomes increased. Their balance of payments were considerably improved. There was an increase in employment. The countries achieved balanced growth in various sectors of the economy.
At the time of partition in 1947, Pakistan had a negligible industrial base. Since the division of the Subcontinent, the Government of Pakistan has been utilizing all available domestic and external resources for rapid development of the manufacturing sector.
Pakistan has now attained a fairly diversified base in manufactures ranging from essential consumer goods to chemicals, steel, heavy engineering and achene's and tool industries. Domestic production of items such as refined sugar steel, fertilizer, cement, etc. has helped in import substitution and has saved a substantial amount of foreign exchange.
Present Growth Pakistan's Industrial Sector
This article will examine the industrial performance in terms of growth/productivity over the following periods of time:
1. Growth of industrial sector from 1947 to 1950.
2. Growth of industrial in 1950s.
3. Performance of industrial sector in 1960s.
4. Performance of industrial sector in 1970s.
5. Performance of industrial sector from July 1977 onward.
1. Growth of Industrial Sector from 1947 to 1950:
The West Pakistan was established in 1947. It had an area that produced a large share of agricultural, forest, and animal products. Former East Pakistan was the main producer and supplier of jute. However, there was not a single jute factory in the former East Pakistan—cotton was produced, but the region had no big factories to process and manufacture it. Instead, the factories were all situated in areas which wound up as part of India. There was no steel industry in Pakistan, whereas India had a sound industrial base at the time of Independence. Out of 921 industrial units operating in the British India, Pakistan got only 34 industries, i.e. four percent of the total industries established in the Subcontinent. The rest were located in India. The industries located in Pakistan's share were comparatively small and based on indigenous raw material. These industries included small sugar mills, cotton ginning factories, flour mills, rice husking mills, canning factories, etc.
The Government of Pakistan, aware of the importance of industrialization for rapid growth and development, called an Industrial Conference in December, 1947. The Industrial Conference recommended the establishment of industries which use locally produced raw material like jute, cotton, hide, and skins. In order to expand the scale of production, private enterprises were encouraged to set up industries excluding the manufacture of arms apparatus. The infrastructure for the establishment of heavy industries was also to be developed. The Development Board was established in 1984 to help with the implementation of these steps. The government also set up an Industrial Finance Corporation and an Industrial Investment and Credit Corporation in 1948. In the period from 1947 to 1950, the private entrepreneurs invested in high-profit industries. The contribution of industrial sector was 6.9 percent of the GDP in 1950.
2. Growth of Industrial Sector in 1950s.
Due to the lack of capital, technical know-how, entrepreneurship. etc., the private sector was shy in investing capital in heavy industries. The government took the initiative and established the Pakistan Industrial Development Corporation (PIDC) in 1952 to invest in industries that require heavy initial investment, have a long gestation period, and require a high degree of know-how. The PIDC's major investments were in paper and paper board, cement fertilizer, jute mills, shipyards, and the Sui Karachi gas pipeline. By June in 1971, the PIDC had completed 59 industrial units and created a base for self-sustained growth in the industrial sector. The nationalization of industries in 1972 inflicted a heavy blow to the PIDC. Under the Presidential Ordained No. 5 of 1974, the government transferred the major projects to new Corporation. The PIDC is now reduced in size and stature. It is hardly operating 12 projects and facing great financial stringency.
In the First Year Plan 1955-60, a sum of Rs. 185.11 crore was allocated to the growth of industrial sector. A large number of new industries such as woolen and worsted yarn, cycle tyros and tubes, paints, varnishes, and glass were established. The production capacity of the already existing units like fertilizers, jute, paper, and DDT were considerably expanded. The reduction of export duties and the introduction of the Export Bonus Scheme in 1958 increased the export of the manufactured goods. There was all-round development of industries, particularly in agricultural processing, food products, and textiles. The share of industrial sector to GDP rose from 9.7 percent in 1954-55 to 11.9 percent in 1959-60.
3. Performance of Industrial Sector in 1960s.
The period from 1960 to 1970 covers two Plan periods, the Second Five-Year Plan 1960-65 and the Third Five-Year Plan 1965-70. In the Second Five-Year Plan, an allocation of Rs. 513 crore, 22.2 percent of the total outlay, was made for the growth of industrial sector. The incentive pushed for better environments for investment, better co-ordination between PIDC, PICIC, and other executing agencies, and, above all, political stability. This led to the widening of industrial base. The country achieved self-efficiency by widening its industrial base. There was a shift in the establishment of consumer goods industries to heavy industries such as machine tools, petro-chemical, electrical complex, and iron/steel. In short, in terms of growth, exports, and productivity, the industrial performance increased during the Second Five-Year Plan period. The share of industrial sector to GNP went up to 11.8 percent from 1960 to 1965.
In the Third Five-Year Plan, from 1965 to 1970, development expenditure amounting to Rs. 233.11 crore (against a target of Rs. 1277.0 crore) was incurred for the growth of manufacturing sector. The Plan could achieve only a partial success as it ran into difficulties as soon as it was launched. There was also reduction in U.S.A aid. The recurring floods, successive years of drought, and political unrest slowed the pace of development in all the sectors of the economy. The manufacturing sector could achieve a growth rate of 7.8 percent against the Plan target of 10 percent.
4. Performance of Industrial Sector from 1970s onward.
The industrial performance in terms of growth, exports, and production was disappointing from 1971 to 1977. There were various reasons for the poor performance of the manufacturing sector. One wing of the country (East Pakistan) was forcibly separated. The country had to fight a war with India in 1970. The suspension of foreign aid, loss of indigenous market (East Pakistan), fall in exports, devaluation to the extent of 131 percent, nationalization of industries, labour unrest, unfavorable investment climate, floods, recession in world trade, reduction in investment incentives, etc., caused a fall in the output of large scale industries. The annual growth rate fell to 2.8 percent in the industrial sector in this period.
From July of 1977 to 1980, the government initiated a large number of measures to revise the economy. Cotton ginning, rice husking, and flour milling were denationalized. The private sector was encouraged to invest in large scale industries. The investment climate was gradually building up in the country. The annual growth rate in manufacturing sector was 8.2 percent in the 1980s. The growth of large scale manufacturing slowed down to an average of 4.7 percent in the first half and further to 2.5 percent in the second half of the 1990s.
The share of industrial sector was 18.2 percent of the GDP in 2003-04. However, it decreased to 15.6 percent of the GDP in the year 2004-05. The main factors that contributed to rapid economic growth were monetary policy, financial discipline, consistency and continuity of development policies, strengthening of domestic demand, continuously improving macro economic environment, and a stable rate global expansion of markets due to liberalization of trade in 2005.
The overall manufacturing recorded growth of 9.9 percent in 2005-06 and 8.45 percent in 2006-07. The decline in the growth of the manufacturing sector was due to multiple reasons like the reduced production of cotton crops, sugar shortage, steel and iron problems, and global oil prices.
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