Need for an industrial policy

Recently the Lahore School of Economics hosted its eleventh annual conference on Management of the Pakistan Economy with a focus on the prospects and challenges of Pakistan as a regional manufacturing hub.
While some argued that industrial policy is the only way to deliver real economic growth, others highlighted how it has failed time and again because of political and vested interests. From partition to Ayub Khan’s era of industrialization, to Bhutto’s nationalization, to the period of deregulation and privatisation, to Musharaf’s regime, Pakistan has had around five waves of industrial policy changes; all formulated either in crisis or on short to medium term objectives.
Some key takeaways from the two days conference for those at the helm need to be recapped. The discussion and keynote addresses by distinguished guests focused on making Pakistan a manufacturing hub for the region that involved a well-rounded industrial policy catering to all the vital sectors.
A key concern repeatedly highlighted was the lack of coordination between the monetary and the fiscal policy, and the lack of an aggressive, full implemented trade policy in devising incentives for the industrial policy,
Another area that caught a great deal of attention was the incidence of taxation and subsidies on the industries, the implications of which can be seen by the level of protectionism and export incentives to different industries. The key recommendation in this regard was the rationalization of tax regimes and fiscal incentives to promote industrialization.
The ingredients for a coherent industrial policy can be summarised into favourable exchange rate, managed fiscal burden on industries, well-sought freight and logistics issues, investment, up-gradation to value addition, and rational energy allocation, where residential consumption is not preferred over manufacturing segment.
The speakers also emphasized the financing side of manufacturing, which involves the strengthening of financial institutions to promote industrial growth. A study presented showed that even though the flow of financing to the manufacturing sector observed a steady increase in absolute terms, its share in total industry credit witnessed a sharp slide over in the last nine to ten year period.