Industrial revival and long-delayed national policy

After more than two decades of policy drift, Pakistan is finally poised to announce a National Industrial Policy for 2025–26 after clearance from the International Monetary Fund (IMF). The long delay in formulating and executing such a comprehensive framework has been a glaring oversight, one that continues to hamper industrial and economic progress. The government must now prioritise its finalisation and implementation to place the country on a sustainable path of industrial growth.

Pakistan’s industrial sector has historically struggled in the absence of a cohesive national strategy. Drafts prepared in the late 1990s, in 2007, and in 2011 were never implemented due to vested interests and bureaucratic inertia. In the interim, sector-specific plans—such as the Fertilizer Policy (2001), SME Policy (2021), Auto Industry Development and Export Policy (2021–26), and Mobile Device Manufacturing Policy (2020)—offered some relief to select industries but failed to stimulate broad-based industrial expansion.

The promise of a new industrial policy, reiterated by the present government in May 2024 and again in June 2025, remains unfulfilled. Despite assurances that it would follow the 2025–26 federal budget the document is yet to materialise. Recent updates suggest that the policy draft may take a couple of months to finalise.

The absence of a national industrial policy since the late 1990s has significantly constrained Pakistan’s economic trajectory. The industrial sector’s share in GDP has declined from 26 per cent in 1996 to around 18 per cent in 2025. Large-Scale Manufacturing (LSM), once the engine of national development, has experienced prolonged stagnation or contraction in key segments. In 2024–25, LSM shrank by about 0.74 per cent against a growth target of 3.5 per cent.

The first quarter of the current fiscal year (July–September 2025) has, however, shown some signs of revival. The sector, contributing nearly 8 per cent to GDP and employing over 16 per cent of the labour force, comprises over 69 per cent of the manufacturing base. Still, industries such as textiles, automobiles, steel, engineering, cement, chemicals, and pharmaceuticals continue to grapple with high production costs, outdated technology, and inconsistent adherence to international quality standards. Currency devaluation, high interest rates, inflation, expensive energy, and political instability have eroded competitiveness. Foreign Direct Investment (FDI) has also remained weak: Pakistan recorded net FDI of USD 748 million in the first four months of 2025–26, a 26 per cent decline compared to the same period last year. Export growth remains marginal, reflecting limited structural improvements. Without an integrated industrial framework, the government’s aspirations for industrial revival are unlikely to be met.

Although the formal policy document is still awaited, the proposed framework outlines a 10-year roadmap for industrial revival, with a review mechanism every 18 months—a welcome step signalling continuity and adaptability. It targets annual manufacturing growth of 8 per cent, and USD 60 billion exports by 2030. The policy recognises what business leaders and experts have long warned: Pakistan’s industrial base is eroding, and without decisive action, unemployment, sluggish growth, and economic vulnerability will intensify. Key features include enhanced credit flows for SMEs, revival of sick units, legal reforms to protect investors, and a phased reduction in corporate tax over three years.

Yet doubts persist over whether the policy is ambitious enough to bring about a structural transformation. Pakistan’s industrial landscape remains burdened with high production costs, outdated technologies, energy shortages, regulatory inconsistencies, weak innovation, and poor export competitiveness. The investment climate is further compromised by high borrowing costs, currency volatility, and persistently low FDI inflows.

Overcoming these challenges requires more than a policy outline; it demands institutional reform, fiscal restructuring, and coordinated action across sectors. Services and consumption alone cannot sustain a resilient economy. A competitive, globally integrated industrial sector is essential for export expansion, technological progress, and long-term economic resilience.

What is still missing is a transformative strategy capable of repositioning Pakistan as a competitive manufacturing hub. Lessons from emerging economies are instructive. India’s post-2020 approach has focused on scaling up specialised manufacturing to generate jobs and reduce import dependence. Malaysia and Vietnam have combined strategic planning, market access regulations, R&D support, and domestic technology promotion to nurture local industries and attract foreign capital. Their incentives are directly tied to output, employment, and export performance, delivering visible gains in productivity and skills. China’s early-2000s model of concentrated manufacturing clusters similarly propelled rapid industrial growth. By contrast, Pakistan’s proposed policy appears cautious, offering limited targeted incentives and lacking clear mechanisms for technological modernisation.

Another concern is the limited clarity on integration with provincial industrial strategies. Punjab and Khyber Pakhtunkhwa have already developed their own policies, but alignment with the national framework remains unclear. Without such harmonisation, fragmentation and inefficiency are likely to prevail. The draft policy also falls short in addressing forward-looking sectors such as digital manufacturing, green technologies, and renewable energy–driven industries. With global markets shifting toward sustainable and low-carbon production, Pakistan must modernise its industrial base to comply with evolving international trade and environmental standards. Expansion of industry must be accompanied by energy efficiency, environmental compliance, and internationally recognised quality benchmarks.

A comprehensive, forward-looking, and integrated National Industrial Policy is therefore imperative. It must expand and diversify the manufacturing base, support technological enhancement, and promote value-addition. Key sectors—including textiles, automobiles, fertilizers, chemicals, capital goods, and steel—require targeted reforms to bolster productivity and competitiveness.

Import substitution should be pursued where feasible by encouraging local production and discouraging unnecessary imports of finished goods. Ultimately, the policy’s success will depend not on its announcement but on its implementation. If it remains merely aspirational, it will do little to arrest deindustrialisation. Real progress demands institutional capacity, inter-agency coordination, and consistency across political cycles. Monitoring must be transparent and accountable, and investors must sense predictability and commitment.

Pakistan cannot achieve stable, broad-based economic growth through services and consumption alone. A vibrant, export-oriented industrial sector is indispensable for technological advancement and long-term resilience. The new policy offers an important opportunity; whether it becomes a turning point or yet another missed chance depends entirely on the resolve with which it is executed.

A coherent, pragmatic, and integrated approach to industrial development is no longer optional but essential for Pakistan’s economic revival. Without it, the country risks falling further behind in an increasingly competitive global landscape, forfeiting its potential for industrial transformation and sustained prosperity.

Copyright Business Recorder, 2025