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       Pakistan is finalising its first-ever medium-term industrial policy through consultations with key ministries, regulatory bodies, local and international experts and private sector platforms.

       The policy aims to reverse the trend of deindustrialisation and raise the manufacturing sector’s share in the GDP from the current 18 per cent to 26pc by 2035. Notably, this target merely restores the level last recorded in 1996, when manufacturing contributed 26pc to the national economy.

       Alarmed by the negative 1.7pc growth in large-scale manufacturing during FY25, policymakers are grappling with the sector’s persistent decline. In contrast, small and medium-sized enterprises have shown more resilience, maintaining a stable year-on-year growth of around 9pc, except in FY20 when it fell to just 1.3pc, likely due to the pandemic shock. Pakistan’s export performance in the region also remains dismal. On a graph of per capita exports, Pakistan ranks at the bottom, lagging behind Bangladesh, India and Vietnam.

       Concerned by the sector’s underperformance and its declining share in GDP, the government has decided to take a deeper look, assessing the situation, identifying barriers, engaging the business community and formulating a comprehensive strategy not just to revive the sector but to lay the groundwork for sustained growth by addressing all impediments to capital flow.

       According to official sources in Islamabad, the government is actively considering amendments to key laws and regulations, including the Securities and Exchange Commission of Pakistan Act, the Anti-Money Laundering law, the Income Tax Ordinance, the labour regulations and the State Bank of Pakistan’s policies, to create a more supportive economic framework and a conducive environment for industrial investment and revival of sick units. Nearly 50pc of all manufacturing units in the country — around 132,000 enterprises — are classified as financially distressed.

       Nearly 50pc of all manufacturing units in the country are classified as financially distressed

       A team led by Haroon Akhtar Khan, Special Advisor to the Prime Minister on Industries and Production, has been tasked with reversing the trend of premature deindustrialisation and boosting investment in the sector. The team has identified several key factors contributing to financial stress in manufacturing: high utility costs and poor service quality; elevated interest rates; mismatched loan products; income erosion from high inflation; external shocks such as Covid-19, floods, and political or security instability; excessive compliance burdens for exporters; a heavy tax load, including unresolved issues around sales tax rates and regimes; inadequate and costly logistics; complex regulations; and expensive, inefficient contract enforcement.

       Following an assessment of key facts and extensive engagement with multiple private sector platforms, the government constituted eight committees, each tasked with addressing a specific area: revival of sick units, rationalisation of manufacturing tax rates, development of an effective bankruptcy framework, improved access to credit, investment protection, capital repatriation in manufacturing, reduction of state interference and export enhancement. After thorough deliberations and stakeholder consultations, each committee submitted its recommendations. These proposals have been circulated, and a technical draft of the national industrial policy has now been developed.

       Mr Khan disagreed with the view that overlapping commercial interests among industrialists have weakened the private sector’s push for manufacturing-friendly policies. “While this may be true in some cases, it is not a widespread issue, at least not yet,” he said. “However, if we fail to implement the right policies to attract investment in the industrial sector, business groups will naturally gravitate towards trading rather than evolving into industrial conglomerates.”

       Currently on an official visit to Russia, Mr Khan promised to share details of the policy and implementation plan upon his return next week. “I’ll walk you through the entire consultation process behind these recommendations,” he said. “An Oxford University economics professor, with experience advising multiple countries, contributed to the effort, as did a professor from Lums [Lahore University of Management Sciences]. All major chambers and several industry associations were consulted repeatedly, and regulatory bodies were actively involved.”

       Responding to concern that concessions might further entrench a culture of patronage, diverting private sector focus from innovation to state dependency, Mr Khan defended proposed incentives: These concessions are necessary given Pakistan’s cost disadvantages in energy, tax and interest rates, which are significantly higher than those faced by our regional competitors.“

       When approached for comments, Musadaq Zulqarnain, a leading exporter and widely regarded as a voice of reason in Pakistan’s corporate sector, expressed hesitation. Explaining his position, he said, “While the intent behind such policy frameworks is often commendable, in practice, policymaking in Pakistan — across successive governments — has suffered from lack of integrated fiscal planning and insufficient coordination among relevant ministries and sectors.

       “This challenge extends beyond industrial policy,” he noted, “A recurring concern is the inconsistency in implementation; many policies are either significantly altered or abandoned prematurely due to shifting priorities or external pressures. Such unpredictability makes it difficult for stakeholders to plan confidently or commit to long-term investment. Given this context, I would prefer not to comment on the specifics of the current policy.”

       After being co-opted by the official team finalising the industrial policy, former Pakistan Business Council (PBC) CEO Ehsan Malik appeared less inclined to reiterate the concerns he previously raised in the media. It seems he now aims to leverage the involvement of PBC members in the process to shape the policy before it is formally adopted by the government.

       Published in Dawn, The Business and Finance Weekly, July 14th, 2025