Performance of Industrial Sector and Federal Budget 1996-97

By Ali, Muhammad Imtiaz | Economic Review, July 1996 | Go to article overview

Performance of Industrial Sector and Federal Budget 1996-97


Ali, Muhammad Imtiaz, Economic Review


There is an urgent economic need for accelerating industrialisation process in the country. Industrial growth not only leads to expansion in the employment opportunities but also stimulates growth process in the less developed regions of the country. In a developing economy, role of industrialisation is also catalytic in augmenting exports. Pakistan, like many other developing countries, equated development with industrialization. Since the creation of Pakistan, emphasis is being placed on evolving congenial environment for industrial development and the introduction of State of Art technology to achieve the objectives of substituting imports, augmenting exports and improving the quality of life in the country.

Growth Trends

The Industrial Sector has shown a lack lustre performance during 1995-96. Nevertheless, growth in industrial manufacture sector improved slightly by 4.8 per cent. It's large scale sub-sector put up a highly disappointing performance at 3.1 per cent, despite several packages of support, Medium and Small Scale manufacturing sector maintained its traditional rate of growth around 8.4 per cent which lifted the rate of expansion to around 6 per cent.

The poor performance of large scale manufacturing sector is mainly because of adjustment process as all the previously available subsidies, concessions and incentives are now being withdrawn. Domestic investment in manufacturing sector has not much increased. The entrepreneurs find themselves in a very uneasy economic situation. Frequent depreciation of the currency has increased the prices of imported raw materials and spare parts etc. Similarly, imported machinery's cost has gone up considerably. Above all, there are import duties on most of the raw materials required for textiles, leather goods and electrical appliances industries continuation of 10 per cent regulatory import duty has become an added burden. Besides, several other factors have pushed up the production costs of the industrial sector like ever-increasing prices of POL, electricity and gas, Financial Cost i.e. borrowing cost (mark up) for working capital financing has gone up beyond 17 per cent credit from financial institution, was not available in sufficient volume and at the right time to the private sector. As such capital is short and costly which puts a constraint on investors plan for extending plant capacity. All the above mentioned factors were responsible for the low performance of the large scale manufacturing. Since the small and medium scale manufacture sector enjoys little incentives its growth remained stable at 8.4 per cent.

The higher growth rate of small-scale industry was made possible by its low financial requirements, use of locally available inputs including cheap labour, short gestation period and existence of local market. The small scale industries is a vital sector of the economy and plays an important role in the development process by generating employment opportunities in the country. It is mainly in the private sector and employs more than 81 per cent of the industrial labour force.

Capital Formation

As a reflection of the industrial policies pursued by the Government the total industrial investment in manufacturing sector increased to Rs. 79.1 billion in 1994-95 registering a rise of 13.2 per cent as compared to previous year. Investment in large scale industrial sector increased by 12.6 to Rs. 69 billion in 1994-95 and in small scale industrial sector by 17.4 per cent. The overall investment environment improved during 1995-96, gross national investment went up by 21.8 per cent in current prices and 11.7 percent in constant prices. …

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