INDUSTRIALIZATION
First Decade:
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Pakistan adopted industrialization as a key development strategy, recognizing severe
deficiencies in economic, industrial, and human resources at the time of its independence in
1947.
The country needed to transform its predominantly agricultural, inefficient, and low-performing
economy.
The process of industrialization was favored in the early 1950s, with the goal of addressing
economic challenges.
Falling export prices of raw agricultural commodities and balance of payment issues were
significant factors driving the need for industrialization.
The government implemented trade policy instruments, economic incentives, and profits to
support industrial activity and discourage other investment alternatives, such as trade.
Pakistan's approach to industrialization, known as Import Substitution Industrialization (ISI), had
some similarities with Brazil's Pre-World War II industrialization efforts under Getulio Vargas.
Unlike Brazil's isolationist approach, Pakistan, influenced by dependency theorists, was
emerging from its unique post-colonial experience and the breakdown of a customs union with
India in 1949, which had a significant impact on its foreign trade composition.
The Role of State in Industrial Development
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In Pakistan, the strategy for industrialization involved using the public sector for capital
accumulation and investment, then transferring productive resources to the private sector.
The early industrial policy in Pakistan focused on cotton and jute as primary exportable
commodities, as well as the development of the local consumer goods sector.
Despite not having jute mills, Pakistan produced 75% of the world's jute production and had 1.5
million bales of cotton with only a few textile mills.
This strategy was successful, leading to significant progress in industrialization.
Between 1947-58, Pakistan achieved a 3% economic growth rate.
Industry in Pakistan grew at a rate of 23.6% between 1949-54 and maintained a growth rate of
9.3% by 1960.
Strategy for Industrialization and Performance
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Pakistan's strategy during the first decade involved Import Substitution Industrialization (ISI).
This period of ISI is considered classical and fairly successful.
ISI laid the foundation for rapid growth in the manufacturing sector and the creation of
exportable surplus in Pakistan.
The state played an active role in the economy by intervening in the creation and distribution of
rents.
The government also aimed to influence investment decisions in line with industrial priorities
through a licensing system.
The strategy facilitated the import of capital and intermediate goods with overvalued exchange
rates.
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Various policies were implemented, including protection against the import of consumer goods,
fiscal subsidies, and the availability of credit.
These policies created an environment in which high profits in the industrial sector were
possible, particularly in the early 1950s.
The So-called Decade of Development – The Second Decade:
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The second decade, spanning from 1958 to 1968, was celebrated as the "decade of
development" by the government of Pakistan.
In the first five years of this decade, there was a notable 17% rate of growth in the large-scale
manufacturing sector.
This growth in the manufacturing sector eventually settled at a 10% rate of growth for overall
manufacturing during the decade.
Between 1960 and 1970, the manufacturing output remained at approximately 13%.
One significant difference in this decade was the growth in the agriculture sector, which was
achieved through the adoption of high-yielding varieties and improvements in water storage
and distribution resources, which are attributed to the Green Revolution.
This shift in agriculture marked a departure from the trends of the previous decade.
Decontrolling and Early Liberalization:
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In 1960s, Imports were made easier with relaxed foreign exchange pressure due to foreign aid.
The decontrolling and facilitation of industrial growth possibly generated surplus which led to
increase in manufactured exports.
From 1965 to 68, Pakistan’s exports were more than many countries, but due to lingering
governance and institutional issues, it kept behind many countries.
Strengthening and Expanding ISI:
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The government aimed to strengthen Import Substitution Industrialization (ISI) for intermediate
and capital goods and export-oriented industrialization (EOI) for primary and secondary goods.
The Bonus Voucher Scheme (BVS) was introduced to manage exchange rates for controlled
imports and provide export incentives, resulting in a rapid increase in exports of jute and cotton
within three years.
There was criticism that the state's intervention, particularly through BVS, disrupted long-term
industrialization processes.
During the first half of the decade, Pakistan saw a higher growth rate in the investment goods
sector compared to intermediate and consumer goods, likely due to the emphasis on the
investment goods sector within the ISI strategy.
The text mentions an argument by Wizarat that excessive expansion of ISI negatively impacted
productivity growth in industries.