THE manufacturing sector is the victim of structural adjustment programme of 1990’s. Continual adjustments in utility rates and massive reductions in custom duties have impacted the sector adversely. Resultantly, growth performance of the manufacturing sector deteriorated.

Throughout the 1990’s the sector remained hostage to increasing cost of production owing to escalation of utility charges, extra tax measures under pressure from IMF for higher level of revenue and tariff reforms.

The intensity of smuggling and informal sector also increased at a tremendous pace. The fiscal year 2000-01 was the best year for the large-scale manufacturing sector as for as the growth statistics is concerned. However, the growth stimulus emerging mainly from three sectors,namely petroleum, automobile, fertilizer and textile has evaporated considerably during the current fiscal year.

During the last year (FY 2000-01), the quantum index of large-scale manufacturing improved by hefty 8.6 per cent which is best performance in the last three decades. Against this , the index grew by paltry 1.8 percent during July-November 2001-02 which is also attributed to improved statistics in the petroleum sector. If we exclude Petroleum the growth is merely 0.1 percent. If the negative impact of sugar is excluded the growth came to 3.2 per cent which means sugar production continued to distort growth statistics of the manufacturing sector. In the past too, sugar remained one of the taboo for growth statistics of the sector. This marked slowdown is the result of some structural problems coupled with extraneous factors.

The shaky growth performance of the manufacturing sector has great bearing on the overall growth performance of the economy because of its 17 per cent share in the GDP. The volatile nature of growth in the sector is because of uncertain supply of raw material at the one hand and policy inconsistency on the other. More than one-fourth of the industries covered in the quantum index depend directly on agriculture for supply of raw material while remaining industries depend indirectly because the demand for them is dependent on performance of the agriculture sector. The events of September 11 adversely affected the growth performance during October and November 2001 (last two months for which statistics are available).

The last two months witnessed considerable slowdown in high value added industries. Table-1 would give a picture of marked slowdown in various groups.

As depicted in Table-1 the growth was picking up until September but the downslide started after the events of 11th September mainly in automobile, machinery and non-mineral metallic products which are highly sensitive to supply of imported raw material. The tyres and tubes group went up because turmoil in Afghanistan has disrupted smuggling and thus helped in reviving economic activity in the sector. Petroleum group depicted tremendous growth primarily because of improvement in the mechanism of statistics.

Textile sector trudged along its historical path for some time. In spite of the fact that great potential exists in the sector and inflow of foreign investment, the growth is not picking up due to structural inefficiencies. The textile quota enhancement as promised by the EU and the US may help in reviving the sector to a higher growth path. Automobile sector witnessed massive fall in growth during October and November and declining trend is projected to prolong during coming months too. Tyres and tubes have been doing well for some time mainly after government’s measures to curb smuggling.

The government is withdrawing its active share in the manufacturing sector and its level of fixed investment is decreasing day by day. [See Table-2] The private sector investment is also not increasing in real terms. If adjusted for inflation, the 4.8 percent nominal growth in industrial investment by the private sector would be neutralized. The inflow of FDI in the manufacturing sector is abysmal and domestic investment is also not increasing. Public sector investment has played a pivotal role in building a nucleus of large scale industries in 1970’s. The reversal of the process in 1980’s and 1990’s has given birth to multidimensional problems. Drastic cut in public investment has limited growth prospects of the sector. Small scale industries has immense potential in the country and incentive package for export and production may attract some investment from the private sector.The Export Promotion Bureau is doing well by mobilizing awareness campaign regarding available markets but this is not enough, we have to reach at the doorstep of the cottage industry to tell them about export opportunities. Table-2:

Our policy makers have failed to create an entrepreneurial culture in the country and the manufacturing sector is still dominated by vendors culture. In presenting case for fiscal and monetary incentives with the government, the focus of our entrepreneurs is always on demanding massive tax concessions, claims of duty drawback and non-existent authority of taxing officials. They avoid responsibility towards society. The manufacturing sector faces dual challenge, one from smuggled imported items and lower tariff rates and other from informal producers of number two products. The government has taken some steps to curtail smuggling but its impact is very limited. Mushroom growth of underground economy has not been checked at all. The controversial tax survey has adverse effects on the formal sector rather than having any bearing on the informal sector. The tax survey has not added anything to revenue rather its panic has caused to withdraw investment out of the economy. The events of September 11 have posed serious challenges but they also opened windows of opportunity. Non-resident Pakistanis are returning and the government can channalize their savings into investment in the manufacturing sector. SMEDA has already launched awareness campaign but there is dire need to introduce target industry concept. The government should explore new areas and seek investment with fiscal and monetary incentives. In the past, the concept of rural industrialization paid the dividend. Having encouraged on this count, the government was to launch special industrial zones (SIZs) and the necessary spade-work was done. Unfortunately, this was to be done away with under pressure from donor agencies.

The available statistics is also not true reflection of the growth performance. The statistics is based on the parameters settled in 1980-81 and since then the economy has undergone a complete transformation form highly centralised to market-based economy. The structure and composition of demand and supply of the industrial products have also changed. The protection, tariff, taxation and subsidies have undergone drastic changes. The state has curtailed its role in economic activity.

It is strange that our data is compiled mainly by the Federal Bureau of Statistics but economic data some times lacks internal consistency.