The historical experience of the advanced economies shows that establishing a broad and robust domestic industrial base holds the key to successful development because of its potential for strong productivity and income growth.

This process is associated with a strong investment drive in industry, rapidly rising productivity and a growing share of the sector in total output and employment. As the economy matures, growth in demand for manufactures slows down relative to productivity growth, and the share of the sector in the economy levels off and eventually starts to decline.

This is not unfortunately true for Pakistan where the share of manufacturing in the economic activity hovered around almost around 16 to 18 per cent for the last 30 years whereas the share of agriculture went down from almost 46 to 24 per cent during the same period.

The share lost by the agriculture is compensated by almost similar increase in the share of the services sector. During last thirty years we have witnessed various industrial policies of different extremes from nationalization to free market economy.

There are far cries of closed capacity to mammoth industrialization. But the share of the manufacturing sector remained more or less the same. The manufacturing sector, according to Finance Minister Shaukat Aziz, has shown an unprecedented growth in our recent economic history.

Now it is to be seen that what will be the likely impact of such a massive growth on the share of the manufacturing sector. Notwithstanding this increase the industrial sector is still confronted with inefficiencies, lack of competitiveness, high cost of production, docile technological base, almost nonexistent entrepreneurial culture, lack of commitment to society and extraordinary thrust for inflated profit margins.

The manufacturing sector is dominated by textiles, cement, automobile, sugar and edibles. Most of these industries are established through political bribes and thus not actually qualify for commitment to investment rather they were established to extract more and more profits. They use their political clout to win out of the way concessions or exploit poor consumers.

The examples of automobiles, cement and sugar are very recent. The instinct to play the game on big margins is the main restricting factor on under utilization of capacity in these industries and thus a source of major inefficiency. The automobile and sugar industries are worst example of official patronage and blatant protectionism at the expense of poor consumers.

Other industries like fertilizers, steel, chemicals, paper and paper board are operating at almost up to the capacity but there is ample scope for capacity enhancement. The largest industrial sector of the country i.e. textiles, are preparing themselves to face the challenges of post multi-fibre agreement scenario after 2005.

The industry is witnessing inflow of huge investment for last three years both in expansion of capacity, BMR (balancing, modernization and replacement of older machinery).

The industry has flourished in official patronage for many years but now after replacing remote, outdated and redundant technology with state-of-the-art most modem technology, the textile sector is likely to enhance its competitiveness in the international market.

The textile industry may face the problem of non-availability of skilled manpower which can accustom to new technological environment. The textile sector is also not investing in human resource development of its existing staff members to face the challenges of the modernization.

If you look into the statistics of growth performance of the textile sector for last five years, it will emerge that the group never managed double-digit growth during last five year, rather its growth averages fewer than five percent.

This is due to its poor coverage in the quantum index of large-scale manufacturing (QIM) which take into account only three major items including cotton yarn, fabrics and ginned cotton.

The star performers in the field of exports like ready-made garments, bed wear, knit-wear, towels etc. are not covered in the QIM which undermine the potential of this very important sector.

The exports of the textile sector grew by 25 per cent during the fiscal year 2002-03 while the QlM shows its growth at 3.5 per cent only. The data available for the first quarter of the current fiscal year (July-September 2003-04) reveal some interesting facts.

One amazing thing is the textile group manages far higher growth of 5.1 per cent this year amidst unprecedented higher prices of cotton lint as against 3.4 per cent during first quarter of last year when prices were depressed.

Another important development is witnessed in the production performance of leather group where declining trend of last two consecutive years is being reversed and the group witnessed healthy growth of 29 per cent as against marginal negative growth last year.

Automobile continued to dominate the proceedings with immense growth of 50 percent, mainly due to phenomenal growth in the cars production. Another star performers include metal products and machinery (33.1 per cent), basic metal products group consisting of products of the Pakistan Steel (13.5 per cent), cement dominated non-metallic mineral products group (16.4 per cent), food, beverages and tobacco group (10.6 per cent) and chemical rubber and plastics (10.2 per cent). See Table-1

The major drivers of this hefty growth are cement, automobile and durables like TV sets, electronic items, refrigerators, air conditioners, small engineering items and construction material for some time.

The trend is also visible in the performance of the industry in this quarter also. This implies o real boost in consumer spending mainly ignited by consumer financing schemes of financial institutions but it is likely to impact negatively through burgeoning consumer debt in the economy.

However, the impetus provided by the automobile industry has a cost to be paid by the government because of extraordinary protection provided to the industry. The windfall gains and inflated profits in the automobile sector have fuelled the new investment in the sector to the tune of $252 million during the last three years (1999-2002).

It is the poor consumer who has to pay the premium of this hefty growth in the sector. The waiting period for delivery of the vehicle speak of the consumer's exploitation at the hand of auto-barons.

The auto assemblers time and again come out in the public with the statistics of their contribution in the economy in terms of investment, employment and revenue provisions but they never took into consideration consumer's exploitation by the so-called authorized dealers and long waiting periods, the extra price which the consumer has to pay due to undue protection given to the industry.

The loss of consumer surplus and to the national exchequer is even greater and unable to be quantified. The profit mongering and exploitation of consumers is not confined to the automobile sector alone.

The windfall gains and inflated profits in the manufacturing sector have given rise to excess capacities built-up during 1990s. Major industries like sugar, cement and automobile are operating below 60 percent of the installed capacity for last five years.

Sugar industry has the capacity to crush 65 million tons of sugar cane while our average annual production of sugar cane never touched the 50 million tons mark.In this way against national demand of 2.9 million tons, the installed capacity is to produce over 5 million tons of refined sugar.

Being uncompetitive in the export market the sugar millers always look at the government to pay for their inefficiencies. In the case of cement, our national demand is around nine million tons while we have an installed capacity of 16.7 million tons while some 4.7 million tons is still in the pipeline.

We have found an export outlet in the guise of reconstruction of Afghanistan but the export of cement is the most difficult thing in the world and due to practical problems of transportation it is least exported product in the international market.

On the domestic front the powerful cement cartel always kept prices of cement artificially high which constrained demand and thus hampered growth in construction sector.

Besides these problems of industrial sector, there is even greater problem of quantifying the growth performance of the manufacturing sector. If we go through the statistics of large-scale manufacturing we are still basing it on the year 1980-81- the year when the industrial sector was coming out of the shackles of nationalization.

Since then there has been a structural shift in the manufacturing sector from a nationalized sector to an open and liberalized sector. The change of base has not taken into account and also the compilers never checked the internal consistency of the data.

For example, if we compare the production of 1980-81 with most recent one than number of anomalies will surface. It is amazing that these are appearing in the statistics provided by the Federal Bureau of Statistics regularly and no body bothered to check it. Table-2:

As evident from the Table-2, with so much technological development, change in cultural practices, and consumer's choices, the production of these items declined versus their respective production 22 years ago.

In some cases annual production fell below the monthly production level of 1980-81, which is amazing. In recent years, the usage of wheat thrashers, power looms and diesel engines has increased at tremendous pace but it is conversely reflected in our statistics.

The annual production of air conditioners has gone down to the extent of 1/3 of monthly production in 2001-02. Only recently, the production of TV sets has been revised for FY 2001-02 from 71,000 to 450,000.

God knows better when remaining anomalies in the statistics will be done away with. Our problem is we can not measure our output correctly. One thing is crystal clear good statistics is the key to development planning.