FOR some months now, the government has been working on a new industrial policy that, according to Finance Minister Muhammad Aurangzeb, will encourage pro-business conditions in order to boost the pace of industrialisation.

Speaking at a workshop organised by the Securities and Exchange Commission of Pakistan and the Pakistan Banks Association in Karachi recently, Mr Aurangzeb said the policy would soon be presented to the federal cabinet for approval. The reasons driving the government to frame an industrial policy framework are understandable: after years of painful macroeconomic adjustments that have seen industrial output shrink, factories close down, jobs lost and growth stagnate, the economy is showing tentative signs of stability.

Inflation has slowed, reserves have risen amid a stable exchange rate and an improved balance-of-payments position, interest rates are down even if they remain elevated and the fiscal deficit is narrowing under austere fiscal policies. Pakistan’s credit rating — though still in the speculative-grade category — has improved, while the bulls continue to lift the stock market. The hard-won economic recovery — even if fragile — has given the government confidence that the economy is poised to transition to the next phase of sustained growth. That is exactly why it wants to accelerate industrialisation and growth through business-friendly incentives.

Indeed, such strategies are important tools to attract fresh investments in priority industrial sectors. Global experience shows that fiscal, regulatory and other economic incentives and a positive business environment can foster industrial competitiveness, boost factory output and increase exports. Unfortunately, our own experience with previous industrial and export development policies has not been enviable.

We have seen successive governments formulate several ambitious policies, only to see them fail due to poor execution and an unreformed economic ecosystem. These strategies have mostly ended up rewarding inefficiencies in the economy through protectionism, subsidies and regulatory perks. Such ‘quick fixes’ have contributed more to the erosion of our economic competitiveness than to boosting resilience, and have prevented Pakistan from becoming part of global supply chains.

A new industrial policy isolated from complementary frameworks for the development of agriculture and services will not change anything. Besides, no strategy to grow the economy or industrialise the country can deliver results unless long-standing structural impediments like high energy costs and shortages, distortive taxation, low domestic savings, climate change challenges, and other factors are tackled alongside.

Without reforms in the entire ecosystem, even a well-drafted industrial policy will end up gathering dust. In the absence of complementary ecosystem reforms across industry, agriculture and services to create conditions conducive to competition, investment and innovation, even a meticulously prepared industrial policy will be doomed.

Published in Dawn, August 20th, 2025