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Current Social, Economic and Political Challenges related to

Industrial Sector of Pakistan since Partition
Pakistan Studies (COMSATS University Islamabad)

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Comsats University Islamabad, Wah

Campus

ASSIGNMENT #
02
COURSE TITLE: PAKISTAN STUDIES (HUM 111)

SUBMITTED BY:

MUHAMMAD AFZAL SHAH

FA18-BEE-2B (073)

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ABSTRACT
Basic purpose to make this study was to find out the determinants of industrial sector growth in Pakistan.
Factors were collected from the existing empirical literature. Annual data from 1950 to 2017 was chosen
to make the analysis. Trade (% of GDP) and Personal remittances, received (% of GDP) showed positive
and significant association with Industry, value added (% of GDP) and lag value of industry, value added
(% of GDP) showed negative and significant relationship with Industry, value added (% of GDP) in long
run. But in short run we also went through a lot of security issues during different times. Like the
Pakistan went through wars with India in 1998, 1965, 1971 and then we went through terrorism from
2011 to 2017. Graphs are shown to represent the downfall of our industry during those crucial times.

INTRODUCTION
One of biggest challenge to industry of Pakistan is “Security issue”. Security has always been a threat to
industrial sector of Pakistan. Pakistan started from very weak industrial base and present situation is also
not very good. Pakistan at the time of partition in 1947 had a negligible industrial base. It got only 34
industries out of total 955, while remaining were held by India. Such a small number of industries were
not enough for a newly born country to face the industrialized world. With the passage of time Pakistan
utilized it’s all available resources domestic as well as external for rapid development of manufacturing
sector. But due to wars in 1948,1965,71 and 1998 cause’s great loss of economy of Pakistan and it also
adversely affects the industrial sector of Pakistan. I will highlight the main event related to security
issues in history of Pakistan which disturbs the industrial Sector of Pakistan. Some of events are given
below:
1) CONSEQUENCES OF KASHMIR WAR (1947-1948):
The Indo-Pakistani War of 1947–1948, sometimes known as the First Kashmir War, was fought
between India and Pakistan over the princely state of Jammu and Kashmir from 1947 to 1948. It was the
first of four Indo-Pakistan Wars fought between the two newly independent nations. After getting
independence Pakistan had very weak economy and war 0f 1947-1948 after few months destroyed the
already fragile economy of Pakistan. Pakistan got a total share of almost 200 million out of 40-50 % of
that share was consumed in war and there was not enough money to be invested in industrial sector of
Pakistan. In 1947 it was suggested in the Industrial conference of Pakistan to establish industries, which
use locally produced raw material like jute, cotton, hide and skins but Pakistan failed to achieve that
targets due to war after few months of birth of Pakistan.in 1947 Pakistan did not have any building for
offices. Office were being treated in tent which was less efficient and most of people also did not want to
invest in Pakistan because Pakistan was underdeveloped and there was lot of security issues. Security
issue was biggest problem in industrial progress of country and as a result. The contribution of industrial
sector was only 6.9% to GDP in 1950.

2) PROGRESS OF INDUSTRIAL SECTOR FROM 1950-1963 DURING PEACE TIME:

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Due to no war from 1950-1963 industrial sector of Pakistan make a lot of progress. In 1952 the
Government took the initiative and established Pakistan Industrial Development Corporation (PIDC) to
invest in those industries which require heavy initial investment. PIDC major investment was in paper
and paper board, cement, fertilizer, jute mills and the Sui Karachi gas pipeline. The Government also set
up an Industrial Finance Corporation and an Industrial Investment and Credit Corporation. The
production capacity of the already existing units like fertilizers, jute and paper was considerably
expanded. The reduction of export duties and the introduction of Export Bonus Scheme in 1958
increased export of the manufactured goods. There was all round development of industries particularly
in agricultural processing food products and textiles. Moreover, in 1955-1956 to create skilled human
labor for rapid industrial growth, a Swedish Pak institute of technology was established. Pakistan
industrial technical assistance center (PITAC) was also established in 1957 in collaboration with UN
USAID. The industrial policy of 1959 assured that the maximum scope would be given to private
enterprise in the development of countries resources and indeed dropped one of two resumptions which
were laid down in1948 in respect of the private sector. Industrial policy of 1959 was laid renewed
emphasis on private sector and development of agro based industries with a particular focus on export
industries.
The share of industrial sector to GDP rose from 9.7% in 1954-55 to 11.9% in 1959-60. In 1960’s there
was a shift in the establishment of consumer goods industries to heavy industries such as machine tools,
petro-chemical, electrical complex and iron and steel. The industrial performance in terms of growth,
export and productivity increased during the Second Five Year Plan period.

3) STRESS ON INDUSTRIAL SECTOR DUE TO OPERATION GIBRALTAR:

After a great progress of industrial sector of Pakistan during time period between 1950- 1963.another
jerk was given to industrial sector of Pakistan in 1964.In 1964 Gibraltar Operation was started by
general Musa. Although Pakistan got succeed and won territories of India but a lot of money was
consumed in that operation and less money was invested in industrial sector of Pakistan. The share of
industrial sector to GDP also decreased in that year. From `1950-1960 growth rate of large scale
manufacturing was 15.4 but it was decreased to 13.1 in 1963-1964.

4) INDUSTRIAL DAMAGE DUE TO 1965 WAR:

Another jerk was given to industrial sector of Pakistan in 1965. In this year a great second war was
fought between Pakistan and India which result in loss of life as well as our economy was adversely
effected due to this war. Contribution of industrial sector to our GDP was very much high from 1955-
1964 but as a war a great war was fought between Pakistan and India so in 1965-1966 contribution of
industrial sector to GDP was decreased from 11.9 to 10.1.the share of large scale manufacturing sector in
GDP also got decreased from 13.1 to 12.2 in 196-1966. Economy of Pakistan was flourishing during
time period of 1955-1964 but suddenly got disturbed due to military wars and operations. Thus confirms
that security issue is a great problem of economy of Pakistan and it suffered a lot during wars. the most
far reaching consequence of the war was the wide-scale economic slowdown in Pakistan. The cost of the
1965 war put an end to the impressive economic growth Pakistan had witnessed during the early 1960s.
The war in 1965 had proved to be too costly for our economy. It was mainly the post-1965 war related
socio-economic and political crises that had led to the 1971 war which further aggravated the economic
environs forcing the residual Pakistan to suffer economic stagnation for the next five years.

5) LOSS OF INDUSTRIES DUE TO 1971 WAR:

After 5 years of 1965, the third war was fought between India and Pakistan that did a great loss
to economy of Pakistan. As economy of Pakistan was flourish before 1965 war but during period of next
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ten years (1965-1975) the share of industrial sector GDP got decreased. The industrial performance in
terms of growth, exports and production was disappointing from 1971 to 1977. There were various
reasons for the poor performance of the manufacturing sector. One wing of the country (East Pakistan)
was forcibly separated. The Country had to fight a war with India in 1970. The suspension of foreign aid,
loss of indigenous market (East Pakistan), fall in exports, devaluation to the extent of 131%
nationalization of industries labor unrest, unfavorable investment climate, floods, recession in world
trade and reduction in investment incentives caused a fall in the output of large scale industries. The
annual growth rate fell to 2.8% in the industrial sector in this period. From July, 1974to 1977, the
Government initiated a large number of measures to revise the economy. Cotton ginning rice husking
and flour milling were denationalized. The private sector was encouraged to invest in large scale
industries. The annual growth rate in manufacturing sector was 8.2% in the 1971's. The growth of large
scale manufacturing slowed down to an average
Period small Large Total
scale scale Industrial of 4.7% in the first half and further to 2.5% in the
industries industries sector 2nd half of the 1970's. The oil price shock of the
1949-55 5.5 3.3 7.8 1970s as well as droughts, floods and the
1955-60 5.1 6.9 12 withdrawal of external assistance did not help the
1960-64 6.6 12.5 16 situation, either. The growth rate in the 1970s fell
1965-70 5.3 10.4 14.8 to 3.7 percent per annum from the 6 percent
1971-80 4.6 10.7 15.3 recorded in the 1960s.Worst of all, the main plank
1980-90 4.9 10.1 17 on which the Bhutto government came to power
1990-97 5.2 10.6 17.1 social justice proved to be extremely weak.
Income inequalities rose compared to the previous
period while inflation accelerated, averaging 16 percent
between 1971 to 1977, thereby hurting the poor.15 The large-
scale manufacturing sector performed very sluggishly, netting a
growth rate of only 3 percent.

6) COST OF KARGIL WAR (1999) IN SHAPE OF INDUSTRIES:

The Kargil War, also known as the Kargil conflict was an armed
conflict between India and Pakistan that took place between May and July 1999 in the Kargil
district of Kashmir and elsewhere along the Line of Control (LOC).Kargil war also effect the economy
of Pakistan and share of industrial sector to GDP Of Pakistan was also decreased. As war between two
countries disturb both countries and put them 5 years back. The GDP growth rate decelerated to 4
percent. While the agriculture sector recorded higher output, growth of the manufacturing sector was
low. The investment ratio fell to 13.9 percent during 1998 and 1999 as foreign savings, which formerly
bridged the gap between national savings and investment, dried up in May 1998.The persistence of fiscal
(above 7 percent of GDP) and external deficits (4 to 5 percent of GDP) led to the accumulation of large
levels of domestic and external debt throughout the decade. Development expenditures took a major hit
and GDP dropped to 3 percent from 8 percent in the first half of the 1990s. Social sector expenditures

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were squeezed to accommodate higher debt service and defense expenditures. Total external debt levels
became unsustainable, rising from$20 billion in 1990 to $43 billion (47.6 percent of GDP) in 1998.the
wasteful use of domestic resource was 5% in 1998.Exports stagnated and Pakistan lost its market share
in a buoyant world trade environment. The incidence of poverty nearly doubled from 18 to 34 percent,
and the unemployment rate rose as well.

7) DOWNFALL OF INDUSTRIAL SECTOE DUE TO TERRORISM (2000-ONWARDS):

Pakistan has been fighting the war on terror, as a front line state, since September 2001. So far, the war
has brought huge destruction to Pakistan by slowing down the economic growth. This paper attempts to
study the social, political, and economic effects of the war on terror on Pakistan from 2009 to 2011.
Terrorism affects the economic growth of a country by lowering foreign direct investment, capital
formation, investment and increases risk perception. More terrorist attacks at private citizens, property,
transport and airports are related to lower capital formation and low GDP per capita growth. The war has
cost the country besides destruction of infrastructure and $67.93 billion direct economic loss.4Pakistan is
facing terrorist attacks including suicide bombing which has deteriorated law and order situation and the
foreign investors are reluctant to invest in Pakistan that threat the industry of Pakistan in serious manner.
Pakistan is an agrarian economy and 45% percent of the population depends on agriculture for earning
livelihood. Our Agricultural industry also failed to make progress due to terrorism.IN 2010-11 a large
scale industries contribute 4.4 % and small scale industries contribute 7.5% to GDP of Pakistan. During
2009 to 2011 the imposition of frequent curfews, shelling and firing destroyed fruits and other
agriculture commodities in Swat valley. It had a negative impact on the local economy and also caused
unemployment. From 2009 to 2011 foreign direct investment decreased as terrorism spread fear among
the people and foreigners were reluctant to invest in Pakistan. the Ministry of Finance, government of
Pakistan has proclaimed the Industrial loss of the country, due to war on terror, as $67 billion but it did
not mention how the cost was calculated. Due to less industries in Pakistan unemployment increased
from 3.12 million in 2009-10 to 3.40 million in 2010-11. The cumulative cost of the war on terror from
2001-2002 to 2010-2011 is $ 67.9 billion.30 Table 3 shows that in 2004-05 the direct cost of war on
terror for Pakistan was Rs 67 billion which increased to Rs 78 billion in 2005-06 and to Rs 262 billion in
2009- 10. Similarly, the indirect cost increased from Rs 192 billion in 2004-05 to Rs 707 billion in 2009-
2010.If that much amount was to be invested in Industries then our industries will be at their peak. This
loss of money causes great loss to industrial sector of Pakistan. Terrorism in Pakistan did a huge loss to
economy of Pakistan and industrial sector really got disturbed during these years. The current wave
of terrorism is believed to have started in 2000 and terrorism peaked during 2009.

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SOLUTIONS/CONCLUSIONS

 Firstly, security issue in Pakistan must be controlled. Intruders coming from Afghanistan must be
stopped. Government must take serious actions regarding to the issues and complaints of Baloch and
Pushtoon population of Pakistan.
 Mainly foreign intelligence agencies convince our young population against Pakistan and
Pakistan’s rule of law and they start playing in bad hands. To counter this government must give serious
concern to provide education to the young people and also there must be awareness movement in remote
area to alert them from the mindset of enemies.
 Our foreign policy must be too strong that it is able to portray positive image of Pakistan to the
world to counter international media which is busy in spreading false news about people of Pakistan
 The fencing on borders of Afghanistan and Iran must be done as soon as possible to stop enemies
and spies intruding in our country.
 Seminars must be arranged in educational institutions by our armed forces to show them reality
based facts regarding to the performance of our armed forces. And they must alert our people from new
threats like Manzoor Pashteen, BLA…etc.
 Our government should hold meetings with foreign investors and should convince them to invest
in Pakistan and this would help us to boom our industrial sector.
 Pakistan has great opportunity to convince foreign investors as CPEC has given attention to
Pakistan to make industrial zones at different places.
 Foreign investors and local investors must feel safe to run different industries and it is possible if
our security agencies personally go and assure them security and peaceful environment.

REFERENCES
 WORLD BANK REPORT 2017.
 IMF CHECH ON INDUSTRIAL SECTOR OF PAKISTAN 2015.
 FINANCE MINISTRY OF PAKISTAN.
 RAWALPINDI CHAMBER OD COMMERCE AND INDUSTRY.
 “FINANCE DEVELOPOMENT AND TEXTILE SECTOR”
COMPETETIVENESS: A CASE STUDY OF PAKISTAN BY MYHAMMAD NADEEM
HASNIF/ SABINA KHURRUM JAFRI.
 CONSTRAINTS FACED BY INDUSTRY IN PUNJAB PAKISTAN BY SYED TURAB
HUSSAIN/USMAN KHAN/KASHIF ZAHEER MALIK/ADEEL FAHEEM.

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 THE SOCIAL POLITICAL AND ECONOMIC EFFECTS OF WAR ON TERROR, PAKISTAN

(2009-2011),
 BUSSINESS CLIMATE IN PAKISTAN CHALLENGES AND REMEDIES BY ICMA.
PAKISTAN.
 PAKISTAN ECONOMY AND NATIONAL SECURITY BY DR. ASHFAQ AHSAN KHAN
NUST ISLAMABAD.
 THE POLITICAL ECONOMY OF INDUSTRIAL POLICY IN PAKISTAN (1947-1971) BY
MUSHTAQ HASSAN KHAN SOAS, UNIVERSITY OF LONDON.
 ECONOMY OF PAKISTAN CHALLENGES AND PERSPECTS.

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