Making Industrial Policy a Fixture of Pakistan’s Economic Consensus: From Indicative Beginnings to Directive Transformation

 

Stretching the thread from my last article, where I discussed the importance of industrial policy and reflected on the draft National Industrial Policy (NIP) being developed by the Ministry of Industries and Production, this piece takes a broader view — how to anchor industrial policy in the broader economic transformation agenda of Pakistan.

I argue that industrial policy—when extended beyond manufacturing—becomes the state economy-wide transformation strategy, targeting productivity, capabilities, and competitiveness across the tradable sectors. While manufacturing remains central to jobs, learning, scale, and much of innovation, transformation truly succeeds when policy also develops tradable services (IT, logistics, finance), agriculture and agro-processing, and resource-based value chains. This broader scope, I suggest, is best achieved through what I call the 3P Model—a framework built around people, process, and products. It provides a conceptual underpinning for modern industrial policy. More on that soon, InshaAllah.

If industrial policy is so pivotal, why has it been left largely to market dynamic, with sporadic, and inconsistent public interventions? The trio of monetary, security policies, and to some extent fiscal policy enjoy clear state ownership and relative consistency in Pakistan; they do contribute to macroeconomic stability, yet they seldom articulate a vision for structural transformation. Without an industrial-policy anchor, macroeconomic tools default to short-term stabilization, while incentives and rents gravitate toward incumbents. The result is fragmented effort, policy drift, and the capture of resources that should have driven productive upgrading.

The remedy is not to sideline the trio or other ancillary policies, but to embed them within a coherent industrial strategy—one with clear priorities, time-bound incentives, and performance monitoring. Industrial policy is the mechanism that turns these macroeconomic flows into productive transformation. Without it, the economy remains a sum of disconnected policies rather than a system of production. In short, industrial policy is the missing integrator—linking fiscal, monetary, and sectoral efforts, and, to some degree, the national security policy that now recognizes economic resilience as a pillar of strategic strength.

Integration of policies and coherence with industrial strategy is where many aspiring nations stumble. Build coherence, don’t force it, if you want to avoid resistance, inefficiency and rigidity in the process. Too often, governments mistake the need for coordination for the urge to control. At this point, a distinction between indicative industrial policy and a directive one is warranted.

By indicative industrial policy, we mean a framework that is suggestive rather than prescriptive, one that articulates ground realities, objectives, and the broad means of achieving them. It is analogous to a defense strategy: it sets out the terrain, defines goals, and identifies instruments, without dictating every maneuver. In this sense, an indicative policy sets the tone for transformation, providing both vision and division of responsibility.

For Pakistan, beginning with an indicative approach is imperative. Firstly, after the 18^th Amendment, industrial development has been constitutionally delegated to the provinces. In such a fragmented political system—marked by multiple layers of government and a degree of mistrust between the public and private sectors—a soft start is essential. The indicative policy must therefore be formulated under a high-level national platform, with a mandate to build consensus and avoid bureaucratic overreach.

Secondly, as noted in a recent commentary by Khurum Hussain (Dawn, published on October 30, 2025), criticizing the business community of their rent seeking behavior, it’s therefore critical to clarify purpose before privilege, through indicative policy, and pave the way for discipline enforcement in the following stages.

This indicative policy phase may take a year or more to consolidate: mapping ground realities, setting objectives, defining institutional roles, and forging political consensus around a shared transformation agenda. A subsequent Industrial Policy Framework Act would make this coordination a statutory requirement and shield it from political turnover. Such a statute would also signal the state’s long-term commitment to domestic and international stakeholders alike.

Once consensus and institutional credibility are in place, Pakistan can progress to directive industrial policy with targeted measures—both financial and non-financial—focused on a few strategic sectors (three to five). These priorities should emerge from a deep understanding of domestic constraints and global opportunities. At this stage, traditional industrial policy tools such as credits, grants, subsidies, public–private investment, and local content rules etc. can be deployed confidently and transparently.

When the policy architecture matures and becomes embedded in institutional routines, the state can adopt a hybrid indicative–directive framework, allowing markets to lead within a coherent strategic vision. The government’s role would then shift toward facilitating lean, green, and digital transformation—anchored in Industry 4.0 and sustainability paradigms.

Even at this stage, the journey of development remains one of discovery. Industrial policy is not a prescription with perfect foresight but an ongoing process of experimentation, learning, and balancing—guided by humility. This wisdom of experimentation is shared by all successful industrialized nations, from East Asia to Europe and the United States.

As the Secretary of Planning shared recently on his LinkedIn profile, American presidents often approached many of their new policies as “experiments to run, not points to score,” a mindset that gradually became embedded in their institutions. That same pragmatism underpinned East Asia’s transformation: Deng Xiaoping’s maxim “crossing the river by feeling the stones” captured China’s willingness to move step by step through uncertainty. Likewise, the Japanese concept tesaguri—“groping for the depth”—evokes the discipline of probing unfamiliar waters and adjusting course as realities unfold.

That humility, coupled with discipline and direction, and indeed with adequate resources is what transforms policy from prescription into purposeful action. It is this spirit—of cautious experimentation bound by clear intent—that Pakistan must embrace if industrial policy is to become not just another document, but the nation’s guiding framework for transformation.