The industrial sector of Pakistan, alongside agriculture and services, plays a leading role in the national economy. Yet despite its importance, the country has only managed to develop a semi-industrialized economy, consisting of a mixture of textile production, food processing, chemicals, and resource-based manufacturing. This uneven growth is rooted in history. After the partition of British India in 1947, Pakistan inherited a weak industrial base with limited infrastructure and few established industries. At that time, manufacturing contributed about 17 percent to the Gross Domestic Product (GDP), most of which came from cotton and cotton-related industries. According to Statista, the industrial sector made up 20.76 percent of the GDP in 2023, and in 2022, it accounted for around 25.52 percent of nationwide employment. This demonstrates a gradual evolution over the decades, although not without significant challenges.
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From the early years, the government attempted to build an industrial backbone. Cotton yarn, textile products, and knitwear formed the bulk of exports in the late 1990s, representing nearly 60 percent of total export revenue. Industries such as sugar, vegetable oil, tobacco, steel, and fertilizers expanded slowly but failed to reduce the sector's dependence on a narrow set of commodities. Small-scale and cottage industries remained numerous but marginal in terms of GDP contribution, adding only about 6 percent. Employment in these small units also remained limited. By the late 1990s, industrial growth increased at a modest rate of 3.9 percent, but the long-standing reliance on a few core sectors left the economy vulnerable to shocks from global price fluctuations and domestic weather events.
Efforts to liberalize the economy in the 1980s aimed at encouraging export-led industrialization. However, these attempts faltered due to corruption, raw material shortages, and burdensome tax concessions that strained state revenues. The liberalization policies failed to significantly diversify the economy, while tax incentives to exporters weakened the revenue base and encouraged informal practices. As a consequence, an unregulated informal economy began to grow parallel to the formal sector, undermining state control and reducing the effectiveness of policy interventions.
Despite these constraints, Pakistan's industrial sector supports a wide range of employment categories. It includes skilled labor, such as degree holders and technicians working in pharmaceuticals, automotive, and electronics industries. Simultaneously, semi-skilled and unskilled labor finds roles in manufacturing, logistics, and food processing. Women and youth are gradually being integrated into the workforce through targeted programs and indirect employment schemes, although challenges of access and inequality persist. Indirect employment opportunities in packing, assembling, and logistics also offer crucial income for rural and peri-urban populations, including students and part-time workers. In remote areas, such as village schools and basic health units, indirect jobs often go to women who serve in support roles, helping to sustain local economies.
The core industrial base includes the textile industry, cooking oil and ghee production, sugar refining, fertilizers, cement, and chemicals. These industries are both labor-absorbing and revenue-generating. Pakistan exported goods worth US$28.7 billion in 2023, according to World Export Data, against a GDP of $338.37 billion, showing a continued dependence on industrial exports for foreign exchange. Yet, a large share of these exports remains confined to low value-added products, such as raw yarn, basic textiles, and sports goods. The narrow export basket limits Pakistan’s ability to compete in international markets dominated by high-tech or knowledge-based industries.
Moreover, the industrial sector continues to face an energy crisis, financial constraints, outdated technology, and minimal investment in research and development. These issues have hindered productivity and innovation. Export-focused policies have not gone far enough in expanding into new product areas or upgrading existing manufacturing techniques. Pakistan’s industrial policy also lacks continuity, often disrupted by political instability and changing bureaucratic priorities.
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To move forward, there is a clear need for a coordinated National Action Plan that prioritizes the diversification of industrial products and promotes an export-led growth model. This must include targeted support for value-added sectors, reforms in energy supply and pricing, simplification of tax procedures, and meaningful vocational training for the youth and women. Rather than offering scattered incentives, the state must build long-term industrial zones with reliable infrastructure, access to credit, and consistent regulation. Strengthening the links between academia, industry, and research institutions can also help develop products with higher market value.
In conclusion, the industrial sector of Pakistan represents both the resilience and the vulnerability of the national economy. Its contribution to GDP and employment is significant but still underwhelming in view of its potential. The challenge lies not in recognizing the importance of industry but in adopting policies that enhance competitiveness, foster inclusion, and ensure sustainability. Without timely reform and serious investment in modernization, Pakistan risks remaining caught in a low-growth trap that limits both prosperity and opportunity for its growing population.
