Publication - Working Paper
Constraints faced by Industry in Punjab
The population of Punjab has grown rapidly over the past three decades and according to some projections by 2025 it will increase to 128 million. A key challenge facing the province is to create sufficient number of jobs every year to absorb the increasingly large number of entrants into the labour force. A significant and sustained increase in investment and productivity in the manufacturing sector is therefore imperative to create employment and income for the provinces burgeoning population. Currently the industrial sector of Punjab employs around 23 percent of the provinces labour force and contributes just over 24% in the provincial GPP. Over the last 10 years average growth in the manufacturing sector has been over 5% per annum with highest growth registered in the early years of the last decade.
However, since 2006-07, industrial performance has shown an unprecedented deterioration contributing negatively to provincial GPP. This abysmal performance is a consequence of serious domestic issues and constraints which have stunted the sector’s contribution to the economy. The ICA 2007 WB report identified power shortages, macroeconomic and political instability along with bureaucratic corruption as the most important constraints to investment and industrial productivity at both the national and provincial level. The objective of this particular report was an in depth analysis of industry in Punjab through the identification of the major constraints impeding the output and productivity of firms located in the seven major industrial clusters/zones of the province. By using the data from ICA 2007 this study closely analyzed each of the seven major industrial zones in Punjab – identifying in each of these the key constraints hampering growth and productivity across various industries and firm sizes, and, estimating, where possible, the impact of these constraints on firm/industry output. Moreover, to reassess the findings of the ICA 2007 data, the study conducted a pilot survey in the Lahore region covering 101 firms across 10 different sectors. The results of the pilot survey were not significantly different from the findings of ICA 2007. Electricity has been identified as the most severe obstacle faced by the industries in the Lahore region. Almost 71 percent of the firms declared electricity as the most important constraint. Macroeconomic stability has been identified as the second important constraint by 8 percent of the firm’s surveyed. Inadequate workforce, access to raw material and corruption were ranked third, fourth and fifth constraints respectively. IDEAS FOR GROWTH The most chronic and binding constraint to industry in Punjab is thus the nationwide energy crisis. As evident from the recent pilot survey on firms in Lahore, the shortfall in power has worsened over the past year and a half with an increase not only in the number of outages but also in the duration of each shutdown. These irregular and unannounced power cuts have an adverse impact on firm output and productivity affecting process based industries relatively more than others due to increased wastage of raw material.
Macroeconomic and political instability which manifest itself in the form of high investment risk, inflation and increased interest rates, are the other two important factors contributing to industrial slowdown. Moreover, industries in Punjab remain hostage to bureaucratic inefficiency and rent seeking. This is especially the case with labour inspectors and low tier customs officers. Inadequately trained labour has also been identified in the recent pilot survey as a critical factor impeding industrial performance.