The Review of Industrial Policies in Bangladesh from 1971 - 2014

Submitted to- 

Dr. Abul Kashem Mohammad Jamal Uddin Professor

Department of Sociology,

University of Dhaka.

Date of Submission: July 15, 2014.

Name s Roll

Md. Hasanul Banna Roll No.303

Submitted By

3rd Semester,7th Batch. Dept. of Sociology

University of Dhaka.

Industrialization is an essential pre -requisite for rapid and sustained economic development and social progress.

Modernization and structural transformation of the economy and diversification of the economic base and standard of living of the people are the universally recognized dynamic benefits arising from industrial development.

Industrialization is thus pursued as an overriding development objective in its own right.

In the past, efforts towards industrialization in Bangladesh were made under changing economic paradigm and political economy regimes. Since independence in 1971, a total of ten industrial policies have been formulated and adopted for industrial development of Bangladesh.

Concept of Industrial

Policy.

The term "industrial policy" is very comprehensive and often misleading it covers a wide range of options and instruments falling under the domain of trade, fiscal, monetary and exchange rate policies.

It may include direct regulatory policies like investment sanctioning, import licensing and exchange controls, and allocation of areas of activities for private and public investment.

It may also include indirect economic policies and instruments such as tariffs and quantitative restrictions, several activities like construction, hospital and clinics, hotels and tourism, technology-base.

The term 'industry' in the phrase industrial policy was generally understood to mean manufacturing it did not include agriculture construction, services, or transportation.

The policy contents of industrial policy are now getting wider and wider. While the traditional role of industrial policy.

to influence the allocation of resources to industry, i.e., policies that affect the infrastructure of industry in general, such as the provision of industrial sites, roads, ports, and electric power,

to regulate the internal organization of particular industries, such as industrial restructuring, consolidation of firms, and output restrictions, and

To influence the growth of small and medium scale enterprises (SMEs), etc. remains as before, industrial policies are now directed at achieving on-economic goals.

Main Theme of Industrial Policy In Bangladesh

It has been 43 years since Bangladesh’s independent. Since then the country has formulated ten industrial policies.

The country till now has gone through 10 policies:

Industrial Investment Policy, 1973.

New Industrial Investment Policy, 1974.

Revised Investment Policy, December 1975.

New Industrial Policy (NIP), June 1982.

Revised Industrial Policy (RIP), July 1986.

Industrial Policy, July 1991.

Industrial Policy, 1999.

Industrial Policy 2005 (IP 2005).

Industrial Policy 2009

Industrial Policy 2010

Sl No.

Name of the Policy

Timeline The Key Focus of the Policy

1 Industrial Investment Policy

January, 1973

Nationalization of all medium and large scale industrial policies

2 New Industrial Investment Policy

July, 1974 Encouraging private sector activity in manufacturing, and reducing, through disinvestment, the dominant role of the public sector 

3 Revised Investment Policy

December, 1975

Focus on a private sector-led growth. The period witnessed large scale denationalization of industrial enterprises, and private sector investment began to pick up with liberal credit policies and generous lending by commercial hanks and DFIs. Boosting up export sector

4 New Industrial Policy (NIP)

June, 1982

Stimulate industrial development through the private sector and to that end it made fundamental changes in the industrial policy environment and promotional instruments. Large scale denationalization

Sl No.

Name of the Policy

Timeline

The Key Focus of the Policy

6 Industrial Policy

July, 1991

The whole industrial policy was premised on the philosophy of market-based competitive economy.

7 Industrial Policy

1999 the first ever policy that had a true vision of industrial development, and the objectives outlined in the policy statement had a clear sense of direction. Its major objective was to have, within a decade, sizable industrial sector where manufacturing would account for at least 25% of GDP and 20% of the employed workforce.

8 Industrial Policy (IP 2005)

March, 2005

The policy envisages that in the next one decade the manufacturing sector will account for about 30 to 35 percent of GDP and about 30 percent of employed workforce. More focus on the SMEs

9 Industrial Policy

2009 the prime objectives of this Policy will be to give clear signal to the private sector highlighting government’s commitment to private sector led industrialization strategy.

10 Industrial Policy

2010 and hunger to less than a half by 2017 through the adoption of short-, medium-and long-term programmes that help build a modern and vibrant industrial sector.

Sl No.

Name of the Policy

Timeline

The Key Focus of the Policy

Importance of Industrial Policies in Bangladesh

1. It is ninth most populous country of the world but, in terms of income and standard of living, it is among the poorest in the world.

2. Based on the United Nations criteria of per capita income, contribution of manufacturing activity to GDP, and the rate of literacy, Bangladesh is categorized as a "least developed country". Per capita income in the country is about $445, and nearly a half of the population is below the poverty line.  

3. The economy is dependent mainly on agriculture, which accounts for 22 percent of GDP but provides employment to as much as 52 percent of the country's labor force.

4. The country's population and labor force are growing rapidly every year, and it is impossible that the growing labor force can ever be absorbed in the agriculture sector.

5. Industrial policy can be of great significance to these countries as means of achieving faster economic growth, creation of productive employment and alleviation of poverty.

6. Industrial growth and Improve the long-term performance of the economy in terms of productivity, employment, and international competitiveness.

7. The key to poverty alleviation lies in the generation of productive employment through rapid economic growth and structural transformation of the economy away from agriculture and toward industry.

8. While the slow growth of the manufacturing sector may be attributed to factors like energy shortage, reduced availability of bank credit, poor inflow of foreign direct investment (FDI) labor unrest, and poor law and order conditions no less responsible are the inconsistent policies. 

9. The market failure approach makes public policy to focus basically on supplying lacking inputs: physical capital, skills, technology, etc. While this is an important policy area, developing countries also tend to suffer from a lack of demand for such inputs.

10. Market failures are not always easy to locate except in the most obvious situations (namely, education, infrastructure, etc.) and, when they can be located, their seriousness may not be apparent.

11. There is what amounts to a “private sector failure”, when a firm’s goal of making profits (or raising share value) conflicts with national development. It may make good commercial sense for a private firm to pull out of one country and move to another that offers.

Different size categories of industries are

defined in the following manner:

Diagram of Categories of Industries

Cottage Industry

65

Reserved Industry

43

Medium Industry

21

Large Industry

In the case of manufacturing activity, large industry will include enterprises with either the value (replacement cost) of fixed assets excluding land and building in excess of Tk. 200 million or enterprises having more than 150 workers.

In the case of non-manufacturing industrial activities, large industry will include enterprises with either the value (replacement cost) of fixed assets excluding land and building in excess of Tk. 100 million or enterprises having more than 50 workers.

Medium Industry

In the case of manufacturing activity, medium industry will include enterprises with either the value (replacement cost) of fixed assets excluding land and building in the range of Tk 15 million to Tk. 200 million or enterprises having between 50 and150 workers.

In the case of non-manufacturing industrial activity, medium industry will include enterprises with either the value (replacement cost) of fixed assets excluding land and building in the range of Tk 5 million to Tk. 100 million or enterprises having between 25 and 50 workers.

Reserved Industry

Small Industry

Industries that are kept reserved for public investment due to national security or other reasons have been termed as reserved industries.

In the case of manufacturing activity, small industry will include enterprises with either the value (replacement cost) of fixed assets excluding land and building in the range of Tk 0.5 million to Tk. 15 million or enterprises having between 10 and 50 workers.

In the case of non-manufacturing industrial activity, small industry will include enterprises with either the value (replacement cost) of fixed assets excluding land and building in the range of Tk 0.5 million to Tk. 5 million or enterprises having between 10 and 25 workers.

Micro Industry

Micro industries with predominance of family labor will be defined as cottage industries

Cottage Industry

Micro industry will include industrial enterprises with either the value (replacement cost) of fixed assets excluding land and building of up to Tk 0.5 million or enterprises having 10 or fewer workers.

Urban and Rural Industrialization in Bangladesh

Major Problems Faced by Industries in Rural and Urban Bangladesh

Inadequate infrastructure

facilities (power, water & gas):

Poor access to creditLack of efficient

distribution channelsImperfect market

Lack of governanceTax

structureLack of

connectivity

Lack of proper business

knowledge

Corruption

Poor law and order situation

Frequent policy

changes

Bureaucratic hassle

Political instability

Trend of Urban Sector’s Contribution to GDP in Bangladesh during 1972-73 to 2000-01.

Source: Bangladesh Bureau of Statistics (1993), UN World Urbanization Prospects (2000) and Bangladesh PopulationCensus,2001

Evolution of Industrial Policy in

Bangladesh

Industrial Investment Policy, 1973

New Industrial Investment Policy, 1974

Revised Investment Policy, December 1975

New Industrial Policy (NIP), June 1982

Revised industrial policy (RIP), July 1986

Industrial policy, July

1991

Industrial policy 2005 (IP

2005)

Industrial policy 2009

National Industrial

Policy 2010

Evolution of Industrial Policies in Bangladesh from 1971 – 2014.

Industrial Investment Policy, 1973

The rationale behind such strategy can be adduced to the following three principal factors.

1. It was embraced by a host of other countries of the world during the time Bangladesh emerged as an independent state,

2. There was pervasive presence of IS industries in the economy that needed to be highly protected-a legacy of the pre-independence era and

3. The spectra of "export-pessimism" shook many of the then LDCs, including, Bangladesh.

New Industrial Investment Policy, 1974

Identifying the problems in the previous policy a number of steps were taken up by the then government mostly, to lure private investors:

Enhancement of the investment ceiling from Tk. 2.5 million to Tk. 30 million (and later to Tk. 100 million).

Provisions for monetary incentives to allow more corridors to the enhancement of a moratorium for nationalization for up to 15 years.

Provisions for tax holidays for less-developed areas.

Devaluation of currency by a substantial margin (perhaps largest in the history of Bangladesh).

The number of industries reserved for the public sector was reduced to18.

Fiscal and monetary incentives were expanded to stimulate private investment.

Revised Investment Policy, December 1975

Few of the changes of that time were as follows: Elimination of ceiling on private investment on oil.

Relaxation of investment sanctioning procedures.

Amendment of the constitution to allow denationalization.

Reviving the stock market.

Shifting from tile fixed rate system of the 1970s to a 'managed' system of floating exchange rate.

New Industrial Policy (NIP), June 1982

The principal objective of the NIP, as documented were to: Emphasizes export oriented growth with necessitated substantial

changes in the regime of trade and industrial incentive structure with prominence placed on export diversification and import liberalization

Assign the private sector be pivotal role to play in rapid industrialization of the country.

Down-size the role of tile public sector to a substantial extent by specifying its areas of existence to a limited number of restricted areas.

Rationalize the tariff structure and pursue appropriate fiscal measures (Ministry of Industry 1986).

Revised industrial policy (RIP), July 1986

In keeping with the government's policy of balanced regional development the country's geographical area was divided into three categories:

Developed Areas, where adequate infrastructure exists and sufficient industrialization has taken place,

Less Developed Areas, where infrastructure has been partially developed and some industrialization has taken place, and

Least Developed Areas, where neither infrastructure has been developed nor any industrialization has taken place.

Industrial policy, July 1991

The whole industrial policy was premised on the philosophy of a market-based competitive economy. A number of relatively more positive and biting policy initiatives were undertaken to lure foreign and domestic investors:

elimination of concessionary interest rated and special credit facilities,

deletion of any requirement of permission to set up industries,

removal of restrictive provisions for equity participation by foreigners.

The number of industries reserved for only public sector investment was reduced to 5 from 7 of the previous policy.

Industrial policy, 1999

The Industrial Policy, 1999 was perhaps the most comprehensive policy, which sought to give the private sector a dominant role :

Focus the role of the government as a facilitator in creating an enabling environment for expanding private investment.

Attract FDI in both export- and domestic market-oriented industries give the industrial sector a dominant export Orientation.

Encourage the competitive strength of import substituting industries for catering to a growing domestic market.

Encourage a balanced industrial development and regional dispersal of industries throughout the country by introducing suitable measures and Incentives.

Develop indigenous technology and to expand production based on domestic raw materials.

Rehabilitate deserving sick industries.

Industrial policy 2005 (IP 2005)

The latest industrial policy was announced in March 2005.

The major objectives and strategies of IP 2005 are more or less similar to those of the 1999 policy,

The policy envisages that in the next one decade themanufacturing sector will account for about 30 to 35 percent of GDP and about 30 percent of employed workforce.

Industrial policy 2009

The overall objective of the Industrial Policy 2009 will be to provide a policy and institutional framework that will create and sustain a momentum of accelerated economic growth through industrialization in line with the vision laid out earlier.

The Policy will aim at creating a highly positive proactive and enabling environment in which private investors can operate without unnecessary bottlenecks, delays and interference.

The Industrial Policy 2009 will attempt to rationalize the existing incentives structure for attracting higher levels of private investment in areas of dynamic comparative advantage in the economy.

National Industrial Policy 2010

industrial Policy-2010 aims at achieving the Millennial Development Goals (MDGs) and, above all, reducing unemployment and the proportion of the population afflicted by poverty and hunger to less than a half by 2017 through the adoption of short-, medium-and long-term programmes that help build a modern and vibrant industrial sector.

Achieving the recently-announced Digital Bangladesh goal by 2021, and creating employment opportunity for at least one person from each household in order to reduce poverty and unemployment loom large among the central policy objectives of the government.

Major Structural Constraints that Hinder

Industrial Growth

Limited access to credit, its high cost, legal or illegal, and procedural difficulties in obtaining credit from banks.

Poor- physical infrastructure

Acute energy shortage and Unreliable supply of power and other utilities such as gas and water.

Lack or skilled labor and the tendency for labor to be militant.

Competition from dumped and smuggled imports.

Lack of' g good marketing facilities.

Pervasive corruption in bureaucracy, particularly in the administration responsible for delivery of public services.

A fragile political situation.

Poor law and order conditions.

Insecurity of life and property.

Growing incidences of crime and extortion at every stage starting from production to distribution and marketing, of the products.

Thanks All Of You.