The Review of Industrial Policies in Bangladesh from 1971 - 2014

Submitted to-

Dr. Abul Kashem Mohammad Jamal UddinProfessor

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

Timeli

ne

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 Industri

al

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 Industri

al

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

6

Micro Industry

5

Reserved Industry

4

Small Industry

3

Medium Industry

2

Large Industry

1

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 credit

Lack of efficient

distribution channels

Imperfect market

Lack of governance

Tax structure

Lack 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 2010Evolution 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 themanufacturingsector 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.