An overview of the Industry sector’s overall performance

Engineering Post Report

Quite significantly and obviously, the industrial sector plays an important role in the economic development of a country. It contributes  almost 20 per cent of Gross Domestic Product (GDP)  and employs 24 per cent of total employed labour force.

The industrial  sector was envisaged to grow by 2.3 per cent on the back of the manufacturing  sector (2.5 per cent), utilities (1.5 per cent) and construction (1.5 per cent). However, the industrial sector  faced a major brunt of the COVID-19 related shutdown and depicted overall  contraction of 2.6 per cent as compared to the previous  year when ir was contracted  by 2.3 per cent , according to the revise estimates.

Manufacturing sectoring sector  acted as a drag on  the overall  growth of the industrial;  sector with decline in Large Scale Manufacturing (LSM). Despite improved  energy  supply and better security situation, a constant increase in cost of  working capital due to twofold  increase in the interest rate (13.25 per cent) since May 2018, increased the cost of production.

The contraction, according to the information gathered from the official sources concerned,  can  also be  attributed to  subdued demand  owing to double digit  inflation  during the year and completion of first phase of the great game changer China-Pakistan Economic Corridor (CPEC) which resulted in  slowing down  of infrastructure related investment in the country.

On supply side,  rupee devaluation, important duties and taxes levied in the federal budget 2019-20  had increased the cost of imported inputs, especially I automobile, electronics and pharmaceutical sectors. The pandemic of COVID-19 also had  intensified  economic miseries  of the industrial sector in the country in particular.

According to the available figures, Large Scale Manufacturing (LSM) had posted  negative growth  during the current year. The period average  growth since July 19-20  had remained negative, while Year on Year (YoY)  growth was also predominantly  negative  with the only positive  spike  during the month of December 2019. The LSM  sector is estimated to have contracted by as much as 7.8 per cent as against  contraction of only 2.7 per cent.

The annualized estimates worked out  primarily  on the basis of first quarter  data from July 2019 to March 2020, which showed a decline of -5.40 per cent. Major decline has been observed in textile ( 2.6 per cent), food, beverage and tobacco (2.3 per cent), coke and petroleum products (17. 5 per cent), pharmaceuticals (5. 4 per cent), chemicals (2.3 per cent),  automobiles ( 36.5 per cent), iron and steel  products  (22.1 per cent) , engineering  products  ( 7.1 per cent) and  wood products ( 5 per cent), rubber products  (4.3 per cent), paper and board (4.3 per cent and non-metallic mineral product (1.8 per cent).

The mining and quarrying sector had witnessed  a contraction of 8.8 per cent as against contraction of 3.2 per cent the previous year and target for the year at 2 per cent growth. The contraction had mainly occurred  due to negative growth in output  reported  in  I  natural gas (-6.4  per cent), crude oil (-10.6 per cent) and coal (-6.3 per cent).

Small and household manufacturing  was estimated to bear the brunt  of lockdown and  subsequent shrinking in growth  to 1.5 per cent. Value addition  in electricity and gas generation ad distribution  posted 17. 7 per cent growth . Construction section witnessed  growth of  8.1 per cent  compared to contraction of 16.8 per cent  during the last year and the target growth of 1.5 per cent  primarily because  of the rise in investment in the construction sector.