INDUSTRIAL POLICY OF BANGLADESH

Bangladesh emerged from the 1971 war of independence a free nation, but one whose economy
and infrastructure was shattered. It was notably described by US Secretary of State Henry
Kissinger as “an international basket case”. No matter how much we criticize over the past
37years it’s achievements has been impressive, most notably in its emergence as a major global
textile and RMG exporter. More broadly, the low volatility and consistency of growth in the past
decade, despite political instability and natural disasters is a testament to a dynamic and
entrepreneurial private sector. Such resilience will be honoured only then when the country will
grow to be a respected in the world. Industrialization is one way to get there. Industrial Policy
thus will play a crucial role to take us there.
The country till now has gone through 8 policies:
1.Industrial Investment Policy, 1973
2.New Industrial Investment Policy, 1974
3.Revised Investment Policy, December 1975
4.New Industrial Policy (NIP), June 1982
5.Revised Industrial Policy (RIP), July 1986
6.Industrial Policy, July 1991
7.Industrial Policy, 1999
8.Industrial Policy 2005 (IP 2005)
Such Policies play an even greater role in an economically under-developed country like
Bangladesh where the over-riding objective is the alleviation of poverty, which can be achieved
by rapid economic growth and creation of productive employment. Developing countries,are
deficient in resources, have limited access to modern technologies, have rampant unemployment
and Under-employment, and thus suffer from abject poverty. 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.
The first industrial investment policy (IIP) in Bangladesh was announced in January
1973.The policy restricted the role of the private sector by limiting permissible investment
to Tk.2.5 million. Foreign private investment was allowed only in collaboration with the
pubic sector and only with minority equity participation. The policy ensured a ten-year
moratorium on nationalization and provided fiscal and other incentives to potential

1
investors. The overall policy incentives were, however, clearly aimed at fostering and
maintaining public enterprise in large and medium scale industry, limiting private sector
activity to only small industries.
Second Industrial Policy introduced in July 1974 tried to mend the problem of the first policy. A
number of steps were taken up by the then governement mostly, to lure private investors. It
enhanced the investment ceiling from Tk, 2.5 million to Tk 30 millionn (and later to Tk.
100million) and made provisions for monetary incentives to allow more corridors to the
enhancement of a moratorium for nationaliztion for up to 15 years.
The volent overthrow of the Awami League led to the incorporation of the third policy. 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, revivingthe stock market, shifting from tile fixed rate system of the 1970s toa
'managed' system of floating exchange rate, introduction of a number of export promotion
measures etc.
New Industrial Policy by Ziaur Rahman brings some major changes. It transferred a large
number of nationalized jute and cotton textile mills to their local owners. It grouped industries
under three lists.
The Revised Industrial Policy of 1986 (RIP 1986) just followed the earlier moves towards
deregulation and privatization with more teeth on the on-going structural adjustment
programme.More export incentive instruments were made available to the exporters, more
deregulation proceeded and the number of items on the "negative" list was progressively reduced
to paveways for further import deregulation
The industrial policy 1991 could be marked as another "watershed" in the history ofBangladesh's
industrial processes. In terms of philosophical underpinning, it appeared to be oflittle difference
with its forerunner but in terms of depth and width some discernible differencescould be noticed.
The whole industrial policy was premised on the philosophy of a market-basedcompetitive
economy. A number of relatively more positive and biting policy initiatives wereundertaken to
lure foreign and domestic investors, e.g. elimination of concesionary interest ratedand special
credit facilities, deletion of any requirement of permission to set up industries,removal of
restrictive provisions for equity participation by foreigners.

2
The Industrial Policy, 1999 was perhaps the most comprehensive policy, which sought to
give the private sector a dominant role in accelerating the pace of industrial development.
To enhance the role of the private sector, the industries reserved for public sector
investment were brought down to four. It was 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, a sizable industrial sector.
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, for example, it reiterates the
dominant role of the private sector in industrial development in which the government will act
only as a facilitator, and gives emphasis on the privatization of state-owned enterprises, export
orientation of the industrial sector, raising competitiveness of industries in both domestic and
international markets, and promoting industrial development by effectively utilizing the country's
domestic resources, and so on. 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.
Bangladesh has three key attractions for global investors and multinationals: a large base of low-
cost labour, a sizeable domestic market of 150mn people, and nearly 3bn people in the Asian
region that it has market access to. Bangladesh can move into the ranks of Middle Income
countries (defined as a per capita income of USD 875) by 2021, the 50th anniversary of its
Independence. But this will require Bangladesh moving from a 5-6% growth trajectory to
around7.5%. With the right policy guidelines the country can achieve it, only thing to see is the
current policy path is it right or wrong for the country’s betterment?
The Review of the Industrial Policies in Bangladesh
1.1 Introduction
It has been 26 years since Bangladesh’s independent. Since then the country has formulated eight
industrial policies
1.Industrial Investment Policy, 1973
2.New Industrial Investment Policy, 1974
3.Revised Investment Policy, December 1975
4.New Industrial Policy (NIP), June 1982
5.Revised Industrial Policy (RIP), July 1986

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6.Industrial Policy, July 1991
7.Industrial Policy, 1999
8.Industrial Policy 2005 (IP 2005)
Reviewing them gives us a peak into the economic and also the political history of the
country.The industrial sector became not only the test case for the fulfillment of important
electoral pledges but specifically was seen by many as a first major step towards fulfilling the
commitment to a socialist transformation of the economy.
1.2 Objective
As a fulfillment of the course “Managing Operations” the students concerned was assigned this
report by the respected teacher Professor Muhammad Ziaulhaq Mamun.
The objective of the report will be to:
 To review the 8 policies that are incorporated in Bangladesh to date.
 To identify the perspective in which these policies are formulated
 To point out the political and economical reason behind the formulation
 To work out the evolution and transition between the policies.
2.1 Introduction
The evolution of Bangladesh’s industrial policy illustrates an interesting interplay of
economic, political and ideological factors. The industrial sector became not only the test
case for the fulfillment of important electoral pledges but specifically was seen by many
as a first major step towards fulfilling the commitment to a socialist transformation of the
economy. It revealed both the possibilities and the limitations in the way of extension
ofpublic ownership; it became a symbol for struggle between the contending socio-
politicalforces far out of proportion to the importance of the industrial sector in the
economy. The country till now has gone through 8 policies:

The genesis of this attitude lies somewhere else. The establishment of Pakistan and the
encouragement to industrialization of both East and West Pakistan led to the concentration
of economic power in some twenty families almost exclusively located in West
Pakistan.This concentration of power was resented all over Pakistan, but particularly in
the East, andwas one of the reasons why the first government of independent Bangladesh
not only nationalized manufacturing enterprises but also all large and medium scale

4
Bangladeshi owned enterprises, and in addition put a low ceiling on the value of fixed
assets (tk 1.5 mn)in the remaining private manufacturing sector.

2.2 Importance of Industrial Policies for Bangladesh

In Bangladesh about 144 million people, equivalent to about half of the U.S. population, live in
an area the size of New York State. 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. 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. 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. Meanwhile, 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, unless employment opportunities can
be created by rapidly expanding the country's manufacturing sector.

Thus, industrialization is generally believed to be the key to economic development for the
developing countries. The pace of industrialization depends on a large number of factors,
e.g.,factor and resource endowment, size, location, social mores, international environment etc.,
but experience shows that public policy is the main determinant of a country's industrial
growth(James et al, 1987)16.
Such Policies play an even greater role in an economically under-developed country like
Bangladesh where the over-riding objective is the alleviation of poverty, which can be achieved
by rapid economic growth and creation of productive employment. The advanced industrialized
countries, which are rich in resources and have the most modern technologies, are not much
concerned with economic growth. Their main concern is to maintain the level of effective
demand. Developing countries, on the other hand, are deficient in resources, have limited access
to modern technologies, have rampant unemployment and Under-employment, and thus suffer
from abject poverty. 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.
It is here that the importance of industrial development and with that the need for an
effective industrial policy comes to the forefront. Industrial policy is purported to create a

5
stable climate for industrial growth and improve the long-term performance of the
economy in terms of productivity, employment, and international competitiveness. It is
now agreedon all hands that, given the unfavorable land-man ratio and the underdeveloped
state of thecountry's agriculture sector, 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.
In fact, all successive governments in the country since independence announced policies
and strategies for accelerating the process of economic growth through the development of
the industrial sector, but, unfortunately the desired structural change in the economy hasnot
yet been achieved. Despite three decades of planned development efforts,
Bangladesh'srecord of industrial growth has been frustrating. The little structural change
that wasachieved in the decades of the 1970s and 1980s came to a virtual halt in tile 1990s.
In fact,the share of manufacturing in tile country's GDP has remained virtually stagnant
since 1994-95. Some of the unwelcome consequences the stagnant manufacturing has had
on the economy are the fall in employment, income, and government revenue and an
increase intrade and balance of payments deficits.
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, which vitiate the overall business environment, discourage investors, and hinder
the country's industrial growth, an effective industrial policy is therefore needed to facilitate
strong growth and expansion of tile industrial sector.
2.3 Defining Industrial Policy
Before describing past industrial policies of the country a proper definition of the
term"industrial policy" and a description of its contents should be in order. The term
"industrialpolicy" 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 andexchange 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 (QRs.), Investment incentives, policy on foreign investment,

6
provision of industrial finance and incentives for promoting export activity. Because of their
close inter-relationships, a judicious co-ordination of these policies is essential for attaining
theprofessed objectives of industrial policy.
Secondly, the changing definition of industrial policy should be noted. The term 'industry' in
the phrase industrial policy was generally understood to mean manufacturing it did not
include agriculture construction, services, or transportation, however starting with the
Industrial Policy of 1991, several activities like construction, hospital and clinics, hotels
andtourism, technology-based fisheries, livestock and poultry, and certain service sector
activities such as computer software, telecommunications, electric power and other energy-
related sectors began to be treated as industry and have become objects of industrial policy.
Thirdly, the policy contents of industrial policy are now getting wider and wider. While the
traditional role of industrial policy, for example, (i) 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, (ii) to regulate the internal
organization of particular industries, such as industrial restructuring, consolidation of
firms,and output restrictions, and (iii) to influence the growth of small and medium scale
enterprises (SMEs), etc. remains as before, industrial policies are now directed at achieving
non-economic goals as well, such as achieving regional industrial development restraining
the consumption of luxury goods, and measures to increase the self-sufficiency of certain
goods for national security reasons.
2.4 Evolution of Industrial Policy in Bangladesh
Since achieving independence in 1971 till today, Bangladesh has presented eight industrial
policies, each having specific objectives and priorities. The country inherited its industrial
policy framework from Pakistan, which focused on a bureaucratic control of a largely
privateindustrial sector with emphasis on import substitution and near exclusion of foreign
investment. Around this control grew a complex system of licensing, exchange rationing,
and quantitative restrictions on imports, which affected every aspect of the behavior of
private sector industrial firms. Before Independence of Bangladesh, the industrial
enterprises, towhich these policies applied, were owned by the West Pakistani
entrepreneurs. With independence, the structure of ownership in industry changed
dramatically when the newGovernment of Bangladesh (GOB) nationalized all industries

7
abandoned by West Pakistanientrepreneurs as well as all lage-scale Bangladeshi-owned
enterprises (including jute,insurance and banking) with fixed assets exceeding Tk. 1.5
million. All large-scaleindustries, in particular jute and cotton textiles and sugar, were
totally nationalized. It may bementioned here that, the proportion of total assets owned by
Bangladesh nationals in the juteand cotton textile industries was 34% and 53% respectively.
One explanation for such radicalaspirations was it picked up during the last days of the
Pakistani regime and during the timeof liberation. A political party which wanted to retain
its mass appeal and support amongstthe students and workers could not fully disregard the
prevailing political mood. There wereonly a few industrial entrepreneurs in Bangladesh,
mostly concentrated in the jute and cottontextile industries, with experience of managing
and financing large industrial enterprises.Moreover, the abandoned industrial units had
suffered from severe depletion of assets,working capital ad inventories in the aftermath of
war, not to speak of financial liabilities leftbehind by the Pakistanis.
While the exigencies of circumstances forced the then government to nationalize theabandoned
industries, the decision to nationalize the domestically-owned enterprises, too, wasperhaps a
wrong step, hasty, ill judged, and without any sound economic rationale.

Industrial policy, July 1991

The industrial policy 1991 could be marked as another "watershed" in the history ofBangladesh's
industrial processes. In terms of philosophical underpinning, it appeared to be oflittle difference
with its forerunner but in terms of depth and width some discernible differencescould be noticed.
The whole industrial policy was premised on the philosophy of a market-basedcompetitive
economy. A number of relatively more positive and biting policy initiatives wereundertaken to
lure foreign and domestic investors, e.g. elimination of concesionary interest ratedand special
credit facilities, deletion of any requirement of permission to set up industries,removal of
restrictive provisions for equity participation by foreigners. The number ofindustries reserved for
only public sector investment was reduced to 5 from 7 of theprevious policy. The indicative or
the discouraged lists were deleted. The governmentwould, however, frame rules from time to
time for certain industries to protect theenvironment, public health and national interest, and such
industries would be subjected tothese rules. These industries would be treated as "regulated

8
industries" also envisaged anumber of measures to improve the operational efficiency and
economic viability of thepublic sector enterprises.
For private sector investment, the sanctioning procedure was further simplified. No approval
was necessary to set up industries and for BMRE of existing industries with entrepreneurs
own fund, or with funds from private banks or private financial institutions. Investment
incentives, in particular for export-oriented and export-linkage industries, were
expanded,simplified and made available to both local and foreign investors, without any
discrimination between them. Further protection of foreign investment from nationalization,
repatriation of' proceeds from sale of shares, profits and dividends, tax exemption on
royalties, interest on foreign loans and capital gains from the transfer of shares etc. were
assured. To assist in the establishment of export-oriented industries, more export processing
zones were to be established.
However, the most perceptible changes that the policy seems to have injected are in the arena of
foreign exchange and trade regimes. The changes were, apparently, consistent with a free
market,neo-classical paradigm and within its fold, with an outward looking, export-led growth
strategy.Besides, having been hooked on to a more flexible exchange rate system, in October
1993, takawas made convertible on current account. There was expeditious move towards
liberalizing theforeign trade sector through rationalization of the tariff structure and reduction of
tariff and non-tariff barriers. The early 1990s experienced the most proactive phase of trade
liberalization. Forexample, by 1994 the share of free import items rose to 94% of all Harmonised
System code lineitems, only 0.4% remained banned.
In addition to a severe cut in non-tariff barriers, quantitative tariff barriers were also
demolished.For example, the unweighted rate of nominal protection for the whole economy
stood at 30% in1995 compared with 59% in 1992 and 94% in 1989. As between 1989 and 1994,
the tariff ratedfor consumer goods fell from 134% to 47%; for capital goods from 73% to 17%.

Industrial policy, 1999

The Industrial Policy, 1999 was perhaps the most comprehensive policy, which sought
togive the private sector a dominant role in accelerating the pace of industrial development.
Toenhance the role of the private sector, the industries reserved for public sector
investmentwere brought down to four. It was the first ever policy that had a true vision of

9
industrialdevelopment, and the objectives outlined in the policy statement had a clear sense
ofdirection. Its major objective was to have, within a decade, a sizable industrial sector
wheremanufacturing would account for at least 25% of GDP and 20% of the employed
workforce.
Among its other objectives were to
(i)focus the role of the government as a facilitator in creating an enabling
environment for expanding private investment,
(ii)attract FDI in both export- and domestic market-oriented industries,
(iii)give the industrial sector a dominant export Orientation,
(iv)encourage the competitive strength of import substituting industries for catering to
a growing domestic market,
(v)encourage a balanced industrial development and regional dispersal of
industries throughout the country by introducing suitable measures and Incentives.
(vi)develop indigenous technology and to expand production based on domestic raw
materials, and
(vii)rehabilitate deserving sick industries.
The disposal of small and medium industries also constituted an important element of the1999
industrial policy. Another concern of the policy was to ensure a process ofindustrialization which
was environmentally sound and consistent with the country’sresource endowments. The 1999
industrial policy aimed at addressing these concerns andattaining its stated objectives, building
on earlier errors and gains achieved in theindustrialization process.
For the first time in the 1999 industrial policy, clear definitions were given to large, medium
small, and cottage industries. “Large Industry” was defined by IP 1999 to include all industrial
enterprises employing 100 or more workers and/or having a fixed capital investment of morethan
tk 300 million. Enterprise employing between 50 and 100 workers and/or with a fixedcapital
investment between tk 100 million and tk 300 million was defined as “medium industry”.“Small
industry” would mean enterprises employing fewer that 50 workers excluding cottageunits
and/or with a fixed capital investment less than tk 100 million. “Cottage industry” wouldcover
household-based units operated mainly with family labour.
The policy also identified some service oriented activities that were declared as
"industries".Recognized as industries, these are: i. entertainment (i.e., cinema, amusement parks

10
etc.), ii.hospitals and clinics, iii. information technology-based industries (i.e., computer
software, dataentry and management, electronic communication etc.), iv. construction, and
v. hotels.

For the purpose of targeting special incentives and supportive measures, certain industrial
activities (16 in all) were declared as "thrust sectors". Thethrust sectorindustries are:
(i)agro-based industries.
(ii) artificial flower-making
(iii) computer software and ICT
(iv) electronics
(v) frozen food,
(vi) floriculture,
(vii) gift items,
(viii) infrastructure,
(ix) jute goods
(x) jewellery and diamond cutting and polishing,
(xi) leather,
(xii) oil and gas.
(xiii) sericulture and silk industry,
(xiv) stuffed toys,
(xv) textiles, and
(xvi) tourism.
Tax holiday facilities were made available for 5 or 7 years depending upon location of
industrialenterprises in "Developed" or "Underdeveloped" areas. Confessional duties on
imported capitalmachinery were also to be available on the basis of such area demarcation.

2.4.8 Industrial policy 2005 (IP 2005)

The latest industrial policy was announced in March 2005. The major objectives and strategies
ofIP 2005 are more or less similar to those of the 1999 policy, for example, it reiterates
thedominant role of the private sector in industrial development in which the government will
actonly as a facilitator, and gives emphasis on the privatization of state-owned enterprises,

11
exportorientation of the industrial sector, raising competitiveness of industries in both domestic
and international markets, and promoting industrial development by effectively utilizing the
country's domestic resources, and so on. 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
ofemployed workforce.
In addition to retaining all the elements of the 1999 policy, the industrial policy of 2005
incorporates certain new provisions as well. For example, it has proposed for the establishment
of cottage industries and SMEs in different regions of the country by giving special incentives
and support measures for establishing a specialized women's bank to assist women entrepreneurs
for promoting agro-based and food processing industries for establishing specialeconomic zones
in different parts of the country, and for giving emphasis on the need forcarrying out pre-
investment feasibility studies by the lending institutions prior to lending toindustrial projects.
The IP 2005 has also expanded the list of the thrust sectors. There are now 33 thrust sector
industries instead of' the 16 in the previous policy. The new policy designates readymade
garments as a thrust sector industry, which will henceforth be open for foreign investment
aswell. Foreign investors will get Special incentives if they invest in the designated thrust
sectors particularly in small and medium industries.
The coverage of the service Sector activities, recognized as industries has also been widened.
IP 2005 policy provides a list of 19 service industries as against 5 in the 1999 policy.
The industrial policy of 2005 has also changed the definition of the different sizes of industry.
It divides industrial enterprises into manufacturing and non-manufacturing (services, for
example) industries. The size of manufacturing industries is defined in terms of the size
ofcapital Investment, while in the case of non-manufacturing industries; the size is measured
interms of the employment of workers.
While the IP 2005 has several elements of a good policy, the rationale behind the decision to
enlarge the coverage of thrust sector industries and give new definitions to different sizes of
industries is not very clear. Although a large number of industries are included in the thrust
sectors, some of the important ones with high potentials, for example electrical
industries,plastic products etc. are excluded. At the same time the list includes a number of
industries,which do not produce standardized products, require fairly small amounts of capital,
and havevery small markets for their products. Inclusion of these industries may in fact detract

12
attention from the relatively more important industries that genuinely need significant fiscal,
financial and infrastructure support. Moreover, incentives for the thrust sector industries have
been made conditional to their performance and contribution to the economy, and therefore,
will not beprovided automatically. This will create confusion among new entrepreneurs that
will needguaranteed access to the declared incentives.
The size of "industry" has been redefined without explaining its rationale. Manufacturing
Industries are defined in terms of' only fixed capital (excluding land and buildings), whereas
non-manufacturing industries are defined in terms of the employment of labor. Adequate
information about the true size of industrial enterprises is necessary for purpose of ascertaining
the presence of anti-competitive or monopoly practices in the economy. Both capital and
employment of labor should be considered to measure the size of a firm, as is done in almost
all industrialized countries as well as in many advanced developing Countries.
2.5 An Appraisal of Past Industrial Policies
A look at the successive industrial policies starting from the NIP 1982 to the Industrial Policy
of 1999 reveals certain features common to all of them. All these policies contained the
following features;
•expand private sector participation in manufacturing which means freeing up more and
more reserve sectors for private sector investment
•disinvest public enterprises under the control of public sector corporations
•increase the efficiency of enterprises that are retained in the public sector
•privatize the distribution of publicly produced goods such as fertilizer
•liberalize the import regime by reducing FRS on imports and the level of tariff protection
for domestic industries
•provide incentives to exports, including exchange rate adjustment to keep Bangladesh's
exports globally competitive
•ensure greater reliance on market forces as a basis for allocation of resources, and in the
determination of prices and distribution of public goods
•privatize and deregulate financial markets
•liberalize the foreign investment regime and offer attractive incentives to foreign
investors.

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Interestingly enough, most of these reforms were put into effect in the 1970s and in the
early1980s before the enunciation of the NIP the process of privatization had already begun.
Areas"reserved" for public sector investment were gradually narrowed down with a view to
expanding private sector opportunities. Policy interventions to encourage both domestic and
foreign investment accompanied institutional reforms and financial support for promoting
private sector activity.
However, various bureaucratic impediments prevented the smooth functioning of the private
sector. The structural adjustment programmers and their industrial policy components
achieved little by way of raising investment levels or achieving sustained industrial
growth.In fact, as experience in tile decades of the 1980s and the 1990s shows, the reforms
undertaken failed to achieve the desired expansion and structural transformation of the
manufacturing sector.
The stagnation of the industrial sector, given the wide range of policy supports extended by
industrial policies of 1982, 1986, 1991 and 1994, appears surprising, but it can be explained
by the fact that all these policies lacked a strategic vision or a clear direction for industrial
development. Thus the liberalization of imports, without a sound industrial base did not
helpexport-oriented industrialization. Instead, it hampered the growth of domestic
industries. A poor country like Bangladesh requires some degree of industrial protection in
the initial phase in order to build its industrial base. At the same time, though, there is also
the need todevelop export industries on the basis of comparative advantage in the world
market. Theindustrial strategy of a developing country should therefore be one of both
promoting exportsand efficient import substitution. Unfortunately none of' the past
industrial policies pursued astrategy of balanced development of both export-oriented and
import-substituting industriesin the country.
Again all of the past industrial policies promised a variety of incentives and concessions for
the investors, but they scarcely addressed the hard-core problems that hindered industrial
activity thus making these incentives meaningless. There was virtually no recognition in the
Policies of the supply-side constraints, both structural and policy-induced, that were the
major impediments to the expansion of private sector manufacturing industries.

Major structural constraints that hindered industrial growth are:

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(1) limited access to credit, its high cost, legal or illegal, and procedural difficulties in
obtaining credit from banks.
(2) poor- physical infrastructure
(3) acute energy shortage and Unreliable supply of power and other utilities such as gas and
water.
(4) lack or skilled labor and the tendency for labor to be militant,
(5) competition from dumped and Smuggled imports,
(6) lack of' good marketing facilities,
(7) pervasive corruption in bureaucracy, particularly in the administration responsible for
delivery of public services,
(8) a fragile political situation,
(9) poor law and order conditions.
(10) insecurity of life and property, and
(11) growing incidences of crime and extortion at every stage starting from production to
distribution and marketing, of the products.

These are the problems that continue to vitiate the business climate and
dissuadeentrepreneurs to bring in new investment or expand the existing ones. This also
explains whyforeign investors are not willing to invest in this country despite the
availability of attractiveincentives; foreign investors want a congenial business environment
not just incentive. If thelocal investors are hesitant to invest in the country, why will the
foreigners?
Apart from the structural constraints cited above manufacturers face a number of
problems,which are induced by government policy. According to many entrepreneurs, in
particular theforeign investors, most policy reforms are incomplete and remain only in
paper. In order totake full advantages of emerging global opportunities, Bangladesh will
need to address theweakness in its domestic policy environment. During the early 1990s the
government lowered tariffs, eliminated quantitative restrictions, and used the floating
exchange ratemechanism to promote exports. The progress in these reforms was not,
however, maintained,and the lack of complementary reforms to improve the position of

15
power infrastructure,telecommunication and financial services has meant below potential
benefits from increasedopenness.
The 2005 Industrial Policy was expected to address the afore-mentioned structural and
policy-induced problems, but most of the provisions incorporated in the policy are
largelyperipheral in nature (for example, the decision to enlarge the thrust sector or to give
newdefinitions to industry), which do not address the genuine problems of the industrial
sector.
There are no quick fixes in the manufacturing sector's relatively slow growth
performance.The root causes of the problem lie in the fundamental governance issues in
power infrastructure, finance, enforcement of law and order, and eradication of corruption.
Without improvements in these areas the mere announcements of ambitious industrial
policies fromtime to time with lofty objectives are unlikely to help achieve the accelerated
growth of thecountry's manufacturing sector.
Apart from addressing the broader issues centering structural and policy-related
constraints,our industrial policy should also address the sector-specific problems faced by
manyindustries. A number of industries have performed pretty well depicting high growth
rates inthe recent years while many others have shown negative growth. Each of these
industries hasits specific problems although problems faced in common by most of these
industries arethose of infrastructure, capital, and technology. It would be expected that the
country's industrial policy would provide a mechanism to monitor these problems, find their
solutions prevent these industries from being sick, and also create the right environment to
attract domestic and foreign investment to these industries. Industrial policy 2005 does not
seem tohave any commitment to address these problems.
By quickening the tempo of policy reforms Bangladesh could expect to achieve a
doubledigit manufacturing growth. Adequate reforms would create the climate for raising
the levelof investment from the present 23 percent to 28 percent within the next three to five
years.With the adoption of market-friendly policies under a reformed policy
environment,Bangladesh should also be able to attract sufficient foreign direct investment to
finance thedesired investment growth.
Bangladesh emerged from the 1971 war of independence a free nation, but one whose economy
and infrastructure was shattered. It was notably described by US Secretary of State Henry

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Kissinger as “an international basket case”. No matter how much we criticize over the past
37years it’s achievements has been impressive, most notably in its emergence as a major
globaltextile and RMG exporter. More broadly, the low volatility and consistency of growth in
the pastdecade, despite political instability and natural disasters is a testament to a dynamic and
entrepreneurial private sector. Bangladesh has three key attractions for global investors and
multinationals: a large base of low-cost labour, a sizeable domestic market of 150mn people, and
nearly 3bn people in the Asian region that it has market access to. Bangladesh can move into the
ranks of Middle Income countries (defined as a per capita income of USD 875) by 2021, the 50 th
anniversary of its Independence. But this will require Bangladesh moving from a 5-6% growth
trajectory to around 7.5%. With the right policy guidelines the country can achieve it, only thing
to see is the current policy path is it right or wrong for the country’s betterment?

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