Govt finalises industrial policy

The government on Friday finalised recommendations for a long-term industrial policy, proposing 10-year loans for industrial units with a two-year grace period. Several other measures have also been suggested to boost industrialisation.

To support manufacturing, the policy proposes reducing corporate tax from 29% to 26% over three years. Amendments to the SECP Act, Anti-Money Laundering Act, and Income Tax Ordinance have also been recommended.

A high-level meeting of the Prime Minister's Committee on Industrial Policy was held under the chairmanship of Special Assistant to the Prime Minister (SAPM) on Industries and Production Haroon Akhtar Khan. The meeting reviewed and finalised the recommendations of eight specialised sub-committees. These proposals mark the start of implementing the new industrial policy.

The policy categorises borrowers into four groups for financing. According to State Bank of Pakistan (SBP) guidelines, the first group includes viable units with moderate repayment ability, and the second includes marginally viable ones needing external support.

Interest rates will be adjusted based on the policy rate and revival potential. Loans may be extended for up to 10 years, with an optional two-year grace period. Early repayment will be allowed without penalty for back-ended projects. Fresh working capital of up to 20% of the restructured principal will also be provided.

A haircut policy of up to 60% on the principal will be allowed under board-sanctioned approval. This amount may be recorded as a "shadow entry" for tracking but won't require provisioning or audit qualification. Remaining loan amounts will be listed as "Restructured but Active" in regulatory reports.

Full and final settlements (FFS) will be allowed once, through lump sum or staggered payments over 12-24 months. Banks will record waived amounts separately for tax purposes under the Income Tax Ordinance. Loan write-offs will qualify for tax deduction under Section 29.

Each restructuring case will report to a subcommittee of the bank's board. Government-owned banks must set annual targets for resolving non-performing loans. Incentives such as bonuses or board fees may be tied to target achievement.

For governance and risk control, third-party due diligence will be mandatory for loans up to Rs100 million. Chartered accountancy firms or financial institutions will verify the due diligence. SBP will launch a portal displaying monthly sector and province-wise summaries.

A whistle-blower channel will allow reports of misconduct or non-transparent dealings. Each revived unit will be monitored for at least two years, with quarterly reports submitted to the Ministry of Industries and Production (MoIP).

Khan noted that the industrial sector's share in GDP has declined from 26% in 1996 to 18% in 2025. He stressed the urgency of reviving this sector, increasing exports, and developing import substitutes.

Eight sub-committees were earlier formed to address key challenges. Their proposals include SBP guidelines for reviving sick industries and amending the Corporate Rehabilitation Act 2018. Banks have been asked to use forecasting tools to detect early signs of distress.

To ensure fast execution, SAPM Khan formed 10 new sub-committees and asked them to deliver tangible outcomes within a week. He said the new policy could trigger an industrial revolution and confirmed the recommendations were presented to Prime Minister Shehbaz Sharif, who appreciated the efforts.