Dissecting the proposed National Policy for Industrial Development of Sri Lanka: Part 4

The draft National Policy for Industrial Development is a well-structured document, based on the findings of a comprehensive industry diagnostic study conducted under the aegis of the Task Force. It can play a lead role in taking the industrial sector to another level, provided some fundamental assumptions that appear to be based on political considerations rather than on past experience or cogent reasoning are removed and replaced by assumptions based on the single criterion of “what is best for the sector and the country”

5. CONTENTS OF THE NaPID

The NaPID document has been well presented with much clarity on the methodology followed when conducting the diagnostic study. The sequencing of the different sections of the report, follows the same logic used by the Task Force to conduct the study. The report proper starts (Section 3.2) with the ‘rationale’ justifying the high priority accorded to growing the industrial sector and hence the need to prepare the Industrial Policy document. The section also draws attention to the fact the Policies to be formulated need to meet the requirements of the 21st century. Accordingly, it highlights the need for the newly emerging industrial sector to be clearly embracing Green growth and digitalisation.

Section 3.4 that follows states that the Objective of the Industrial Policies is to enhance the competitiveness of the industrial sector and to overcome impediments to industrial developments in Sri Lanka, including green growth and digitalisation. 

What is meant by “enhancing the competitiveness of the sector” has to include the sector’s ability to operate in the global market. An explicit mention of what is meant by “being competitive” is desirable.

Section 3.5 sets out the direction and context of the Policy. It states that the basic elements of the Policy will cover three things. Viz. (a) the National Policy priorities of the Government, (b) relevant aspects of the Sustainable Development Goals and (c) the need for industrial transformation into green growth and digitalisation. 

The National Policy Priorities of the Government is equated to what is stated in the election manifesto of the governing party viz. ‘Vistas for Prosperity and Splendour’. The objections to the adoption of the priorities extracted from this document as well as the Sustainable Development Goals document are detailed in Section 2 of this paper. The alternate suggestion for adopting the goal of “The local industry to integrate itself with the global industry” is strongly recommended for adoption.

Section 4 of the NaPID explains the Policy Principle underpinning the Policies formulated. 

They are most appropriate and contains almost all of the basic principles on which a carefully crafted set of Industrial Policies are built. It must be noted that the second of the nine principles adopted is “the competitive integration with international markets” which is identical to the new “direction” proposed by this writer (section 2).

Section 5 of the NaPID sets out what is referred to as Policy Statements. They are in fact a logical follow up of the Policy Principles dealt with in the previous section. Each Policy Principle is expanded upon by stating what will be done and how it will be done to implement the relevant Principle. 

A drawback I see in this section is that the statements are too generalised. That drawback is also seen in the following section which is titled ‘Policy Goals’. This section (Section 6) is a follow up from the previous section viz. the Policy Statement section. Policy Goals refer to the outcome expected from the Policy Principles and the Policy Statements dealt within the previous two sections. Let me illustrate this observation, by referring to the first Policy Principle on page 8 of the NaPID. 

The first Policy Principle mentioned in Section 4 is ‘Enabling Environment for Industrial Growth’. This Principle is amplified in the next section as a Policy statement in the following manner.

• Ensure coherence and consistency of public policies to support a long-term strategic orientation.
• Maintain a domestic policy and regulatory environment conducive to industrial growth.
• These statements, it is respectfully submitted, are too vague for effective follow up. The statements are followed by Policy Goals. The Policy Goals in respect of this Principle of ‘Enabling Environment for Industrial Growth’ are as follows;
• Ensure coherence and consistency of public policies to support long-term strategic orientation
• nEnsure auxiliary policies in areas relevant to industrial policy are consistent with the Industrial Policy. 
• Ensure that policies, regulations and procedures do not discriminate between domestic in industry and Foreign Direct Investments.
• Maintain a domestic policy and regulatory environment conducive to industrial growth.
• Establish investor friendly policies and conducive investment and regulatory environment. 
• Strengthen the institutional environment and inter- and intra-organisational coordination 
• Ensure improved labour market efficiency and flexibility in the context of modern-day human resource requirements.
• Widen access to finance and financial products.
• The Policy Statement in this instance as quoted above is: Ensure coherence and consistency of public policies to support a long-term strategic orientation.
• Public Policies are numerous and cover a wide range of subjects. It would have been helpful for follow up purposes if the specific areas of Public Policy were identified.
• The Policy Goals for this same Principle are: 
• nEnsure coherence and consistency of public policies to support long-term strategic orientation
• Ensure auxiliary policies in areas relevant to industrial policy are consistent with the industry.
• Ensure that policies, regulations and procedures do not discriminate between domestic industry and foreign direct investment.
• Maintain a domestic policy and regulatory environment conducive to industrial growth.
• Establish investor friendly policies and conducive investment and regulatory environment.
• Strengthen the institutional environment and inter- and intra-organisational coordination. 
• Ensure improved labour market efficiency and flexibility in the context of modern-day human resource requirements.
• Widen access to finance and financial products.
• These Policy Statements and Policy Goals are, it is respectfully submitted, too vague to enable those who are to map strategies for their implementation, to do so effectively.

6. A SUMMARY OF THE CONCEPTUAL ISSUES RAISED

A summary of the conceptual issues raised in this paper (sections 2 to 5) is given below.

1. The policy proposals included in the NaPID, are meant to drive the industrial sector to achieve the priorities contained in two documents viz (a) Vistas for Prosperity and Splendour and (b) Sustainable Development Goals and the need to advance towards green growth and digitalisation. While the priorities in the two aforementioned documents may be appropriate for the purposes they were designed, they are, for reasons detailed in section 3, inappropriate and unsuitable to be the directional force that shapes the content of industrial policies. The proposed industrial Policy should direct the industrial sector to integrate itself with the global industrial sector.



2. The preponderance of evidence and data contained in several independent studies as well as the Industry Diagnostic Study conducted under the aegis of the Task Force itself, points unequivocally to the market driven, liberalised and globally integrated model as the preferred path for achieving industrial growth, and economic development. However, without citing any empirical data in support, the Task Force proposes the adoption of a Mixed Economy model by the Government.



3. The role of the Government should not, other than in exceptional circumstances, extend to the picking of winning industrial sectors for investment. The Government should not play an interventionist role in guiding the destinies of the industrial sector. The practice of selecting thrust industries by Government officials and/or consultants should not be adopted.



4. Import substituting industrial projects and projects seeking direct interventional support by Government on infant Industry considerations, may be supported by Government on an exceptional basis provided such assistance is strictly limited for a specific period, within which period the industry must become internationally competitive. The risk of course is the propensity for some of these industries to grow into what one of our distinguished past Governors of the Central Bank, the late A.S. Jayawardene, referred to as “infants with beards”.

7. CONCLUSION

The draft IaPID is a well-structured document, based on the findings of a comprehensive industry diagnostic study conducted under the aegis of the Task Force. It can play a lead role in taking the industrial sector to another level, provided some fundamental assumptions that appear to be based on political considerations rather than on past experience or cogent reasoning are removed and replaced by assumptions based on the single criterion of “what is best for the sector and the country”.

(The writer is former Secretary to the Ministry of Industrial Policy, Investment Promotion, and Entrepreneurship development, and former Director/CEO of The National Development Bank of Sri Lanka.)