7 - Investment behaviour at the industry level

Summary

When we move to the industry level, the main new question, which we examine in much greater detail in conjunction with our basic hypothesis, is the extent to which government controls succeeded in influencing the inter-industry pattern of investment, and we try to bring out the differences during the period of the Third Five Year Plan when the government enforced its ‘direct’ controls over private investment as compared to the Second Plan period when government controls were almost non-existent.

The chapter starts by describing the criteria for the pattern of industrial investment which the government outlined in plan documents and compares investments sanctioned with allocations over the two plan periods. It then goes on to test empirically the extent to which profits and changes in sales together with the varying degree of government controls influenced the pattern of industrial investment which emerged in the sixties. Because of the limits of the census data which are used, the study has been confined mostly to West Pakistan.

Criteria for the pattern of industrial investment

Second Five Year Plan (1960/61 to 1964/65)

In the outline of the Second Five Year Plan the government had stated that its broad strategy for industrial development over the plan period would be based on whether new capacity earned or saved foreign exchange substantially or was biased in favour of the use of indigenous raw materials. To quote: ‘improvement in the balance of payments position has been the principal consideration in determining various production targets set in the Plan’ (Planning Commission, 1960, p. 6).