The Case for an Industrial Policy Approach to AI Sector of Pakistan for Growth and Autonomy

Abstract: This paper argues for the strategic treatment of artificial intelligence as a key industry within broader industrial policy framework of Pakistan, underscoring the importance of aligning it with national goals such as economic resilience and preservation of autonomy. The paper starts with defining industrial policy as a set of targeted government interventions to shape specific sectors for strategic outcomes and argues for its application to AI in Pakistan due to its huge potential, the risks of unregulated adoption, and prevailing market inefficiencies. The paper conceptualizes AI as a layered ecosystem, comprising foundational infrastructure, core computing, development platforms, and service and product layers, supported by education, government policy, and research and development. The analysis highlights that AI sector of Pakistan is predominantly service oriented, with limited product innovation and dependence on foreign technologies, posing risks to economic independence, national security, and employment. To address these challenges, the paper recommends educational reforms, support for local AI product development, initiatives for indigenous cloud and hardware capabilities, and public-private collaborations on foundational models. Additionally, it advocates for public procurement policies and infrastructure incentives to foster local solutions and reduce reliance on foreign providers. This strategy aims to position Pakistan as a competitive, autonomous player in the global AI ecosystem.