Financial stability and monetary stability both sectors perform an essential contribution in sustainable industrial growth and well-established industrial sector contribute in sustainable economic development. For this purpose, to construct financial stress index (FSI) for Pakistan that provides a signal of financial stress while utilizing monthly data starts from 2004-111 to 2017-7. Other than that, index having four indicators which include TED spread, yield spread, stock prices volatility and exchange rate volatility through principal component analysis (PCA). In addition, to follow this technique for the construction of financial stress index proposed by Mahmood & Hussain (2016) research and development department State Bank of Pakistan. Subsequently, to check the long and short run relationship between time series variables to adopt the Autoregressive Distributed Lag (ARDL) co-integration modeling. The prime findings of this study are, positive and significant relationship between financial stability and industrial production whereas, negative relationship between inflation and industrial production. Lastly, this study suggests to increase the R&D in financial system for the economic growth. Supervisor:- Dr. Saud Ahmed Khan