Industry Trade Review
Over the years, the country’s readymade garments industry has not offered a consistent performance pattern. Historically, its performance, as measured by profitability and exports, has been primarily a function of the price of cotton, which in turn depends on the quantum of local cotton production.
According to the flood damage data of 2010 provided by SUPARCO, out of 9.688 million hectares land planted in Kharif season, 2.364 million hectares was reported as damaged. Thus, the cotton crop received a production loss of 2.59 million tonnes costing about Rs. 79.270 billion. Garment exporters stress that the revival of the textile sector is not possible without growth in the value- added sector because it is the one which would fetch better prices of cotton instead of raw cotton and cotton yarn, which is presently being exported in huge quantities. On the other hand, the textile sector has been facing severe competition from other countries, especially after abolition of trade barriers under the WTO regime.
Given the upsurge in prices and additional demand for higher-end products, there is additional capacity generation in the organized sector. The industry enjoys the facility of duty-free import of machinery as well as income tax exemption. During July-march 2010-2011, readymade garments worth $1.3 billion were exported as compared to $0.9 billion in the corresponding period last year. In quantity terms, exports of readymade garments increased by 25.1 percent and, helped by higher unit value prices, exports grew by 37.8 percent in value terms.
During the last four years more than Rs. 5.88 billion have been invested in the value- added sector including sewing machines, stitching, knitting, finishing and processing Import of sewing machines increased from 44,582 units valued at Rs. 885.2 million in 2008- 09 to 132,756 units valued at Rs. 1.51 billion in 2009- 10, thus showing an increase of 76 percent in terms of value.
The government of Pakistan, being cognizant of the importance of the sector has adopted additional fiscal and non- fiscal measures to provide support to the sector. It has put greater emphasis on the export of value added products and increased domestic consumption of locally made textile products. Another step is the introduction of a five year Textile Policy 2009- 2014 by the Ministry of Textile Industry (MINTEX), which targets exports worth US $25 billion by the end of the policy tenure. One of the significant aspects of the policy is the establishment of a Textiles Investment Support and Technology Upgradation Fund. The objective is to remove infrastructural bottlenecks though this has not materialized yet. Currently, the sector enjoys specific concessions like zero- rated tax facility on all textile products, reduction in export refinance rate and long- term financing for exportoriented projects.
The State Bank of Pakistan’s stance on increasing the borrowing cost and recent removal of sales tax exemption on domestic sales would make the environment challenging for the textile players.
Given the strategic importance of the sector to the economy, the government of Pakistan is extending considerable support to the sector. A draft ‘ Textile Industry Act 2011 ( Development, Promotion and Standards)’ has also been circulated. The law highlights the government’s intention to promote the textile sector through measures such as discounted interest rates through Export Refinance Facility ( ERF), lower cost of financing for BMR, establishment of training institutes and infrastructure advancement. Moreover, the government also plans to: 1) Promote and develop foreign markets for Pakistani textile
products 2) Provide budgetary support 3) Regulate trade 4) Compile data 5) Establish Federal Textiles Board
The law is expected to be approved by the National Assembly, though the extent to which it manages to address the concerns of textile industry players successfully, remains to be seen