In­dus­try Trade Re­view

Enterprise - - Cover story -

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

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