TEXTILES
Pakistani planners should keep an eye on how other governments facilitated their exporters instead of steadfastly adhering to the principle of free trade that was good only if the governments in competing economies also adhered to this concept.
Of the four major textile players in this region Pakistan was perhaps the only country that has refrained from subsidising its exports. The textile value chain in Pakistan has been so skewed that its documented sector has to bear the non-refundable sales tax on supply of yarn to non-documented weavers.
The industry has since long factored in these drawbacks but fail to compete with the governments of other exporting countries that subsidised their textile exports. India provides the highest incentives to the textile exporters followed by Bangladesh, China, and then Pakistan.
The drivers of Indian textile industry include Technology Up-gradation Fund that provides 5-6 percent interest subsidy to the entire value chain. It has established 74 integrated textile parks where the government provides 40 percent grant on project cost.
Government of India picks up the contributions of the industry towards workers welfare fund and provident fund on behalf of the industry for three years. It provides duty drawback by zero rating taxes on furnace oil, diesel plus five percent additional rebate for which Indian government has earmarked 55 billion Indian rupees.
In addition, the Indian government provides two-five percent reward on all merchandise exports on FOB value. Its interest equalisation scheme provides up to three percent interest rate subvention.
Bangladesh has left behind both Pakistan and India in value-added textile markets on the strength of its enabling textile policies.
The Bangladeshi government gives duty drawback on utility services used by its textile industry. The duty drawback is 60 percent on water, 80 percent on electricity, 60 percent on telephone, 100 percent on clearing and forwarding agents, and 100 percent on insurance.
This is the percentage of government levies charged on these services.
Bangladesh government provides up to 12 years tax holiday for industrial units established in specified Special Economic Zones. All export oriented manufacturers that export at least 80 percent of their products have been declared as 100 percent export oriented industries.
They are entitled to refunds on their total production.
There is no export development surcharge or any other government levy on exporters. Bangladesh provides cash rebate of four percent of the FOB value on its apparel exports. To promote use of domestic yarn and fabric the government gives cash subsidy of five percent.
In addition to above incentives the government has facilitated the import of inputs use by the apparel sector at zero rates.
China is the largest exporter of textile products in the world. The Chinese government gives value-added tax rebate on exports and provides subsidy for efforts to attract investment.
For technological renovations, the Chinese government provides liberal grants. Grants are also provided to support all high-tech projects.
In addition, the government compensates the entrepreneurs on expenditures related to land acquisition. Exporters are also compensated through export development fund available with the government. The energy and electricity prices remain stable and in case of increase in tariffs the government grants price adjustment allowance.
The government of Pakistan is well aware of the incentives provided by the governments of the competing economies. The Prime Minister met the entire value chain of textiles in September 2015.
After listening to their grievances, he assured hurdles and difficulties in exports would be removed in days. After more than a year, it has only assured 24/7 availability of power and energy. The power tariff is still higher than competing economies.
The present regime announced textile policy 2014-19 with a total outlay of Rs64 billion or $640 million to be consumed in five years. The policy has been announced but no notification in this regard has been issued.
In recent months the government engaged the textile sector to find out the reasons for decline in exports. Its economic managers agreed to remove the difficulties in exports.
The government also agreed to provide rebate on exports ranging from three-six percent from yarn to apparel. The announcement was expected last month, but has been delayed on one pretext or other.
The outcome of flawed policies is manifested in zero percent growth in textile exports in the last five years, whereas Pakistan’s share in global textile trade decreased from 2.2 percent to 1.6 percent. Indian textile exports during this period increased by 76 percent.
Indian textile ministry constantly monitors the threats to exports and takes remedial actions. It is independent of the Ministry of Commerce and the Ministry of Finance. Decisions taken by the government on facilitation and support to textile sector are strictly implemented. Their prudent regulation of the textile sector has paid dividends.
It looks odd that Indian textile exports are only $32 billion a year and yet it has a separate ministry while the exports of IT, pharmaceutical, engineering goods, automobiles is looked after by their ministry of Commerce. Its exports in fact are $110 billion that is 3.5 times higher than textiles. The reason to give special attention to textiles is that it creates more jobs than any other manufacturing sector.
Apparel production is highly labour intensive. Apparel projects create more jobs with less investment. Indians found that on an investment of Indian rupee 10 million at least 70 garmenting jobs are generated. The steel industry with the same investment creates 10 jobs, and automobile sector 25 jobs.
Only this fact should be enough to promote the textile sector as Pakistan desperately needs millions of jobs to absorb 1.9 million of its population that is entering the job market every year. The textile ministry established a decade back currently is almost non-functional. The federal commerce minister looks after this ministry as well. Managing this ministry is a full time job. Opportunities and challenges in textiles are more than any other industry.
Clothing sector is its main revenue generator. Whenever there is global recession, clothing is the first casualty. People in recession usually make first cut on garment buying as they could pull on with their existing wardrobe.
In such instances, the governments of apparel exporting countries make efforts to increase facilitations for their exporters. They announce incentives and subsidies to boost exports. This is what the competing economies did first during global recession of 2008 and then on turmoil in the European Union. Pakistani government remained unmoved that resulted in constant decline in exports. They did announce some relief measures periodically but those were never implemented.
Our private sector lacks marketing skills as well. A study by a creditable consultancy firm revealed that of all the garments (HS code basis) exported from Pakistan the export price was 50 percent of the global average.
The writer is a staff member
