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October 20, 2020

Maintaining monopolies

Business

October 20, 2020

LAHORE: In the first quarter of this fiscal, cotton yarn exports declined by 42.65 percent and fabric exports by 8.48 percent. These two subsectors of textile consume 80 percent of the power subsidy provided to the five exporting sectors.

Is it prudent to waste 80 percent of power subsidy on yarn and fabric? Our policy makers are hoodwinked by the strong basic textile lobby that tries to survive on government dole outs instead of efficiency.

It is worth noting that the wages in Pakistan are the lowest among the top five textile exporting countries. Not only that the water rates are also lower than India, China, and Bangladesh. Electricity cost is on the higher side some of which has been covered through government subsidy. This subsidy did positively impact the increase in exports of knitwear (10.48 percent), bed-wear (8.48 percent), towels (13.27 percent), readymade garments (5.24 percent), and other textile that recorded a huge jump of 62.02 percent (mainly due to face masks).

The government has recently increased the concessional tariff of selected export sectors by 1.5 US cents per unit. Would it not be better to eliminate yarn and fabric from the power subsidy and increase the power subsidy for value-added textiles by 1.5 US cents?

Even after increasing the subsidy for value-added textiles, the net subsidy of the state would be reduced as over 80 percent subsidy that is provided to spinners and weavers would be reduced. This is the time to analyse the situation properly and support sectors that could earn more foreign exchange for the country.

What is the use of providing subsidy to the sectors that are regularly losing their export market? Exports are likely to further increase after lowering the tariff for high performing value-added sectors. It is indeed deplorable that our economic planners succumb to strong lobbies instead of granting concessions on merit.

During the Musharraf era, the government decided to give rebate on exports. When suggestions were asked for the criteria on which the rebates were to be given, the basic textile lobby came up with the simplest solution that the largest exporter be given highest rebate.

The idea was to taper it off as the value decreases. This looks a fair proposal, but this way 80 percent of the rebate would have landed in the hands of basic textiles that added only nominal value to cotton.

Value-added exports that increase the value 10-15 times more would have gotten a small rebate on their efforts. It is worth mentioning that at that time there were around 400 spinners and weavers that generated a little les export than the value-added sector.

The number of value-added exporters was over 10,000. Overall, they exported more than basic textiles, but individually the value of their exports was low. The planners were about to agree to the proposal of the basic textile lobby when the value sectors pleaded their case in person as well as in media. The rebate was announced based on value-addition on increase over last year’s exports. That triggered a real surge in exports.

The problem with the value-added sectors is that they are small entities. They toil hard to obtain export orders and make sure that the exports are made strictly according to the approved quality.

They tend to remain on the production floor to ensure quality and efficiency. They have their respective associations as well and their members are in thousands unlike All Pakistan Textile Mills Association (APTMA) that currently has around 300 members.

Individually, all APTMA members are financially very strong that is evident from their lavish lifestyle. They move in power corridors. Most of the value-added exporters are well off individuals belonging to the middle class. Only a few of them who up-scaled have gained the confidence to argue their case in the power corridors.

However, they are overshadowed by the powerful basic textile lobby. This lobby claims that many of its members are also in value-added textile exports and therefore can plead the case of value-added sectors only. But while seeking concessions they demand the same for the entire textile sector.

All those APTMA members who have graduated to value-added textiles are also members of respective value-added association (knitwear, readymade garments, bed wear and towel). They should forward their demands through these associations and not from the platform of APTMA.

There is a conflict of interest between basic textiles and value-added textile sectors. The former are suppliers of basic raw materials (yarn and fabric) for value-added sectors.

They want the government to impose duties on yarn and fabric that gives them the license to supply their products locally at higher rates. Currently, the price of locally supplied yarn is higher than the export price that spinners get.