Carrots without merits

LAHORE: Budgetary allocation for different sectors in Pakistan have remained stereotypical particularly for export sectors as instead of supporting long-term growth the emphasis remains on subsidies and facilitation.

Take for instance textiles which are our main export that has been depending on government concessions since the last three decades. You withdraw or reduce the concessions a hell would break and exports would nose dive. No efforts have been made at the state level to build textile clusters, or to establish textile parks (some textile parts were announced in the past but they never materialised. The Quaid-e-Azam apparel park launched with much fanfare has now been developed into a general industrial estate. The textile city in Karachi has not delivered and the textile cluster in Faisalabad has not even taken off.

We have observed with every federal budget in the last five years special markups on loans, concessions on machinery, subsidised tariffs of power and gas, and many more incentives are announced.

The subsidies are unconditional. It has been established that only targeted subsidies pay off. Poverty has declined more sharply in economies where the governments pay stipends to girls that attend school regularly. In case of textiles particularly spinning and weaving there is no doubt the power and gas rates are much higher that global rates but at the same time the inefficiencies of spindle and looms installed in Pakistan are power guzzlers, consuming over 40 percent more power or energy than the efficient machines in competing economies.

These mills operate in profit on subsidised tariff and the sponsors are not pushed to improve efficiency. Those that installed the latest spindles (replacing 10-15 percent every year) are minting money.

The power and energy tariff should not be wasted on covering the inefficiencies of the industry but should be linked to gradual replacement of at least 10 percent machines every year. Those failing should be penalised with a fine equivalent to 50 percent of the subsidy in the first year and total withdrawal in the second. This is the only way to upgrade; otherwise we would be left with junk in five years.

At the same time the industrialists should be banned from using the vast land of the industry as real estate. It could only be used for industries only. This is the only way to stop de-industrialisation. We may also note that the developed economies would soon raise objections on subsidies as they did with India.

The government of India has taken many steps to promote textile exports from India, in particular the export of cotton or apparel exports. The government has tried with a cluster approach focusing on creating centres of export-driven industry, especially the export-related, in Tripura, Delhi, Ludhiana, and Mumbai falls under this category. The government also tried Export Oriented Units (EOUs), Special Economic Zones (SEZ), and Parks in specific industries.

The benefits of this can be clearly seen from the growth of the textile industry in India in terms of its contribution to the total exports, its share in GDP, and its role in employment generation. Now developed countries like the United States of America, European countries etc, are pressuring the Indian government to stop giving subsidies and other monetary rewards to exporters as it is against the WTO protocol and free trade.

At this juncture, the government of India is trying to find innovative ways of promoting textile exports, focusing on skill development and creating a congenial environment for new entrepreneurs to enter into this industry. The government is improving its score on ease of doing business in order to realise its dream of making India a very successful project.

India specialises in the upstream textile segment and it is an important supplier of key raw material inputs to Bangladesh. Bangladesh specialises in the downstream textile segment and it exports mainly readymade garments (RMG), the finished products, to India and the world. India and Bangladesh have bilateral value chains due to their inherent comparative advantages, trade complementarities, and varying degree of specialisation. We miss this value chain more due to bad politics than economic reality.

The run of the mill textile policies have resulted in drastically reducing our share in the global textile trade. The current surge would not last long. We are eyeing at the maximum $30 billion textile exports that both India and Bangladesh have already achieved. Bangladesh is fast moving towards $50 billion textile exports and India is aiming to take its textile exports to $300 billion.