There may not be any export
refinancing for yarn and unbleached fabrics
The textile policy is expected to be announced before the budget for
the financial year 2000-2001. The policy is expected to aim at achieving higher value
addition and to bring the textile sector at par with the international standard before the
complete phase out of the textile quota regime at the end of the year 2004.
There seems to be entirely different philosophy driving the forthcoming
textile policy. Previously, all the efforts to boost textile exports were full of
incentives but this time there are clear indications that export refinancing may not be
allowed to exporters of yarn and unbleached fabrics. The new policy will be aimed at
abolishing trading of quota, creating level playing field, ensuring competitiveness of the
local textile manufacturers and encouraging greater value addition.
This objective may seem difficult to achieve as textile industry in
Pakistan has flourished mainly due to the best possible incentives available and under the
highest protection. The biggest hurdle in achieving the desired objective is, changing the
mind-set of local entrepreneurs. Availability of incentives has only resulted in
easy-going, sluggishness and promoting inefficiency in the textile sector.
According to some textile sector experts, Pakistan has the potential to
boost exports of textiles and clothing to US$ 14 billion within five years if right
policies are implemented. The target may look a little outrageous if one looks at the
current level of US$ 5 billion exports of textiles and clothing. However, this can be
achieved by enhancing cotton production and consumption, improving capacity utilization in
spinning and weaving sectors and achieving higher quality standards of made-ups produced
in the country.
Potential features of the policy are likely to be:
* providing easy access to capital investment.
* developing a hedge/futures market for cotton and yarn in order to
avoid volatile fluctuations
* allowing import of textile machinery (specially processing equipment)
at minimum or no duty.
* stressing development of brands in the made-ups sector
* awarding cash incentives for exporters
* withdrawing export refinancing facility on low count yarn and
unbleached fabrics, etc.
* permitting international companies, supplying accessories for textile
products, to set up offices and manufacturing plants in the country to ensure their
availability to the local manufacturers of textiles and clothing .
Commerce Minister, Razzak Dawood, has indicated a well conceived three
tier plan to boost the textile exports to US$ 14 billion. However, to achieve this target
about US$ 6 billion or Rs 333 billion has to be invested in the textile sector.
One may wonder if the country can afford to allocate such a colossal
amount for a sector which has been termed sick for a long time. Whatever, investment has
been made by the local sponsors is mainly due to specific allocations by the financial
sector and under the highest protection.
Some of the analysts believe that, availability of indigenous cotton is
not the factor to depend on. Cotton prices in Pakistan are, more or less, at the level of
its international prices and the country has lost the comparative advantage. On top of
this the inefficiency and mismanagement at the spinning level have resulted in production
of coarse counts of yarn. Over the years most of the spinning mills have failed to
undertake BMR. Therefore, there was a need to withdraw export refinancing available to the
exporters of yarn and unbleached fabrics.
The country does not require establishment of new spinning units but
certainly needs revamping and upgrading of the existing units. As such the capacity
utilization in spinning mills is around 75 per cent mostly used to produce coarse
counts. Same is the case with number of rotors operating in the country. The people who
need a change in mind-set are the spinners who have been misusing the cotton produced
locally as well as imported. This has also resulted in production of coarse cloth and
inferior quality of made-ups.
Duty free import of weaving and processing equipment is a long and
outstanding demand of the textile sector. Since most of the equipment is not produced in
Pakistan, the government should not charge any duty on their import. This announcement
must come in the forthcoming policy. Unless Pakistan improves quality of fabrics produced
there cannot be any value-addition by the made-ups sector.
At the same time there is a need to rationalize electricity tariff for
the industrial consumers. Some of the mills which have established captive power plants
are better off only because the electricity charges are low and uninterrupted supply is
also guaranteed. Alternatively, the government should allow machinery for captive power
plants duty free as was in the recent past.