Pakistan’s share in global textile trade fell from 2.2 percent to 1.8 percent during the last five years. And more disturbingly this declining trend is expected to continue and fall to 1.5 percent by 2020. This data was revealed to the Senate Standing Committee on Textile Industry.
The obvious question is ‘why’ and a very obvious answer for the decline during the past five years is the energy shortfall that is not only held responsible for the decline in textile output but also in overall domestic productivity and is cited as the primary reason why foreign direct investment has continued to fall during the Sharif administration.
The All Pakistan Textile Mills Association Chairman, S M Tanveer, highlighted other financial impediments responsible for Pakistan’s declining share – impediments that he attributed to the taxation measures contained in the budget for 2015-16 notably 72 billion rupees under tariff rationalisation surcharge, 38 billion rupees under Gas Infrastructure Development Cess (GIDC), and 60 billion rupees under what he termed innovative taxes on consumption, production and exports.
The textile sector has been proposing that the money collected under the GIDC be used to facilitate the textile sector; however, with the Textile Ministry non-functional the money allocated by the Commerce Ministry to the textile industry is much lower than what it contributes – a source of concern to the largest export earner of the country.
What was further disturbing was the revelation to the standing committee that 30 percent of the productive capacity of the textile sector remains impaired due directly to government policies including about 100 billion rupees stuck in refunds, a figure challenged by the Federal Board of Revenue who maintains that 25 billion rupees are stuck – a figure that is also very high.
In addition, APTMA maintains that Pakistani exporters pay a higher cost of doing business compared to competitors India, Bangladesh and China that includes higher electricity tariffs and higher cost of borrowing. Exporters have to compete internationally and the government must support taxation measures, including prompt payment of refunds and interest rates that are comparable or else face the risk of losing out to exporters of other countries.
In terms of total textile exports, however, the amount has not declined significantly. During July-June 2014 total textile exports as per the State Bank of Pakistan website were 13.658 billion dollars which declined to 13.527 billion dollars in the comparable period of 2015.
While the most dramatic decline in exports was in cotton cloth – from 2.7 billion dollars in 2014 to 2.48 billion dollars in 2015 yet interestingly during the two periods under review exports of knitwear rose from 2.194 billion dollars to 2.26 billion dollars, bedwear exports from 2 billion dollars to 2.2 billion dollars, readymade garment exports rose from 1.8 billion dollars to 2.04 billion dollars and made-up articles exports rose from 567 million dollars to 664 million dollars.
The reason for the rise in exports of these items is attributable to the GSP Plus status granted by the European Union (EU) but, unfortunately, while textile exports to the EU did rise after January 2014, the effectivity of the GSP Plus status, our total exports, including textiles, fell. There is thus an urgent need for the government to proactively deal with this decline and not only ensure that textile exports to EU are maximised during the limited time period that the GSP Plus status has been granted but also ensure that the textile sector is facilitated as it continues to be the major export earner of this country.
There is overwhelming quantifiable evidence that the textile industry is under-performing and that it needs to be facilitated if it is to be able to sustain its current foreign client base. Failure to do so with the focus on raising revenue to meet burgeoning government expenditures is unlikely to provide the growth impetus that the country needs to combat a budget deficit that is exacerbated because of the failure of FBR to collect taxes given the lower growth rates.
The growth versus deficit reduction conundrum requires an urgent revisit by the Ministry of Finance and one can only hope that a balance between the two is struck to ensure that growth is not held hostage to a commitment to the International Monetary Fund to reduce the deficit.
Above all else, the country needs to look after the interest of farmers growing cotton. Thus, exporters using local cotton need to be given some extra-rebate (say five percent) and timely refund under the duty drawback scheme needs to be ensured from not just FBR but also from SBP and TDAP.
At present, everyone in the cotton textile chain is taking an inventory loss. Unless some kind of compensation is undertaken – textile industry will be forcibly closed down. Pakistan cannot afford this kind of export loss.