Daily Times

The inconsistent growth rate in the textile industry is the result of a serious lack of implementation of the preceding two textile policies. Political instability, cyclical fluctuations in the international market and the inauspiciousness of the government to work out an efficient system, which benefits the production process, have all seized growth and held back the capital influx. This has led to a deficit in the balance of payments. Being a major player in the exports of Pakistan, the textile industry has started succumbing as numerous businesses have discontinued operations while the textile policies of the past fail to secure a stable foothold.

The increasing energy crisis, unfavourable business conditions consequential of adverse government policies and upsurging inflation all led to a decline in the investor’s confidence; sending the entire textile value chain in a state of distress. The SWOT analysis indicated that whilst the textile industry contributes to a substantial portion of the country’s economy, namely exports, GDP and tax turnover, growth remains stunted due to inferior cotton production, increased cost of doing business and a lack of implementation of governmental policies. This, compounding with rigorous foreign competition, Pakistan’s share in the foreign market continues to plummet. With the textile industry facing such strong headwinds, there are segments such as synthetic fibres and the garments industry, which can be tapped to improve the overall profitability of the sector and increase export. The negative effects of the lack of implementation of the previous textile policies can be ameliorated if the government adopts the following:

Declining investment confidence can be lifted by providing sustainable, fair-priced, un-hindered energy resources.

Pakistan’s footprint in foreign markets can be further broadened by facilitating the entry of new brands

The textile industry is ready to adopt renewable (solar hybrid) energy solutions to deal with sustainability and competitiveness issues. Such energy resources should be researched upon, funded, explored and their instalment incentivised, mainly at the industrial zones; enabling the producer to be self-sufficient to a degree and decreasing dependency over a single source of energy.

This is ever so vital because 35 per cent of the total conversion cost in the textile industry is absorbed as energy cost.

Quality and availability of raw materials can be improved by subsidising the cotton production cycle and enforcing quality control checks. Institutes working in this respect (eg PCCC) are mere formalities, who are ignorant of the improvement and development of cotton. This is evident given that 90 per cent of their annual expenditure is administrative. Lack of a quality control system over locally produced raw material means that for good quality cotton, the industry is heavily dependent on import channels.

Production of synthetic fibres should be introduced into the textile value chain, keeping in mind their popularity and demand in the international market. Pakistan’s footprint in such foreign markets can be further broadened by facilitating the entry of new brands by assuring them of a healthy business environment, the introduction of investment-friendly policies and exploration of new potential markets for our exports, such as Africa.

The government should introduce positive tax reforms, which facilitate entry into the industry. Examples include reduced corporate taxes, similar and quicker refunds of input sales tax and a revamped minimum tax regime. The sales tax refund system must be streamlined and the refund process made more efficient. In addition to this, the government should address the issue of DTRE bonds (bonds issued as refunds) not being discounted by the scheduled banks to avoid a liquidity crisis. The State Bank of Pakistan needs to address this issue. This is more crucial now than ever since the government stripped the textile industry of its zero-rated status. The new government had initially announced that energy–both gas and electricity–will be provided to export-oriented industries at regionally competitive prices and the refund of taxes and duty drawbacks will be paid on time. Although being a welcoming decision on paper, proper implementation is still awaited.

Numerous industrial units, categorised as sick, have ceased production altogether because, given the current situation of upsurging costs, the continuation of operations no longer stood viable. The government needs to work out a policy paradigm for the upward growth of such sick units. Positive steps should be taken regarding the business facilitation of these units so they may have a chance to reconnect to their past glory. Implementation of internal reforms, such as relief over loan terms from financial institutions, incentivising new entrants and facilitating the current manufacturers of the textile sector, would yield favourable results.

Tariffs on imported textile materials are applied to protect the domestic industry, which has built inefficiencies in the manufacturing process. The government should curtail customs and duties to facilitate the import of modern, state-of-the-art textile machinery and allow a higher percentage of initial depreciation as deduction while calculating income taxes. Rigorous anti-dumping laws should be adopted, which would protect the domestic market and provide a levelled playing field for the local producer. Government-funded labour training schemes should be put into practice with a special focus on women employment programs. This would increase the skilled labour turnover. The existing schemes require the business to follow a tedious screening process, therefore, leniency over the terms would be very welcoming. Once implemented, these policies would yield a turnover increase of $45 billion, create three to four million jobs in the coming five years and improve the socio-economic profile of Pakistan.

The writer is a freelancer