THE government decision to continue massive electricity subsidies for wealthy textile exporters is but a temporary fix for the industry’s long-standing issue of lack of international competitiveness. Much of the Rs100bn handout Finance Minister Ishaq Dar announced for the textile tycoons on Thursday will end up in the pockets of the politically influential yarn and cloth producers, and the remainder will be spent on subsidising foreign buyers at the expense of hapless Pakistani taxpayers. Indeed, all textile-producing countries support their export industries across the supply chain to boost value addition to earn higher amounts of foreign exchange. In Pakistan’s case, however, such support is mostly used to finance low-value-added basic textiles, and enrich inefficient yarn and cloth producers. No wonder, there is little evidence supporting the industry’s narrative that energy subsidies have a direct link to export growth. The growth in the country’s textile and clothing exports during the last couple of years owes more to Covid-related lockdowns in India and Bangladesh, as well as the unprecedented surge in international commodity prices. Nor have these handouts ever convinced the textile manufacturers to move to higher-value-added products from yarn, basic textiles and low-end products they have been selling to the world for decades. That’s why whenever the government stops financing the textile manufacturers, their exports start to crumble.

There is no doubt that flawed government policies and energy sector inefficiencies are a major contributor to the higher cost of doing business in the country and low global competitiveness of textile and other exporters. But this problem cannot be fixed by handing out money to them. It has and it will only exacerbate the issue of the international competitiveness of our exports. The lasting solution to export competitiveness lies in distributing the amount across the value chain starting from cotton sowing to fixing the entire textile economy. In other words, the authorities should invest a significant part of this subsidy amount to improve the quality of locally produced cotton, boost domestic output to meet the fibre demand of spinning mills, help ginners upgrade their technology, and incentivise small and medium exporters of value-added products. Low-value-added sectors enjoying the electricity subsidy should agree to gradually move to higher-end products. Unconditionally financing big factory owners, who also have easy access to long- and short-term cheap bank loans, may win the government big business’s support but it will not help our exports.

Published in Dawn, October 8th, 2022