The bewildered textile industry
The industry is specially concerned over what a knitwear exporter called complete blackout in the finance minister’s budget speech of the support being given to the value-added textile exporters in the form of R&D (research & development) allowance.
“It is very frustrating that the single most important policy measure R&D allowance helping the value-added knitwear and woven garment industry is missing from the budget speech,” says Pakistan Hosiery Manufactures Association chairman Shahzad Azam Khan.
He says the R&D support should not be treated as a subsidy. “In India they have Technology Upgradation Fund to support their textile industry. The R&D support should be seen in that context. It has helped the value-added industry survive the cut throat global competition and offset the impact of rising cost of doing business,” the PHMA chairman said.
The government had allowed six per cent R&D support to value-added garment and knitwear exporters in April 2005. The facility is since then being extended very year. Later on, the home textile and printed cloth was also covered under the scheme. While home textile gets five per cent subsidy, printed cloth is allowed three per cent support.
Another knitwear exporter M I Khurram was hopeful that the government would not ignore the value added industry and somehow compensate it from the Rs400 billion subsidy package.
Former Pakistan Readymade Garments Manufacturers and Exporters Association chairman Ijaz Khokhar said he had been assured by the textile ministry officials that the R&D facility is not being scrapped.
“I’m told that it is being made part of the overall subsidy package and is expected to be announced in the trade policy.” The withdrawal of the facility would hamper the effort to add value to textile products and increase exports, he added.
A bigger part of the industry thinks that the budget is more supportive of the agriculture rather than manufacturing. “There’s nothing for the industry in the budget. The focus is only on agriculture. I don’t grudge it but the industry should also be given its rightful incentives,” said All Pakistan Textile Association chairman Adil Mahmood.
Others believe that there are certain proposals in the budget that are bringing the government focus back on manufacturing. “The promise made to ensure uninterrupted power supply to the export-oriented industry shows the return of this focus,” said former Aptma chairman.
Textile exports have declined 2.5 per cent in the first 10 months of the current fiscal to April due mainly to energy crunch, poor law and order conditions and political uncertainty.
The textile exports have shown a broad-based decline in quantity of goods exported. But the sector posted an increase in average unit value due to spiking global commodity prices to make up for the loss in quantity.
The government is considering a proposal to allow rebate to the textile exporters according to the value of their exports - the higher the value of export, the greater the subsidy and vice versa. The exporters are trying to convince the government to continue the cash subsidy in the present form because, for example in the woven garments segment, 90 per cent exports are contributed by small exporters, the total exports being valued at $3 billion.
Mr. Khokhar said the proposal to allow garment industry all raw materials, including fine yarn and cloth not produced locally and accessories, would help product diversification needed to improve exports in terms of their dollar value as well as quantity.
The other issue of much interest to the spinners is the government’s decision to continue tariff protection to ICI-PTA plant - at half the existing rate of 15 per cent and maintain customs duty of four per cent, reduced from 6.5 per cent, on import of polyester staple fibre.
“Since 1998 the ICI-PTA plant has enjoyed 15 per cent protection - on import of raw material used to produce polyester staple fiber (PSF) under a sovereign guarantee for ten years. I am at loss to understand the factors that might have led the government to continue this protection next year (when it is due to expire at the end of this fiscal), even at half the previous rate. If a project could not become competitive in 10 years at 15 per cent tariff protection, what’s the guarantee it will learn to stand on its feet with 7.5 per cent duty?,” wonders a Karachi-based spinner who asked not to be named.
The spinners have long been protesting against the protection to the PTA plant because it raised price of PSF and other synthetic fibres, discouraging product diversification.
“We have been raising the issue of high customs duties on the PTA-based products like PSF,” the yarn maker said.
In 2005 the government rationalised tariff on the polyester chain by maintaining the duty on PTA at 15 per cent and as well as allowing ICI-PTA and importers of PTA to be eligible for a refund of these duties, making the actual impact zero.
The cost of the protection to the government for the outgoing year alone is expected in excess of Rs5 billion.
“We are surprised to see continuation of the support to ICI-PTA despite its heavy cost to the national exchequer and the fact the government is no longer bound by the sovereign guarantee,” an All Pakistan Textile Mills Association (Aptma) official said.
He said the spinners’ concern over protection to PTA stemmed from the duty issue on PSF.
“The duty on PSF has also been reduced by just two per cent from 6.5 per cent. In addition, if we decide to import the fibre we have to bear import charges of six to eight per cent. The downstream industry is to absorb the cost and it makes exports uncompetitive in the international markets and our PSF-based products continue to suffer a total disadvantage of 25 per cent against our competitors,” said Punjab Aptma chairman Akber Sheikh.
“We cannot hope to enhance the synthetic to cotton mix from the current ratio of 20:80 compared to international ratio of 40:60 and should forget to compete in a large segment of global textile trade unless the duty on PSF is removed totally,” Sheikh maintained.
He was also unhappy over the silence maintained by the government on the issue of three per cent discount on spinners’ interest payments allowed last year for one year.
“We don’t yet know if the policy will be continued or not. Also the industry is being discouraged from expanding or even undertaking BMR by keeping us out of cheaper LTF scheme,” he said. “We don’t mind increase in minimum wages to Rs6,000 from Rs4,600. But let us also have even playing field,” Sheikh said. —Nasir Jamal