PAK AIMS (Institute of Management Sciences)

Subject: Economics (401)Course: M.B.A (morning)Section: A

This Project is Relate to :- Crisis in textile industry

This project is made by:092114-Tanveer Ahmad092112-Sheraz Tariq

This project is submitted to:Prof. Muhammad Imran.

Submitted on: 28, July 2009

Contents:-

Summary:- Introduction:History of Pakistan Textile Industry

1. Lack of Research & development (R&D) in cotton sector:-

2. Lack of modernize equipment:-

3. Finance Bill to burden industry further:

4. Increasing cost of production:-5- Internal issues pose alarger threat forPakistan’s textile industry:-

6-Energy crisis: a) Electricity crisis:-

b) Gas Shortage:-

7-Tight Monetary Policy:-

8- Removal of subsidy on Textile sector:-

9- Lack of new investment:-

10- United States & EU cuts imports of textile from Pakistan:-

11- Raw material Prices:-

12- EXPORT PERFORMANCE OF THETEXTILE SECTOR:-

13- The Effect of Global Recession on Textile Industry:-

14-Effect of Inflation

15-Unemployment caused by textile

15- Recommendation:

Summary:-

Pakistan’s textile industry is going through one of the toughest periods in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal issues also effected Pakistan’s textile industry very badly. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year which has significantly raised the cost of imported inputs. Furthermore, double digitinflation and high cost of financing has seriously effected the growth in the textile industry. Pakistan's textile exports in turn have gone down during last three years as exporters cannot effectively market their produce since buyers are not visiting Pakistan due to adverse travel conditions and it is getting more and more difficult for the exporters to travel abroad. Pakistan’s textile industry is lacking in research & development (R & D).The production capability is very low due to obsolete machinery & technology. Pakistan is facing high cost of production due to several factors like the hike in electricity tariff, the increase in interest rate, energy crisis, devaluation of Pakistani rupee, increasing cost of inputs, political instability, removal of subsidy & internal dispute. The above all factor increase the cost of production which decrease the exports. Exports receipts decrease from $ 10.2 B to $ 9.6 B. The global recession also hit badly the textile industry. Double digit inflation also caused decrease in production in textile sector which cause the increase in unemployment level.

By the removal of subsidy the industry’s production get higher effected which prove as a last strike on industry’s back.Govt should provide subsidy to the textile industry for the survival of this industry. Continuity of 1pc controversial withholding tax on import of essential raw material (cotton & polyester staple fibre) for industry should be withdrawn immediately. This withdrawal would enable the industry to procure some 3m cotton bales annually from outside world in order to meet the shortage and to compete with regional competitors in international market to earn foreign exchange for the country.On imposition of 16% FED on banking and insurance services such advance taxes would play havoc with the growth of the industry in already existing adverse circumstances and needed to be withdrawn immediately. The government should not withdraw sales tax and withholding tax exemption on machinery and parts, as it would add cost besides liquidity problem for the industry.

Introduction:-

The Pakistan textile industry contributes more than 60 percent to the country’s total exports.The sum of total export is around 9.6 billion US dollars.The industry of textile contributes approximately 46 percent to the total output produced in the country. In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 percent. Moreover, it provides employment to 38 percent of the work force in the country.

However, the textile industry currently faces massive challenges. The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products. However, APTMA argues other factors such as high interest rates and cost of inputs, non conducive government policies, and non-guaranteed energy supplies hinder their competitiveness..

History of Pakistan Textile IndustryIncrease in the cotton production and expansion of textile industry has been impressive in Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to 10 million bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly looms and finishing units increased but not in the same proportion. Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic and quality production of products for a highly competitive market. But unfortunately it does not have any facility for manufacturing of textile machinery of balancing modernization and replacement (BMR) in the textile mills. We need to think about joint ventures for the production of complete spinning

units with china, Italy and production of shuttle less looms with Korea, Taiwan and Italy.

Cotton textile industry has been major source of export earning and employment. It also helps in value addition to the manufacturing sector of the economy. During the six years between 1993 and 1998, production of yarn (in quantity terms) registered a steady annual growth rate of 302% in Bangladesh and 405% in India. On the other hand, Pakistan registered a growth rate of 101% per annum in yarn production. It ranked third after China and India in the global yarn production during the same six years. In exports, while Taiwan, India and the republic of Korea registered an annual increase of 18.1%, 27.7% and 5.4% respectively during 1993-1998, Pakistan registered a negative growth of 4.8% one important development was that till 1997, Pakistan was the world’s largest exporter yarn followed by India. However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In the case of cotton cloth production. A large number of Asian countries have been emerging in the international market to compete with Pakistan. These countries are Bangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri Lanka and Iran. The above-mentioned discussion of international scenario highlights the adverse position of Pakistan’s textile industry which is likely to continue further following the full implementation of WTO agreement from 2005 onwards.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA) Chairman, Appreciated government’s efforts to encourage new exports and finding new markets, which need aggressive export marketing. The steps taken on the monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not improve the cost competitiveness of exportable products due to increase in prices of the local and imported inputs of the local textile industry.

During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles, 6,600 rotors ands 7,329 looms were closed down. In 1992, a foreign consultant form was hired by the government to look into the stagnate conditions in the local textile industry. One of the observations of the foreign consultant was “Pakistan has failed to make real progress in the international market and is being over taken by many of the neighboring competitor countries.

The textile sector which constituted 69% of total export during 2001-2002, believes that enhanced quota by the European Union and Turkey would make this possible to fetch another US$1 billion this year.

The rise in export of value-added products from Pakistan was another point of encouragement for the textile sector. “The export of value-added products rose to 57.4% from 53.9% in 2002 which is clear sign that we are moving in the right direction, “said the Chairman of all Pakistan textile mills association.

The trade policy is considered an acceptable paper, but in the industry does not fine anything that could lead to a high level exports achievement and remove trade imbalance.

Pakistan’s textile sector earned US$5.77 billion during the 2003 year, compared with US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. Industia.The total exports of textile sector in 2004 were US 5.7 billion which shows 2.5% growth it increase to 4% growth in 2005 as compared to 2004.The textile sector shows 8% negative growth in 2006.The negative growth continue in 2007 aslo with the value of 5%.The textile sector shows 15% growth in 2008. Now we will discuss the main reasons of crisis in textile industry step by step in detail

1. Lack of Research & development (R&D) in cotton sector:-

The lack of research & development(R&D) in the cotton sector of Pakistan has resulted in low quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton crops, farmers are shifting to other cash crops, such as sugar cane. In Punjab alone, the cotton area sown this season was less by 1.14 percent as compared to the last year. Textile owners argue that although the Cotton Vision 2015 targets 20 million bales till 2015, it is an ambitious target as in reality cotton production is decreasing each year. It is the lack of proper R&D that has led to such a state. They further accuse cartels, especially the pesticide sector, for hindering proper R&D. The pesticide sector stands to benefit from stunting local R&D as higher yield cotton is more pesticide resistant.

2. Lack of modernize equipment:-

Moreover, critics argue that the textile industry has obsolete equipment and machinery. The inability to timely modernize the equipment and machinery has led to the decline of Pakistani textile competitiveness. Due to obsolete technology the cost of production is higher in pakistan as compared to other countries like India,Bangladesh & china. APTMA has highlighted that the Pakistan textile industry faces tough competition from the Indian, Bangladeshi and Chinese textile industries and local policies have resulted in Pakistani textiles facing a critical condition.

3. Finance Bill to burden industry further:

All Pakistan Textile Mills Association (APTMA) has told that government’s actions are not matching with its words for the textile industry.Referring to the Prime Minister Yusuf Raza Gilani speech at the launching ceremony

of the Infrastructure Development of the Pakistan Textile City at Port Qasim Industrial Area, where Prime Minister spoke high of the textile industry contribution towards the country’s economy, Chairman APTMA Tariq Mehmood said the federal budget 2009-10 is a total negation of the acknowledgement of the role of textile industry on the part of the Prime Minister.Especially, he said, the provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions like reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on import of textile and articles, 16% Federal Excise Duty on banking and insurance services besides withdrawal of exemption of 16% sales tax and 4% withholding tax on machinery and parts in the Finance Bill 2009-10 are nothing but last strick on industry’s back.According to him, reintroduction of minimum tax on domestic sales would invite unavoidable liquidity problem, which is already reached to the alarming level. He said the textile industry was facing negative generation of funds due to unaffordable mark up rate on the one hand and acute shortage of energy supply & unimaginable power tariff for industry.

4. Increasing cost of production:-

The cost of production of textile rises due to many reasons like increasing interest rate, double digit inflation & decreasing value of Pakistani rupee. The increasing interest rate caused barrier in opening new manufacturing units & also increase the production cost of existing units. The value Pakistani rupee is continuously decreasing which increased the cost of imported raw material. The removal of subsidy & implementation of new taxes from government also increase the cost of production. The instant increase in cost of electricity also caused a increase in production. The above all reason increased the cost of production of textile industry which create problem for a textile industry to compete in international market.

5- Internal issues pose alarger threat forPakistan’s textile industry:-

Pakistan’s textile industry is going through one of the toughest period in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal issues outbreak Pakistan’s textile industry. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year raised the cost of imported inputs. In addition, double digit inflation and high cost of financing has seriously effected the growth in the textile industry.Pakistan's textile

exports have gone down during last three years as exporters cannot effectively market their products since buyers are not visiting Pakistan due to adverse travel advisory and it is getting more and more difficult for the exporters to travel abroad. Tough competition in international markets and falling industrial output at home have held back the exports this year. Exports of textile products decreased to 7.58% during July-March period of current fiscal year to $7.193 billion as compared to $7.7883 billion of the same period of last year. The negative growth in most of the sub sectors of textile shows the need of strong policy in favour of textile sector from government side. The industry views the high cost of doing business due to increasing cost of financing and power shortage which is primary reasons for the sharp decline in export growth of textile products. The industry has to be efficient and professionally managed to be able to survive these difficult times. The higher cost of production is of course in large part due to the higher cost of inputs which includes the energy cost primarily.The government needs to play its part to help the industry to survive the industry from these difficult times. The government has so far approved a markup subsidy of 3% to the spinning sector for a period of two years. The period began from July 1, 2007 and ends on June 30, 2009. Rs 1.7 billion has been earmarked against the 3% subsidy, by depositing the same with the State Bank of Pakistan.The similar relief is not extended for 2009-10 which is quite disappointing act from government. . Textile exporters rightfully demand reduction of Kibor rate to 8% to avoid a severe decline in exports. A three-year comprehensive textile policy is expected to be announced before budget 2009-10. The textile policy has been designed to enhance the exports of textile sector to $ 25 billion in next three years. This was stated by the Minister for Textile Industry Rana Farooq Saeed Khan .All Pakistan Textile Mills Association (APTMA) chairman, said that the textile policy was ready and would be issued soon. This will address the issues of up-gradation of machinery, provide infrastructure facilities and skill development of human resource of this industry so that they can compete in international market with their competitors. Textile Minister informed that the spinning and weaving sector would get its due share from the Export Investment Support Fund, worth Rs. 40 billion allocated in the Federal Budget 2009-10.Rana Farooq pointed out that he has advocated the case of immediate support to textile industry in the Parliament and also in the Cabinet meetings because he is confident that only textile industry was capable enough to bale out Pakistan from the current economic crisis. He said that the government was determined to address the problems of textile industry. Secretary, Ministry of Textile Industry Dr. Waqar Masood Khan said that preparation of Textile Policy was the main objective of this ministry.He further said that although we are 4th largest producer and 3rd largest consumer of cotton but unfortunately now we are at number 12 in the international trade of textile products.He assured that government will address the problems of textile industry without any further delay and he is confident that the first ever textile policy of Pakistan will address the problems and provide immediate relief to industry and make it

competitive in international arena. During speech the chairman highlighted problems and issues facing the textile industry:He stressed that government should take immediate measures to remove slowdown in the textile sector. He said that high cost of doing business is because of intensive increase in the rate of interest which has increased the problems of the industry. He said that record increase in markup rates is one of the major cause of defaults in servicing the loans availed by the industry, hence, the volume of non-performing loans has reached to an alarming situation. He said that power shut downs may result in massive unemployment resulting in law & order situation.

6-Energy crisis: a) Electricity crisis:-

As a consequence of loadshedding the textile production capacity of various sub-sectors has been reduced by up to 30 per cent. The representatives of the all textile associations presented their serious concerns on the huge losses being incurred due to electricity load shedding and the instant rise in the Electricity tariff. They said that the industry has already been crippled due to record loadshedding during winter months. The joint meeting of All Pakistan Textile Mills Association (APTMA) & other related organization was held at APTMA House to formulate a joint strategy to address the alarming electricity crisis being faced by the textile industry. The meeting unanimously decided to constitute a joint working group of electricity management for the textile industry in the larger interests of the value chain of the textile industry. The joint working group will meet shortly to design a detailed plan to pursue the following goals; Immediate total exemption from Electricity load shedding for the textile industry value chain; Rationalization and reduction of electricity tariff.

The loadshedding of electricity cause a rapid decrease in production which also reduced the export order. The cost of production has also risen due to instant increase in electricity tariff. Due to load shedding some mill owner uses alternative source of energy like generator which increase their cost of production further.Due to such dramatic situation the capability of competitiveness of this industry in international market effected badly. 100,000,000,000

80,000,000,000

60,000,000,000

40,000,000,000

20,000,000,000

0 2004 2005 2006 2007 2008 2009

COMPARISON BETWEEN ELECTRICITY PRODUCTION AND CONSUMPTION

PRODUCTION CONSUMPTION

b) Gas Shortage:-

Gas load-shedding continues in Punjab and NWFP despite a significant increase in temperature. A spokesman for the All Pakistan Textile Mills Association claimed that 60 to 70 per cent of the industry had been affected and was unable to accept export orders coming in from around the globe. He said the textile industry had already endured over 45 days of gas disconnection over a period of four months, causing extraordinary production losses and badly affecting capability of the industry. In Punjab, he said, the textile industry's share was over 60 per cent, according to APTMA's study energy supply disruption only was causing an estimated loss of Rs1 billion per day. He regretted that at a time when the export-oriented industry had ready demand in terms of meeting export orders, the policy-makers failed to take prudent steps to help ensure timely execution of orders. In the larger interest of the economy and exports, he suggested, the government should “ensure utility companies provide smooth electricity and gas supply to the textile industry and accord the industry top priority at this critical time.” 

7-Tight Monetary Policy:-

The continuity of tight monetary policy cause an intensive increase in cost of production. As due to tight monetary policy the interest rate is not consistant & keep on increasing which incease the cost of production & also the number of debt defaulter. Due to high interest rate financing cost increases which cause a severe effect on production. The with holding tax of 1% also effect the production badly.

The high cost of doing business is because of intensive increase in the rate of interest which has increased the problems of the industry. The record increase in markup rates is one of the major cause of defaults in servicing the loans availed by the industry, hence, the volume of non-performing loans has reached to an alarming situation. The government should take immediate measures to remove slowdown in the textile sector.

8- Removal of subsidy on Textile sector:-

The provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions like reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on import of textile and articles, 16% Federal Excise Duty on banking and insurance services besides withdrawal of exemption of 16% sales tax and 4% withholding tax on machinery and parts in the Finance Bill 2009-10 are nothing but last strick on industry’s back. Reintroduction of minimum tax on domestic sales would invite unavoidable liquidity problem, which is already reached to the alarming level. The textile industry was facing negative generation of funds due to unaffordable mark up rate.

9- Lack of new investment:-

Pakistan textile industry is facing problem of Low productivity due to its obsolete textile machineries. To overcome this problem and to stand in competition, Pakistan Textile Industry will require high investments. Pakistan is on the road to invest in processing sector, but traditional sector are also demanding high amount of investments. There is a continuous trend of investing in spinning since many years.Pakistan's textile industry estimates that around Rs1, 400 billion (US$32 billion) of investment was required till 2010 in order to achieve the government's export target."

The new investment is decreasing rapidly due to un trusted internally conditions of Pakistan. Pakistan is facing externally as well as internally problems which restricts the new investment. The un predictable internally condition of Pakistan cause a rapid decrease in foreign investment. The decrease in foreign investment effect all industries but especially textile industry. This industry is already facing many problem but it has to face the lack of foreign investment also which will decrease its exports also.

10- United States & EU cuts imports of textile from Pakistan:-

United States cancel more then 50% of textile orders of Pakistan .US also impose a high duties on the import of textile of Pakistan which effect the export in a bad manner. US & EU are the major importer of Pakistan textile which create a huge difference in export of Pakistan textile after imposing a restriction on import of Pakistani textile goods.

11- Raw material Prices:-

Prices of cotton & other raw material used in textile industry fluctuate rapidly in Pakistan. The rapid increase in the price raw material effect the cost of production badly. The increase in raw material prices fluctuate rapidly dur to double digit inflation & instable internal condition of Pakistan. Due to increase in the cost of production the demand for export & home as well decreased which result in terms of down sizing of a firm. Hence the unemployment level will also increase. Govt should take serious step to survive the textile industry. In order to decrease the price raw material for textile we need to increase our production capability.

In fact, without adopting of new technologies in seed-breeding, irrigation, morphology and Pest Scout Management, we cannot increase our production appreciably. However, the illegal multiplication of smuggled seed from India / Australia may temporarily increase production but not otherwise unless real steps are taken in the right direction. Simultaneously, the government should make arrangement for introducing international system of Cotton Standardization in Pakistan to enhance quality and value of Pakistan lint cotton by utilizing the technical services of Pakistan Cotton Standard Institute. It is sad, that being fourth largest cotton producing country, the third largest cotton consuming country, and the largest cotton importing (2007-08) country, there is no proper cotton grading system in Pakistan

12- EXPORT PERFORMANCE OF THETEXTILE SECTOR:-

For the second year in a row, the country missed annual textile export target of 12 billion dollars by 20 percent due to high cost of production, power shortage and stiff competition with regional players. The federal government envisaging 15 percent growth had set textile export target of 12 billion dollars for FY09 against 10.35 billion dollars for FY08.

However, in FY09, the country not only missed its textile export target but also registered a decline of some 6 percent as compared to FY08. Official statistics of the State Bank of Pakistan (based on receipts) revealed that the country's overall textile exports stood at 9.774 billion dollars at the end of last fiscal year over the exports of 10.354 billion dollars in FY08, decline of 579.628 million dollars in FY09. Overall textile group exports are also some 20 percent or 2.2 billion dollars lower than the actual export target of 12 billion dollars set by the government for last fiscal year. "Yes, the country has fallen short of textile export target by over 2 billion dollars due to the global meltdown and several barriers faced by textile industry on the domestic front," said Mirza Ikhtiar Baig, Prime Minister's Advisor on Textile. Ikhtiar said that high cost of doing business, power shortage, poor industrial infrastructure and slow external demand are some major factors contributing to the decline in textile export. He said that even Christmas textile inventories were in the shelves of leading stores till April due to the global meltdown, while in previous years it ended in January-February.

However, he is confident that during the current fiscal year textile sector will show better performance as the government is trying to remove the tariff barriers, besides exploring new textile export markets. "I am confident that the governments and the Ministry of Textile's efforts will be helpful in boosting the country's textile export and enabling it to compete with other regional competitors like India and China," Baig said.

Textile industrialists say that the rising costs of production has rendered the domestic industry uncompetitive on the international front as the world firms have diverted textile export orders to other regional competitors. We are being undertaking the region's costly textile export due to the high tariff of power, gas and other utilities. The rising high cost of doing business and poor infrastructure have posted low textile export growth during last fiscal year. Special incentives to Bangladesh and India's export-oriented textile industry by their governments have encouraged them to explore a number of avenues in the world market, as both are price-competitive as compared to Pakistan. Official statistics of the SBP show that the country's textile exports is also some 2.36 percent lower than the export of fiscal year 2006-07, in which overall textile exports as per receipts stood at 10.011 billion dollars.

The central bank has also revealed that out of 12 major textile export 9 registered negative growth and export of only three items - raw cotton, bed wear and towels has posted some increase. With 18.34 percent decline, readymade garments exports stood

at 983 million dollars and knitwear export at 2.054 billion dollars after a decline to 4 percent in FY09.

13- The Effect of Global Recession on Textile Industry:-

In economics, the term ‘recession’ means “The reduction of a country’s Gross Domestic Product (GDP) for at least two quarters; or in normal terms, it is a period of reduced economic activity” The International Monetary Fund regards periods when global growth is less than 3% to be global recession. On the October 8, 2008, IMF released its World Economic Outlook, according to which the world economy was predicted to experience an all time low.

Pakistan is 26th largest economy in the world, and 47th largest in terms of the dollar. It is sad to see our economy like this now. Pakistan is actually a very economically diverse country with boasting industries of textiles, agriculture, etc. 

The main reason for this slump has largely been the political instability over the past few years; no proper economic policies were implemented; at least none that succeeded. This caused a very high rate of inflation, which, in 2008, had increased to a whopping 25% as compared to a 7.9% of 2006. In addition to this, we already had a negative balance of payments, with the quantity of imports outstripping the quantity of exports. The result was that our main stock exchange, the Karachi Stock Exchange, became stagnant for the first time and then declined drastically, and on top of that, Pakistan’s GDP dropped to 4.9%. 

What occurred afterwards is what we call the domino effect. The value of the Rupee crashed from 60-1 USD to 80-1 USD in only a month, the prices of commodities soared through the roof, the number of people living below poverty line increased from 60 million to 77 million, and consequently, the working class layman became virtually deprived from basic necessities like water, wheat, electricity, natural gas, and cooking oil; add to all this, the preposterous amounts of load-shedding, and what we get is a nation in shambles.

The above all situation of the economy badly effected the textile industry also. The demand for textile product cut down locally & internationally as well. The export order reduced due to un predictable conditions of Pakistan & political instability. The cut down in the production of textile cause further unemployment level which decrease the living standard of peoples.

14-Effect of Inflation

Inflation rate is measured as the change in consumer price index (CPI).Inflation is basically a general rise in the price level.It is decline in the real value of money.Inflation can have adverse effect on economy.Pakistan is one of prey of inflation.It still faces high double digit inflation.

The increase in inflation cause the increase in the cost of production of textile good which return in down sizing.The double digit inflation cause reduction in exports of textile

15-Unemployment caused by textile

Unemployment occurs when a person is available to work and seeking work but currently without work. prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed.The unemployment rate in 2006 was 6.6 per cent which decreases 0.1 percent in 2007.The unemployment rate reaches to 7.5 per cent in 2008 due to global crisis.As the LSM decrease the production that’s why the unemployment level risis very rapidly.The rise in unemployment level is 11 per cent in 2009.

The unemployment rate in textile industry was very high during the current fiscal years because of recession & increasing cost of inputs & fluctuating situations of country.

YearInflation rate (consumer

prices)

UnemploymentRate %

Date of Information

2000 6% 7% 1999 est

2001 5.2% 6% 2000 est

2002 4% 6.8% 2001 est

2003 3.90 % 7.8% 2002 est.

2004 2.90 % 7.7% 2003 est.

2005 4.80 % 8.3% FY03/04 est.

2006 9.10 % 6.6% 2005 est.

2007 7.90 % 6.5% 2006 est.

2008 23.0 % 7.5% 2007 est.

2009 17.2% 11% 2008 est

16- Recommendation:

The government is considering curative measures on the recommendations of stakeholders to address the problems and issues faced by the textile industry of the country for enhancing its production and exports.

The government is likely to announce textile policy also called National Textile Strategy in the mid of current month to help promote the textile sector of the country, sources told APP.

The Textile Ministry has consulted all textile sector associations and the chambers of commerce and industry and taken them board before finalizing the textile policy and the policy would be announced soon, they added.

The ministry received recommendations for zero rating on import of textile machinery, zero rating exports, tariff reduction, incessant energy supply to textile units.

Issues relating to the market access and quality products with timely delivery and single digit mark up and special power tariff for the textile industry has also been recommended.

It has been suggested that textile policy might include the issue like duty free market access to European Union and United States as Pakistan is the largest importer of USA long staple cotton to the tune of $400 million to $500 million every year.

Prime Minister Yousuf Raza Gilani has already constituted a Cabinet committee to evaluate the new textile policy, for the provision of incentives for modernizing the industry and making it more efficient.

The economic observes believe that the textile sector was passing through a difficult phase due to energy shortage in the country and needed curative measures for promotion.

The textile group exports have witnessed negative growth of 9.27 percent during the first ten month of current financial year.

Exports from July-April (2008-09) were recorded at $7.898 billion as against the exports of $8.706 billion during the corresponding period of last financial year.

During the time under review exports of cotton yarn were decreased by 15.98 percent, cotton carded or combed by 1.41 percent, yarn other than cotton yarn by 54.74 percent, knitwear by 6.7 percent, bed wear by 12.19 percent, tents, canvas and trapulin by 14.70 percent ready made garments by 14.65 percent, art, silk and synthetic textile by 33.64 percent where as the exports of other textile materials were declined by 15.43 percent.

The only two textile groups including raw cotton, cotton cloth and towels witnessed positive growth as their exports were increased by 40.32, o.75 and 3.26 percent respectively during the first ten months of current financial year as against the same period of last year.

Some other Specific Recommendations 

a- Remedy though FDI:- While making policy for the survival of textile industry , Govt should considered to create attraction for freign investment. Current Fiscal year remain very low in terms of FDI due to instable internal situations & dispute. The decreasing value of Pakistani currency also restrict new investment.

b- Image Building of Pakistan to Attract FDI :-

The Ministry of Commerce, Ministry of Foreign Affairs and The Board of Investment should launch Joint Campaign to build positive image of Pakistan as a quality textile product supplier and to facilitate the international buyers in Pakistan

c- Focus on Value Addition :-Pakistan is a leading exporting nation in raw yarn, cotton, and fabrics. If we emphasis on the value added products like garments, Hosiery, knitwear and other textile made-ups, the export volume of textiles can be increased by manifolds. In this respect top priority should be given to stitching industry that leads to highest value addition and employment generation.

d- Technology Up-gradation & capacity buildingThe establishment of Textile Cities in major Cities of the country is an appreciable move. Government should either set up joint ventures in textile related areas or should provide subsidized credit to textile manufacturers to upgrade their technology and capacity building through ‘Technology Upgradation Fund’. (TUF). It is also suggested that smaller units of power looms (up to 50 looms) should be upgraded to auto looms and power loom units larger than 50 looms into air jet looms.

e- Human Resources Development 

The Textile Ministry should establish a separate training wing as a Center of Human Resource Development where training courses should be conducted for the capacity building of labor. There is also urgent need to increase the number of such Vocational Institutions where modern technical education is provided.

8- Reducing the cost of doing Business in PakistanAt present cost of doing business in Pakistan is higher as compared to the regional countries, which has resulted in bitter competitiveness to Pakistani Products in Foreign Markets. China and India are the bigger competitors of Pakistan. We fear if cost of doing business in Pakistan is not brought at par with other Asian countries, our products would find no place in Market both in terms of quality and price. In the context of future trade, there is an urgent need to bring all the utility charges and levy of taxes down to the minimum level. 

f- Need For Improving Textile ProductionThere is an urgent need to bring improvement in textile production, especially in blended sector. Blended products made from a combination of natural and man-made fabrics, are preferred in clothing the world over. In Pakistan 20% protective duty on the import of Polyester Fibre is levied on account of which 25% polyester fabrics is blended with man-made fabrics, while a country like Bangladesh blend 35% Polyester. This scarcity has resulted the poor contribution by Pakistan in this sector.

g- Improvement in productivity:- Textile industry of Pakistan required improvement in productivity of cotton sector. The government should facilitate the farmer with new type of seed & technology in order to increase the productivity of cotton sector. On the other hand the productivity of final goods from cotton like cloth is very low due to usage of obsolete machinery. Govt should take step to give subsidy for research & development(R & D) program in textile sector.

h-Awareness of International Quality Standards:- There is a lack of awareness of international quality standards which is only because of the less spending on R & D from government. The textile industry should maintain their quality according to international standard in order to cut their cost of rejection. This is only the way to maintain the international standard in order to compete in international market.

i- Introducing concept of on-the- job-training:- There is need of introduction of concept of on the job training which is very rare in Pakistan. By this

concept the employee will well aware of the modernize technology. They can easily handle & operate the modern technology in order to move with modernize world.

j- Introducing efficient management techniques:- There should be introduction of efficient management techniques in textile industry in order to increase the production capacity & quality as well. The efficient management technique will guide the industry , how to compete in the international market.

k- Subsidy removal should be taken a back. Govt should take a back of subsidy removal. By the removal of subsidy the industry’s production get higher effected which prove as a last strike on industry’s back.Govt should provide subsidy to the textile industry for the survival of this industry. Continuity of 1pc controversial withholding tax on import of essential raw material (cotton & polyester staple fibre) for industry should be withdrawn immediately. This withdrawal would enable the industry to procure some 3m cotton bales annually from outside world in order to meet the shortage and to compete with regional competitors in international market to earn foreign exchange for the country.On imposition of 16% FED on banking and insurance services such advance taxes would play havoc with the growth of the industry in already existing adverse circumstances and needed to be withdrawn immediately. The government should not withdraw sales tax and withholding tax exemption on machinery and parts, as it would add cost besides liquidity problem for the industry.

l- Interest rate should be low down in order to survive this industry:- SCB should low down the interest rate in order to cut down the financing cost of this industry. With the decrease in the mark up there will introduce new investment in the industry.

m- Electricity & gas tariff:- Hike in the tariff of electricity & gas cause an increase in production cost which cuts down the demand for Pakistani textile goods in international market due to high cost of inputs. In order to survive the industry government should make electricity & gas cost cheaper.

n- Removal of Energy Crisis:- Govt should try to remove the energy crisis in order to save the industry. As the crisis in enegy sector cut down the production. By the reduction of production exports are also decreased.

o- Exploration of new Export Markets:- New markets should be explore in order to boost up the export receipts. This the best way for any industry to enhance their business by exploring new market to increase the export which ultimately give the benefit to industry.

REFERENCES:-

All Pakistan Textile Mills Association (APTMA) (Various Issues) AnnualReport.Challenges for Pakistan. Asian Development Review Pakistan Textile Journal (2009) Pakistan, Government of (2008-09) Pakistan Economic Survey. Islamabad:Ministry of Finance.Textile Industry— Special Report (2009).