It is a moment of rejoicing for the spinning sector of Pakistan.
Finally, after last three years, a ray of hope in the form of
the incentive package for the textile industry by the government
was announced for a total of Rs. 180 billion (US$1.7 billion).
The spinning sector finally received incentives in terms of
duty-free import of cotton as well as a 4% export rebate, as
against 7% duty drawback for the value added sectors.
On the surface, it is a great relief for the spinning sector,
that has seen a decline in exports due to poor demand from
China, shortage of the raw cotton, poor crop yields in the
country, high labor costs and severe energy crisis. So can this
package be the salvation for the faltering spinning sector of
Pakistan? The answer to the question is positive to a certain
extent only. Let us examine in detail.
The duty-free import of cotton shall indeed bring in the much
needed raw material cotton for our spinning sector at a
competitive price. The cotton crop has seen a shortfall of more
than 25% this year. The target of 14.4 million bales was
woefully short with the actual cotton crop being only 10.5
million bales. With the duty-free import of cotton, the spinning
industry shall now be able to offset this shortage to an extent.
The second incentive for the spinning industry with a high
impact it a duty drawback of 4% for yarn exports. This is
expected to make Pakistani yarn more competitive in the
international market. However, according to experts, it will
not be sufficient to regain our lost market share to Indian yarn
exports to China and to other traditional markets. Indian yarn
is highly competitive and is being exported to China which has
been its major market just like for Pakistan in the past.
It is certain that the export rebate to the spinning sector
will be beneficial in the short run. However, the downstream
sectors claim that this benefit comes at the cost of the value
added textiles, that consume the bulk of the yarn produced in
the country. The value added sectors are of the opinion that
the rebates and incentives to the spinning sector are to the
detriment of high value added textiles and benefit our
competitors in the international market.
The real and sustainable growth and progress shall come to
the spinning industry not through government subsidies, but with
the balancing and modernisation of their installed capacity
which in some cases is more than decades old. This high energy
consumption can also be attributed to the use of old technology.
Therefore, combined with the high cost of labor, as well as the
production of low count variety of basic yarn makes it more
uncompetitive as the margins have eroded in the low count yarn
category. The textile mills who are producing basic yarns are
finding it increasingly difficult to sustain themselves. When we
asked the representatives of a leading composite mill in
Pakistan if they are also facing these problems their answer was
unsurprisingly in negative. The mills who are producing yarn for
their own consumption for weaving or knitting are able to add
much higher value to their final products keeping them
competitive in international markets and also in the domestic
market of more than 200 million inhabitants.
It is evident that the value addition in spinning is the need
of the hour. Companies like Din Textiles who have only produced
high-value yarns such as mélange, fancy and compact yarns since
their inception, are not facing the issues faced by the basic
cotton yarn producers.
Dr. Bhattacharya, a World Bank consultant and an expert on
Pakistan’s textile industry, told the Editor, Pakistan Textile
Journal in 2001 that while Pakistan has the best spinning
technology in the world, it is kept grossly underutilized. The
same holds true in 2017. Instead of relying on export subsidies
our industry needs to invest in automation and energy efficient
technology to produce high-quality value-added yarns for their
international customers as well our own downstream sectors such
as home textiles, high-quality woven fabrics/knitwear, and
fashion apparel sectors.