The inconsistent growth rate in the textile industry is the result of 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 that benefits the production process has seized growth and held back the capital influx. This has led to a deficit in the balance of payments. Textile industry being a major player in the exports of Pakistan succumbs and numerous businesses discontinue operations as the textile policies of past fail to get a stable foothold.
The increasing energy crisis, unfavorable business conditions consequential of adverse government policies, up surging inflation lead to a decline in investor’s confidence and has sent the entire textile value chain in a state of distress. The SWOT analysis indicates 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 fibers and the garments industry that 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. The declining investment confidence can be lifted by providing sustainable, fair priced, un-hindered energy resources. 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 installment incentivized mainly at Industrial zones enabling the producer to be self-sufficient to a degree and decrease dependency over a single source of energy. This is ever so vital because 35% 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 to the Improvement and development of cotton. This is evident given that 90% 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 fibers 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 giving them assurance of a healthy business environment, introduction of investment friendly policies and exploration of new potential markets for our exports such an Africa.
The government should introduce positive tax reforms that facilitate entry into the industry. Examples of such are reduced corporate taxes similar, quicker refunds of input sales tax and a revamped minimum tax regime. It is necessary that the sales tax refund system 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 in order to avoid a liquidity crisis and the State Bank of Pakistan needs to address this issue. This is more crucial now than ever since the Government stripped the textile industry off 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 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 categorized as sick have seized production all together because given the current situation of up surging costs the continuation of operations no longer stood viable. The government needs to work out a policy paradigm for upward growth of such sick units. Positive steps should be taken regarding 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 favorable results.
Tariffs on imported textile materials are applied to provide protection to domestic industry which has built inefficiencies in the manufacturing process. The government should curtail down on 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 level playing field for the local producer. Government funded labour training schemes should be put in practice with special focus upon women employment programs, this would increase the skilled labour turnover .The existing schemes offered 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 3-4 million jobs in the upcoming 5 years and improve the socio-economic profile of Pakistan.