War of words has erupted between the value-added sector of textiles and the spinning sector that is facing dwindling exports. There is no shortage of yarn in the local market; still the value-added sector demands a ban on yarn exports.
The point of contention is actually the price at which the spinners provide yarn to the value-added exporters. In the eyes of the exporters, the price demanded for yarn was higher than the global rates.
The spinners on the other hand point out that their cost was higher, which was why they were losing export orders.
They said that a ban or duty on export of yarn would be a death knell for the industry, as they would then be at the mercy of local buyers only, and the glut created due to ban on exports would bring the prices down sharply. In such conditions, the spinning industry would collapse within a few months.
The value-added sector argues that they could not compete globally if they bought basic raw material at higher price. They claimed surprise at the higher cost of yarn despite devaluation and government concessions in energy and power prices received by the basic textile industry.
Wages have also come down to $104/month, which was 40 percent lower than India our major competitor in yarn. Water charges in Pakistan are half that of India. Similarly, steam production in Pakistan was also much lower and land rates were also cheaper than all competing economies.
Even after 30 percent devaluation of rupee, the Indian yarn was still cheaper than Pakistan. Indian yarn imports have been checked through regulatory duties. Indians have however through diplomacy obtained concessions higher than those available to Pakistan from many yarn importing companies. In China, their products are charged ASEAN concessionary duties that would be available to Pakistan from July 1, 2019.
The Pakistani spinners were in a spin as many fabric producers that were in exports, now imported Indian yarn under DTRE or import bond schemes at zero rates. They however were not in a position to lower their rates because of high cost. This is puzzling as all economic fundamentals on production favour them.
The spinners would have to improve their efficiencies through technology upgrade otherwise they would continue to lose both domestic and foreign markets.
Some of them have initiated this upgrade and would soon be in a position to compete both globally and locally. With government facilitation and rupee devaluation, they would achieve better efficiencies than their global rivals in near future.
The entire spinning sector would have to go for technical upgrade to cater to both domestic and foreign markets. It would however take one to two years to complete the process if started now.
In the meantime, the government should devise a policy to facilitate value-added exporters. The value-added exporters also enjoy all the advantages that were enjoyed by the basic textile sector. The only disadvantage that they currently face was the high price of their basic raw material – yarn.
They should be given blanket permission to import duty free yarn of all varieties and also blended fabrics to enable them to fetch orders for new products from the global markets.
The DTRE permit should be awarded to every value-added exporter at no cost or fee. DTRE is a scheme to facilitate exports and not a revenue making scheme.
The duration of DTRE should be for two years. The exporters should be bound to get annual consumption audited or preferably verified through the export invoices. We need to increase exports immediately. There is no time to wait for upgrade of industries.
Pakistani textile sector has the potential to meet any global challenge if the technology is upgraded and input costs are in line with competing economies. On skills in textiles, our workers can beat the best.