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Budget 2017-18 & the textile sector

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Budget 2017-18 & the textile sector
Budget 2017-18 & the textile sector

The federal budget of Pakistan was proposed on May 26, 2017 with a total outlay of the budget is Rs. 5, 104 billion, with resource availability during 2017-18 estimated at Rs 4,714 billion. The development expenditure for next year will be Rs. 1,001 billion, 40 percent higher than the Rs. 715 billion allocation last year. Since current government has been in office, the economy has exhibited an overall positive trend. The per capita income today stands at $1,629 as compared to $1,334, four years ago. The inflation was on average 12% between 2008-13.

In this current year inflation is expected to be around 4.3%. To some extent, the slump in international oil prices have contributed to this. The GDP Growth at 5.28% this year is the highest in the past decade. Four years’ ago, the economic growth was 3.68%. The size of the economy has surpassed $300 billion. The industrial production grew by 5.02% and businesses are now hiring additional workers. Exports during the first ten months of current year have shown an overall minor decrease of 1.28% compared to 7.8% decline during the same period last year.

The government has associated this reversal to timely support to exporters in shape of a comprehensive package of Rs.180 billion in January 2017 and commitment of the exporters. The major beneficiary of the said package was assumed to be the textile industry. Energy production was severely depressed for more than 10 years due to chronic under-investment, inefficiencies in the power network and an inability to collect sufficient revenue to cover costs. It was also reinforced that by summer 2018, nearly 10,000MW of electricity will be added to the national grid, eliminating load-shedding completing.

Budget for the Textile Sector
Pakistani Textile Manufacturing Sector contributes 8.50% of the national income. Cotton is the prime crop of Pakistan and makes the textile industry the most significant industry of the country. The textile industry contributes more than 60% of the total export earnings of the country. The sector constitutes 46% of the total manufacturing and provides 38% of the manufacturing labour force. The new measures proposed in the FY 2017-18 begun on July 1, 2017 are:
1. To stabilise cotton prices in the country, a system of cotton hedge trading for the domestic cotton will be initiated in consultation with stakeholders;
2. In consultation with public and private stakeholders, the government will launch Brand Development fund for textile sector;
3. The approval process of establishment of 1,000 stitching units has been completed and its implementation will start during FY 2017-18 and shall be completed in three years;
4. Textile Ministry will launch the first ever online textile business/trade portal for textiles using B2B (business to business) and B2C (business to consumer) mode. This will bring Pakistan textiles’ value chain in line with global marketing practices.
5. The import duty on nonwoven fabric (used in the pharmaceutical sector for manufacturing of bandages, surgical gowns, wound dressings, etc.) was proposed to be reduced from existing 16 per cent to 5 per cent.

The minimum wage of labour is being increased from Rs 14,000 to Rs 15,000 per month. All the measures announced in FY2016-17 like duty-free import of textile machinery will continue in FY2017-18. The recap of key measures in the past is below

• The mark-up rate on Long Term Finance Facility has been gradually reduced from 11.4pc in June 2013 to 6pc for exporters and 5pc for textile sector.
• Duty free import of textile machinery is allowed;
• Uninterrupted supply of electricity and gas is ensured for the textile sector;
• Technology Up-gradation Fund (TUF) Scheme 2016-19 for the textile sector has been introduced;
• Prime Minister’s package for exporters was announced in January 2017 in which the centre-piece is the textile sector;
• The government made five export oriented sectors – including textile, leather, sports goods, surgical goods and carpets – as part of zero-rated sales tax regime last year.

Industry’s Response
The All Pakistan Textile Mills Association (APTMA) said that the budget 2017-18 has disappointed the textile industry as the government has not announced implementation of the proposals given by the industry. Chairman APTMA Punjab Syed Ali Ahsan, former chairman APTMA Gohar Ejaz and Ali Pervez Malik addressed a press conference, after announcement of the proposed budget. The textile industry had demanded following of the government.
• To provide gas to the system at regionally competitive rate of Rs. 400/MMB
• To remove levy of GIDC and electricity rate for independent feeders and provide it at the rate of Rs. 7 KWH
• To release export refunds.
• To pay the remaining amount of Rs. 180 billion as per the Prime Minister’s Export Led Growth Package according to which the government has to pay Rs 10 billion per month whereas only Rs. 2 billion has been released so far during the last four months.

Syed Ali Ahsan said this seemed an election budget, as current year is the last year of government 5-year tenure. He said the government is not serious in increasing the GDP growth rate as it has not given any incentives to the industry without which their dream of economic growth could not be materialized. Former chairman APTMA Gohar Ejaz appreciated the resolve of the government and hoped that the industry will get incentives including uninterrupted power supply.

He said affordability but not availability of power is the real issue. He said hopefully the government will release sales tax refunds of the industry by August 2017 as announced by Federal Minister Ishaq Dar in the budget speech. He was optimistic that the government will release tax refunds in 90 days. APTMA leader Ali Pervez Malik suggested that the government should have focused on solving the issues of current account deficit and trade deficit otherwise it is feared it has to go for another IMF program. The government should ensure zero rating of all inputs in true spirit including packaging materials, spare parts and fuel and energy, he further opined.

APTMA said, the government is not serious about implementing the Rs. 180 billion Prime Minister’s export led growth package as the government has allocated only Rs. 4 billion next year. It was further said that due to wrong government policies, the country’s merchandise trade deficit has reached $31 billion — the highest in the history of Pakistan. The country’s exports, which was to the tune of $25 billion in 2013, has come down to $20 billion in 2017.

The cost of doing business has increased despite considerable decrease in oil prices, in the international market the price of electricity has doubled. He said they were getting electricity at Rs 6.76 Kwh where as in 2017 electricity stands at Rs. 11.30 Kwh. Payment of all pending refunds of sales tax, which is more than Rs. 200 billion resulting in creation of severe liquidity problem to the industry, duty drawbacks and incentive schemes claims should also be made without any delay. The demands included to reduce the Turn Over Tax to 0.25% from existing 1 percent and to advise commercial banks to provide long term loans and working capital to the textile industry at competitive rates.

Though the government’s support is instrumental but sector also needs to adopt an innovative and radical policy. Especially, to capture the losing share of China in the apparel sector as the cost of production in China becomes less competitive. Bangladesh (with advantage of being a least developed country, LDC, status) and Vietnam have done extremely well in recent years to do so. In addition, the sector also need to seriously explore avenues in the nonwovens and technical textiles.