EDITORIAL: The Textile Policy 2020-2025, approved by the prime minister for onward submission to the Economic Coordinating Committee (ECC) of the Cabinet, has given the textile industry what it wants. But does it also give the economy what it really needs? Especially now that we have finally decided to adopt a long-term, forward looking export policy, which means some sectors will require more attention and concessions than others. While the government has been on something of a mission lately to identify industries it can breathe some life into for healthier export earnings, which is appreciated, it seems it has bet on textiles to lead the way. Because after lowering electricity and gas tariffs, keeping Long-Term Financing Facility (LTFF) and Export Financing Scheme (EFS) rates unchanged and extending incentives worth Rs838 billion over five years, among a whole host of other measures, the commerce ministry expects the sector to earn upwards of USD 20 billion by 2025. All it believes it really needs to do is to make sure that the policies stay on track. And by the time the nation goes to the polls again in 2023 there will not only be a visible uptrend but also more revenue and jobs, so everyone will be happy.
That's one way to make the business community happy enough to vote for you. If propping up the lead sector can make it grow enough to earn alone what the entire export basket fetches now, surely there will be similar packages for other industries down the road as well. But all that is easier said than done. It's not as if the Pakistan Tehreek-e-Insaf (PTI) government is the first one ever to have the smart idea of practically burying the textile industry under incentives in the hope of making it produce, export and earn more. Yet despite all the policies over all the years its earnings, in dollar terms, have constantly hovered around the USD 11-12 billion mark, which means a very clear decline in real terms. And all it has to show for all the money and special financing and tax rates it has received over the years is the same manner of work with the same outdated machinery, very little follow through on value addition, and simply unacceptable levels of vertical integration. Even the most basic cost-benefit analysis of the subsidies that the textile sector has been showered with makes it stand out as a black hole that consumes everything that goes into it and still stays very much the same.
The government should instead have looked for ways to transform the textile sector and make it more adaptable to the demands of modern day commerce. For even if the incentives trigger more output out of the sector there will still be changing market dynamics to contend with. For starters, there is a danger of sorts of losing the Generalised System of Preferences-Plus (GSP+) trade concession in the European Union (EU). The French seem to have hinted that should Pakistan really expel their ambassador over all the unpleasantness caused here by President Macron's recent Islamophobic comments then not only would GSP+ be in jeopardy but they would also give us a tough time at the next meeting of the Financial Action Task Force (FATF) due early next year. There are other facts too that we seem to have completely missed. The speed with which this sector is becoming mechanized and more and more robots are replacing underpaid human workers, advanced countries that were previously priced out of the market because of unavailability of cheap labour are now getting back in the game, and this trend will pick up pace as countries rush to capture export markets once the world opens up again after the coronavirus.
How good would textiles, or even the current account for that matter, look even if the textile policy works like a charm yet we lose market share here and there for political as well as technological reasons? Granted, this sector is too important to be left as it is. But it will need to come up with a compelling and actionable plan to justify the kind of support it is used to getting, and is still getting. Right now, it just proves famous economist and Nobel laureate Paul Samuelson's immortal words about industries that never outgrow government protection, "Lo, they have not outgrown their diapers these many years."
Copyright Business Recorder, 2020
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