Budget FY22 that has been proclaimed a pro-growth budget is largely positive for the textile sector and textile exports. In an attempt to enhance export competitiveness of local players and reduce manufacturing cost especially in the value-added segment, the government announced reduction in RD, CD, and ACD on import of raw materials like synthetic filament yarn, man- made filament yarn, woven fabrics, and artificial staple fibres. It also announced removal of 5 percent custom duty and regulatory on import of polyester yarn, which is again a reduction in the raw material cost for textile players – though it could adversely impact the spinners’ cost.
However, a key demand by the textile sector continues to be the restoration of zero-rated sales tax regime for the sector, which holds little relevance today as the government has made attempts like bringing a faster refund system, paying off pending refunds to exporters and abolishing duty and taxes on industrial raw materials to address the issues of the sector.
Amid the hue and cry by the textile sector over the ‘insufficient’ relief measures in the latest budget, textile exports continue to post growth. At $13.75 billion, 11MFY21 textile exports increased by 19 percent, while May 2021 textile exports are up by 41 percent year-on-year. The key drivers for growth are the value-added segments particularly knitwear, bedwear, towels and readymade garments that contribute to around 70 percent of total textile exports. All value-added segments within the textile group posted double digit growth during 11MFY21; readymade garments exports saw around 15 percent growth despite 26 percent decline in volumes. And while the trend of textile export growth coming from the value-added segment continued in May and overall 11MFY21, May-21 also saw a jump in the exports of basic textiles like cotton yarn and cotton cloth despite a decline in volumes, which shows the price increase.
It can also be seen that during 11MFY21, the import of textile machinery posted a growth of 21 percent year-on-year, which is an indication of the sector players undergoing expansion. However, the shortage of cotton in the country also resulted in an increase of 70 percent in raw cotton imports in the eleven months.
A point not to miss is that the growth is largely hinged on low base of 2020 that was marred with COVID-19 and the lockdown and restrictions worldwide. Another highlight is the decline in exports consecutively in April and May this year on a month-on-month basis as well as a decline in May 2021 textile exports versus May 2019 levels. Textile exports were down by 10.7 percent month-on-month in May 2021 and were also the lowest in at least the last six months.
So far, textile exports have been befitting from COVID-19 pandemic; the deadly wave of COVID-19 particularly in India along with decline in textile exports from China have given Pakistan’s textile exports another boost. At the same time, older cotton inventories are helping local manufacturers in circumventing the recent bull cycle in commodities including cotton. Going forward, it is expected that the government’s measures in the budget will enhance the competitiveness of the sector. However, all eyes are now on the much-awaited textile policy for the decision on the energy tariffs for the sector – a key driver for growth and export competitiveness.