The Economic Survey 2014-15 released by Finance Minster on Thursday termed weak export yarn, gas shortage and substitution of domestic edible oil with imports as key reasons for lower growth of Large Scale Manufacturing (LSM). According to the document, LSM during July-March 2014-15 registered a growth of 2.5 percent as compared to 4.6 percent in the same period last year.
The production data of Large Scale Manufacturing (LSM) received from the Oil Companies Advisory Committee (OCAC) comprising 11 items, Ministry of Industries and Production 36 items and Provincial Bureau of Statistics 65 items have contributed in LSM growth as 0.15 percent, 1.02 percent and 1.31 percent, respectively. The industry specific data shows that sub sectors recorded negative growth during the period July-March FY 2014-15 over corresponding period of last year ie Wood Product declined by 78.46 percent (as compared to -8.91 percent last year), Engineering Products 10.68 percent (as compared to -20.15 percent last year), Paper and Board 7.26 percent (as compared to 9.30 last year), Food Beverage and Tobacco 1.03 percent (as compared to 8.24 percent last year) and Rubber products 0.56 percent (as compared to 9.41 percent last year).The sector showing growth during July-March 2014-15 such as iron and steel products 35.63 percent (as compared to 3.38 percent last year), Automobiles 17.02 percent (as compared to 0.35 percent last year), leather products 9.62 percent (as compared to 12.70 percent last year), electronics 8.21 percent (as compared to 7.02 percent last year), pharmaceuticals 6.38 percent (as compared to -0.37 percent last year), chemicals 5.94 percent (as compared to 6.74 percent last year), non metallic mineral products 2.56 percent ( as compared to 0.19 percent last year), coke & petroleum products 4.73 percent (as compared to 7.49 percent last year), fertilizers 0.95 percent (as compared to 21.64 percent last year) and textile 0.50 percent (as compared to 1.45 percent last year).
LSM growth was hampered by a broad range of issues that include weak export of cotton yarn, gas shortages in number of industries and sector specific factors like closure of large chip board plant and substitution of domestic production of edible oil with imports. Cotton yarn production witnessed both demand and supply issues. On demand side, export demand for cotton yarn has remained low since last year especially after the reversal of cotton policy by China. China has been building cotton stocks since 2011 by offering higher than competitive prices to local farmers. The consequent widening of the gap between international and local cotton prices encouraged Chinese manufacturers to increase their imports of cotton yarn and its bi products. In March 2014, the Chinese Government introduced a major shift and would pay the price differential to farmers if market price falls from a target level, which was significantly smaller than the price at which the government was earlier buying from the market. On supply side, gas shortage was another drag in yarn manufacturing.
The textiles sector in Pakistan has remained stagnant over the last decade due to a number of exogenous and indigenous factors such as subsidies given to cotton farmers and other textiles products by several countries which distorted prices, marketing constraints, global recession, and increasingly stringent buyers conditionality. On the domestic side, cotton production has remained stagnant at about 13 million bales per annum and the resistance to grading and standardization of cotton bales by ginners and spinners alike has consistently lowered the value of Pakistani cotton by around 10 cents per pound in the international market. On the other hand, the value-added garments sector has grown marginally due to its limited product range, low usage of manmade fibers and inability of manufacturing units to restructure in order to meet changing international requirements.
Federal government has announced textile policy 2014-19. The package carries special duty-drawback rates, duty exemption on plants and machinery, subsidy on long-term loans and development subsidies. The Policy offered about Rs 64.15 billion cash subsidy to the textile and clothing sector to boost exports to $26 billion by 2019 from $13 billion.
Finance Division will provide Rs 40.6 billion over five years for duty drawback, technology up-gradation and brand development etc., while another Rs 23.5 billion will be provided for skill development, dedicated textile exhibitions, establishment of world textile centre, weaving city, incubators, apparel house, and mega textile awards.