There were a number of long standing demands of the textile industry for their revival. Now it seems that almost all of them have been fulfilled by the new government which wants the sector to increase its exports.
The cost of production has been brought down by reducing the price of gas to $6.5/mmbtu which was a major demand of textile associations. Input cost of raw materials has been brought down by removing duties on import of raw materials such as dyes and finishing chemicals. Moreover, the duty on imported cotton has also been abolished to ensure a cheaper supply of cotton to the industry.
The liquidity crunch also seems set to be solved as the government starts issuing promissory notes to clear the pending tax refunds. The rupee has been depreciated massively and is almost equal to the real effective exchange rate (REER). The point is that the government has given the sacrifice by giving up its fiscal room to accommodate exporters and has left no stone unturned.
Now, the ball is entirely in the textile industry’s court to increase their exports. It seems the textile barons are bullish on the future as they see the time is right to expand to take advantage of the host of rebates on value added segments in addition to the above mentioned measures to help bring down the cost of production and ensure liquidity for the sector.
BR Research’s reading of the pulse indicates that most players are either expanding or looking to expand. In a recent interview with this column, renowned textile tycoon Mian Mohammed Mansha who is Chairman of one of Pakistan’s largest textile mill disclosed his intention to increase the capacity of Nishat Mills by over 50 percent on the value added side.
He also believes there will be at least 5 times capacity expansion in the industry on value added segments.
The textile tycoons must realise that this time around the government cannot be blamed if they fail to revive their exports as no stone has been left unturned to facilitate them. Care must be taken to avoid the mistakes of the past.
In a recent interview with a leading daily, Advisor to the PM Razzak Dawood acknowledged that in the previous boom of the textile industry, most players chose to invest the profits in the stock and property market rather than increase their production capacity and undertake BMR investment. Let’s hope the realisation of that mistake has sunk in and the industry focuses on the big picture rather than taking a short term approach again.