Engineering industry is one of the most dynamic sector in globalisation era having great potential for growth. It comprises base metals, metal products, mechanical and transport equipment, electrical equipment, electronics, non metals, design and engineering services.
Because of changes in consumer preferences, competitive pressures and phenomenal speed of technological changes, the engineering industry has undergone major transformations all over the world because sharp growth in demand as well as the investment required for this sector is very high. Opportunities in the engineering sector are immense but so is the competition because developed countries have attained an edge over others.
The progress of our engineering sector has been less than satisfactory. The contribution of engineering industry to GDP is currently only 2 billion dollar and it employs a mere 600,000 people. We are saving 3.75 billion dollar per annum through import substitution. Our trade deficit is rapidly increasing mainly due to import of engineering sector products.
During the past seven years engineering industry maintained a lowest profile in the unorganised, particularly micro engineering industries could not develop compared with medium and large industries.
Through deletion programmes hundred percent deletion has been achieved in electric motors, 95 percent in electric pumps, 70 percent in motorcycles, 50 percent in truck and buses, 80 percent deep-freezers and 90 percent in washing machines. In spite of all these achievements micro sewing machine industry which is one of the lagging behind industries was ignored. Having no planning parameters, it has never been thought prudent by policy makers that the growth of sewing machine industry can work towards poverty alleviation and maximum use of our human resources through involvement in small value addition exports of textiles.
Sewing machine industry can be categorised as family-based/owned small sized production units with small amount of capital whose production process is based on imported raw material, pig iron, coal, silicon, steel sheets, iron steel bar, paints, electroplating material, tools, jigs etc, and manufacturers are catering their requisites from open market and their purchases of all material carry the payment of sales tax from 15-20 percent ratio.
During the past sixty years sewing machine industry remains as cottage industry as big units have not yet been established either by the private sector or public sector.
In Karachi there are two medium type units - Salika Sewing Machine Company and Singer Sewing Machine Co, - both units are assembling sewing machines in small quantity and their production factories are closed due to uncompetitiveness as China and India are jeopardising our industries owing to high production cost and technical changes in production, shrinking of economic distance, new norms of industrial production.
In spite of poor production base this industry is meeting 95 percent demand of the country and its contribution to the exchequer and employment is stimulating our economy towards saving of our foreign exchange required for the import of machines.
Parts are made with zero technology involvement with inherited artistic skills and simple indigenous technology. The lack of modern technology does not have the capacity of mass production of sewing machines. As for as the assembling process of sewing machines is concerned it is conventional prototype. In production line 50 years old milling machine, lathe machine, facing machine, drilling machine, cutting press are used.
Family based small industry in this sector is playing vital role in poverty alleviation by providing jobs to more then 100,000 people. They are engaged in parts manufacturing and sewing machine assembly work.
Last year the Engineering Development Board chalked out a strategic programme for the revival and development of this industry and different proposals in this connection were under review by the EDB, but it is quite strange that in the budget 2007-2008 through SRO 462 sales tax on the import of sewing machines import was lifted, customs duty reduced from 20 to 5 percent which made the local industry entirely non-competitive and owing to the draw back of this SRO hundreds small manufacturing units are forced to close their work.
It is quite strange no homework was initiated by the Ministry of Finance to check whether this small industry is capable of coping with problems. Being categorised as micro units they are not capable of sales tax net, which could provide them in output facilities.
When local small manufacturer will produce parts with imported raw material wherein sales tax will be paid how they can compete with zero-rated sales tax imports. If we compare the basics of this industry with other light engineering industries there is 25 percent customs duty and 15 percent sales tax on the import of fans, washing machines, whereas for cycle industry maximum tariff protection has been provided, import of fans of over 88 watts are banned.
Quite recently auto parts import from Sri Lanka was restricted, but for sewing machines low tariff on import will adversely affect this local industry in the era of global competitive threats. One wonders that SRO 462 on the one side is causing unemployment and on the other hand import of sewing machines will increase the burden on our exchequer and these facts are being ignored. This cottage industry is catering to the 95 percent local demand and is giving jobs to thousands of people.
Increasing cost of production is another important factor for cottage industries to compete with China. Gas prices for captive power generation units have increased from Rs 172.62 per mmbtu during 2004 to Rs 264 during July 2006, an increase of 53% in less than two years. Wapda rates have been increased recently by 10%, the reliability of supply is another segment, finance cost for buying latest engineering machines is so high that the existing infrastructure of this industry is not capable to proceed towards upgradation having no incentive from the government.
For value addition of our garments industry it is imperative to protect local sewing machine industry so that its development and progress can be achieved to produce industrial sewing machines. Presently there is negligible infrastructure for the production of industrial sewing machines and our 100 percent needs for these types of machines are met with imported ones.
Sewing machine industry in China, Taiwan, India developed in competition with Japan and presently 80 Japanese companies have shifted their production net to China. We can attain technology in this sector from China as role model. It should be the prime policy of our government to bring forward the vision and challenges targets for this sector for development at faster pace. It is dire need of the time to formulate national policy for the growth of micro engineering industries.
The main causes of poor performance of this sector are, absence of integrated approach for balanced growth of all economic sectors, lack of consistence policies and political will, ad hoc approach in policy formation, irrational and discriminatory tariff structure like SRO 462, lack of institutional support, unfavourable production cost due to raw material problems, high financing cost, low labour productivity, lack of economy of scale in production, lack of R&D, design, quality finally lack of entrepreneurship and management skills.
The most important step for the upgradation of our micro engineering industry is to allocate more resources to basic and technical education. The existing institutions are not fully equipped to provide the requisite skilled manpower for producing quality products. There are only 10 universities and colleges, which offer 4 years degree courses to engineering students. Total enrolment in these colleges and universities is less than 20,000.
For technology development, there is need to adopt such steps which encourage technology transfer to Pakistan. A clear-cut policy be adopted to promote the quality of our products with technology base and for achieving high targets formulation of Technology Development Support Fund is the need of the time.
Non-availability of trained manpower is a dilemma these days. The main reason of this dearth is low allocation, education and training. It is imperative that at least 1 percent of GDP each year for the training of manpower be allocated. Collaboration between engineering universities and engineering industry is needed which could map out the demand for different sectors' engineering demands.
The major constraints of micro units are insufficient knowledge of tools, mold manufacturing techniques, material usages, non-availability of specialised steels, insufficient machining and manufacturing facilities, use of prototype obsolete machines, multiple machine techniques causing wastage of material. Protection of intellectual property rights (trademark protection) is another big problem.
Since the micro engineering sector is growing on through Mistri Culture, which takes little care about measurements, time, punctuality, this sector be given full taxation support to protect it from overseas competition.
(The writer is Chairman Sewing Machine Development Committee, Engineering Development Board).