Textile industry seeks reduction in interest rate

LAHORE: Textile industry demanded reduction in interest rate by 250 bps to 7.5 percent in the monetary policy, likely to be announced shortly, as growth of Large Scale Manufacturing (LSM) sector is stalemate due to short of investment.

They said the industry off-take has reduced by Rs.100 billion since September 2010 to September 2012 that has arrested growth in the Non-Performing Loans (NPLs) of the industry.

However, they added, it has a dire impact on the investment front, as all investment plans have been withheld by the investors due to high interest rate, which has yet to witness the regime of single digit to compete with regional competitors.

It may be noted that the State Bank of Pakistan has already reduced interest rate by 400bps during last two years that has played vital role in stopping nosedive decline in industrial growth. However, still the industry is badly looking for substantial reduction in interest rate, in line with the regional competitors, to make new investments and avail the upcoming trade opportunities from the EU, including recently trade concession on 75 items and upcoming GSP Plus.

Meanwhile, inflation has also come down to 6.5 percent that has asserted the industry viewpoint agitating the point that the country is facing cost-push factor and not a demand-pull.

The textile industry is the worst hit of the high interest rate, losing strength fast amidst unprecedented energy shortage, both electricity and gas. A good number of textile mills have closed down operations from November 2007 when energy shortage hit the country. Many of the mills are still unable to meet financial obligations due to shift losses with rise in energy shortage. However, the government as well as the SBP responded poorly to the emergency like situation.

The role of Gohar Ejaz, Group Leader APTMA, cannot be ignored in this regard. He contested industry case by tooth and nail and convinced the government functionaries to bring 180 degree shift in its approach towards monetary policy. Today, the government has reduced interest rate from 14 percent to 10 percent and much credit goes to unstinting efforts of Gohar Ejaz.

But the industry is apprehending losing more against India if the government failed to respond industry call for reduction in interest rate by another 250bps to enable the industry in investing more to create jobs and earn foreign exchange for the country. It becomes further important in a situation when Indian textile industry has planned to create 20 million jobs by 2015, added the industry sources.