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Pakistan: Industry wary of much delayed textile package

Pakistan Prime Minister Nawaz Sharif has unveiled the much-awaited textile package worth Rs 180 billion. In the current year, the government has already provided a reduction in power tariff and has tried to provide uninterrupted power supply to the textile industry. Moreover, five exports sectors have already been declared zero rated. Now, the government is trying to appease powerful stakeholders in some or the other way since the election campaign is gaining momentum each day.

The package was delayed by a couple of years. When international prices started to decline in 2013-14, the exporters somehow needed this package anyway. On the external front, exporters were getting lower prices for their products. On the internal front, they faced gas and electricity load-shedding and even higher power tariff. Caught by the electricity issue in the beginning, the government turned a blind eye.

Small and medium sized exporters were hurt when rupee appreciated against dollar from 105 to 98. Many went out of business due to forex volatility. That was the time when exports started to decline and industry clamoured for a relief package, but the government denied it. By keeping rupee strong for so long, the government has aggravated the problems of exporter since exports are of low value-added nature which cannot command higher prices. Under these circumstances, a planned package is required to upgrade the industry.

The package is a generic one without a differentiation strategy. There is always a need to differentiate between small and large exporters. In an ideal situation, small exporters are subsidies dependent, while large exporters can easily look after themselves. The span of the package is short it will last 18 months. The first six months of the package are unconditional that the export subsidies would be given out without any commitment from the industry. The rest are conditional on expansion of exports. In this short span, the industry cannot re-orient itself and gear for high exports. Furthermore, the chances of new entrants in the export business are minimal.