Pakistan’s textile sector faces challenges amid high costs, policy concerns

Pakistan’s largest export revenue generators are under threat as approximately 187 textile mills have shut down in Punjab. According to reports, a lack of sensible economic planning and flawed policies have trapped the textile sector in a quagmire.

Economic analysts suggest that Pakistan’s textile industries, especially those in Karachi and Faisalabad, have the potential to grow rapidly. If policymakers focus on forming prudent policies for the sector, business owners in the industry could experience a revival.

Many believe this to be imperative, as leaving textile mills to fail might result in serious drawbacks for Pakistan’s wider economy. There is merit to this claim as the textile sector brings in approximately 60 percent of export revenue and contributes about 8.5 percent to the Gross Domestic Product (GDP). The sector helps the cash-strapped economy to narrow the trade deficit.

According to reports, many initiatives can be implemented to support textile millers in their hour of need. For instance, the state can assist the sector by introducing textile tax courts, funding research and development projects, and setting up development banks that specifically cater to the needs of the textile sector.

Admittedly, the aforementioned initiatives require some level of monetary investment by governmental bodies. However, lawmakers in Islamabad could utilise their powers to assist the sector in a manner that will support it without deviating from their contractionary fiscal policy.

Lawmakers could consider revising the energy costs that textile millers have to face. As per a Zone chairman of the All Pakistan Textile Mills Association (APTMA), high power costs are detrimentally impacting Pakistani textile millers’ ability to compete in the international market.

According to reports, the zone chairman outlined how industries are being supplied electricity at approximately 39 rupees per unit. However, industries can actually be supplied electricity at a manageable 26 rupees per unit.

The reason behind industrialists purchasing power at extortionate rates is the concept of adjusting capacity charges and line losses into the electricity bills of said industries. Analysts have commented on how it makes little intuitive sense for industrialists to cover line loss charges when power theft in industrial areas remains minimal.

More concerningly, reports have revealed how commercial setups are facing power charges as high as 60 rupees per unit. Aside from industrial and commercial units bearing the brunt of high electricity costs, cotton farmers have started going out of business because of the textile sector’s increasing reliance on imported cotton.

The reason why millers and ginners prefer to buy imported cotton is that it arrives duty-free in the country, while local cotton farmers are subjected to an 18 percent General Sales Tax (GST). If the economy is to be protected, Islamabad will have to mobilize resources to protect the textile sector and other ancillary industries attached to it.