It is very common for the textile industry to make its proposals for the consideration of government authorities almost on a regular basis. In a recent meeting with the Prime Minister in Islamabad, a delegation of All Pakistan Textile Mills Association (APTMA) reportedly told the Prime Minister that the production cycle of their industry requires 185 days to complete and the FBR collects sales tax on value-added items at each stage but the refunds are only available after exports. In this way, the FBR is overstating its revenues by Rs 22 billion per month which are actually refundable. Rs 108 billion was collected by the FBR during the first five months of FY20, out of which only Rs 15 billion was refunded, putting the industry in extreme distress. Continuation of energy package should be guaranteed for another five years, under which the export industry is being extended power tariff of 7.5 cents per unit and gas tariff at 6.5 per MMBTU. A decrease in cotton production and imprudent government policies have taken a heavy toll on cotton production which has decreased from 13.86 million bales to around 8.5 million bales this year. The textile industry will have to import in the ongoing financial year five million bales to meet the requirements. Pakistani textile industry has also been facing financial constraints over the last decade which has led to a fall in exports, decreased industrial production and low investment in the sector. Over the last one year, interest rates have been increased from 5.75 percent to 13.25 percent. It is also suggested that public-private collaboration is required to acquire advanced seed R&D technology for quality seed development and effective control on weeds and insects.
A closer look at the textile industry's proposals would reveal that there is hardly anything new in their pleas and their representatives continue to push their case on the same old lines, concentrating on seeking the attention of the government authorities on the withdrawal of zero-rating status of export-oriented sectors, high energy and interest costs and cotton shortages in the country. It may be mentioned here that some of the suggestions are worth consideration to be implemented while others may not be implementable under the current situation of the economy. Coming to individual proposals, APTMA is quite right in complaining about the inordinate delays in the settlement of refund claims which continue to be delayed to show a better picture of the government finances but adversely affects the liquidity position of various enterprises. The figures stated by APTMA about the liquidity withheld by the FBR appear to be quite high but even if they are small, it is the government's duty to refund the claims in time. It must be remembered that owing to this fact, textile industry is unable to create employment and meet export orders to the desired extent. As such, the government needs to consider either the restoration of the textile industry's zero-rating status or to disburse refunds immediately. It is also correct that cotton production has witnessed a huge drop in the country, necessitating import of about 5 million bales at a huge cost to the foreign exchange reserves held by the SBP. Cotton production within the country needs to be enhanced to about 14 million bales to meet the domestic requirements of the textile industry and earn huge foreign exchange. All steps including an increase in acreage under cotton crop, quality seed development and removal of weeds and eliminating of insects need to be adopted in this connection. So far as extending the energy package for another five years is concerned, the approval of such a policy package is difficult at this stage as it would either involve a huge amount of subsidy from the budget or a further increase in energy costs for other consumers. Both these options would increase the amount of subsidy in the budget or burden the domestic consumers further. Given the present political climate and the problems of the common man, such a proposal is, therefore, not justifiable. Also, APTMA continues to harp on the theme of lowering the interest rates which is not possible due to high inflation rate in the country at the moment and the EFF agreement with the Fund which stipulates a stringent monetary policy to stabilise the economy. Anyhow, we are surprised to see that APTMA and other lobbies continue to request the government to decrease the interest rates when this subject falls exclusively within the domain of the SBP which is autonomous in making monetary and credit decisions. The problem with this approach is that multilateral institutions would be constrained to think that monetary policy decisions are still framed in Islamabad rather than in Karachi despite the grant of autonomous status to the central bank. Finally, it is strange to see that APTMA is not appreciative of the relief given to the export sector in the form of massive devaluation of the rupee and other concessions.
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