With the sales tax on textile machinery imports abolished in the export package, one may now hope that the latest technology and BMR activities come to our industry. While we look forward to that, a look back at our historical textile machinery imports is warranted.
Pakistans textile machinery imports peaked in FY05. According to a report with the Ministry of Textile, this can be linked to the industry gearing up for the post-quota regime (from 1994 to 2004, all textile and clothing trade between WTO nations was under quota; this expired in 2004), as well as the launch of the Scheme for Long Term Financing for the Export Oriented Projects by SBP in May 2004. The scheme offered long-term loans for machinery imports at interest rates ranging from 5-8 percent.
After the abolition of the quota regime, however, textile machinery imports dropped by eight percent in FY06 and nosedived in the following years. As per the Textile Ministrys report, the growth in investment in textile, which faced tight competition after the quota phase-out, was further hampered by increased interest rates.
According to an industry source, markup rates started increasing; there were shortages in the cotton crop; energy shortages; a recession in textile industry on the whole; and the financial crisis of 2008. All these factors can account for the sustained drop in textile machinery imports from FY05 to FY09. The recession hit India as well, which saw a dip in textile machinery imports in FY08 that bottomed out around FY10. Moreover, a lot of the Pakistani schemes and SROs had expiration dates.
In the case of Pakistan, new life came into textile machinery imports starting FY09, but hit a snag with the coming of the Nawaz government. Meanwhile, Indian textile machinery imports have skyrocketed over the same period.
The Textile Policy (2009-2014) which only saw 30 percent of its measures implemented, as per one of the architects of the policy may have been partly responsible for the resurgence in machinery imports. The Long-term financing facility was introduced during this time. A number of measures were introduced for duty free import of machinery including, inter alia, DLTL, Export Finance Markup Rate facility, and Technology Upgradation Fund. Such measures helped bring back much-needed investment into the industry. Another industry source added that there was a shift from conventional power looms to shuttle-less and air jet looms over the past 7-8 years. This also explains the higher machinery imports over the period.
Policies under the PPP government seem to have brought about a rebound in machinery imports. Going forward, one hopes that the present programme of duty free machinery imports can also bring back the investment needed to bring textile on track to long-term growth.
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