Pulling the rug from under the carpet industry’s feet

The traditional woolen hand-knotted carpet and rugs manufacturing sector had uniquely positioned Pakistan among the historical and globally recognized players. Instead of focusing upon diversifying both markets and product range in order to boost exports and attain revival of the sector, recent taxation measures may jeopardize its revival efforts.

One of the main issues lies in the recent changes in the taxation regime for exporters for the current financial year’s Finance Act, which has dealt a severe blow to an already struggling industry, pushing it further towards a collapse. Under this taxation system, export earnings are now subject to a non-adjustable, non-refundable one percent income tax. This experiment had failed in the past, yet it has been reintroduced.

This move is likely to leading industry towards disaster as exports may tend to decline. Despite objections from export organisations, chambers, and even members of the government cabinet, the government’s stubbornness and bureaucratic hurdles are hindering export growth rather than promoting it.

Pakistan’s hand-made carpets industry was able to gain global recognition, establishing itself as a prominent brand for the country. The industry played a crucial role in earning foreign exchange for the country in its early decades, providing a strong economic foundation. Despite being a significant source of employment, especially for women in rural areas, this industry has been neglected by successive governments, leading to a decline in exports.

Industry representatives have repeatedly stressed the need for addressing the reasons behind the industry’s decline in the face of rising cost of production, artisan-related issues and shifting of global demand due to multiple reasons.

If carpet export statistics for the last 12 years (2012-2023) are something to go by, the year-wise data speaks for itself. It shows a peak in carpet exports in 2013 at USD 128 million and a notable decline in 2020 to 54 million USD. In recent years, there has been a remarkable recovery with values reaching 87 million USD in 2023. However, industry leaders fear that this trend may not continue in the future due to a variety of reasons and their apprehension relied on trend seen in the export proceedings during the outgoing financial year.

The exports of woolen carpets and rugs from Pakistan during the periods of Jul-Mar 2023-24 and Jul-Mar 2022-23 showed an alarming trend. Carpet exports, in value terms, decreased by 21.61 percent during the period, dropping from USD56.618 million to USD44.640 million although the exports in terms of quantity increased by 23.03 percent from 2.032 thousand square meters to 2.500 thousand square meters.

These figures vividly show a decline in value of export of carpets, rugs, and Kilims, Regrettably, the hand-made carpet industry has lost its footings in various global markets on account of elevated prices of raw material, costly labour, and higher freight charges, according to an official assessment.

Evolution of carpet industries of both Pakistan and India has been a stark reminder of where we are heading in terms of export volumes. When comparing the traditional rival India with Pakistan’s hand-woven carpet industry, it is evident that both countries initially had similar export levels by the turn of this century.

However, over time, India’s successive governments began to heavily support and promote this industry, providing manufacturers and exporters with various facilities and privileges. Indian manufacturers and exporters were encouraged to participate in international exhibitions worldwide, leading to a significant increase in export volume.

In contrast, Pakistan’s carpet industry, which used to be on par with India’s, is struggling in keeping its dwindling share intact while in sheer contrast, India has now surpassed exports of about one and a half billion dollars annually. Unfortunately, Pakistan’s industry has faced a sharp decline after its initial success, struggling to survive. The lack of government support, inconsistent policies, and unfavorable actions by regulatory bodies have contributed to the industry’s current state of decline.

Copyright Business Recorder, 2024