Reduction in research and development (R&D) assistance by 3 percent will compel about 45 percent of small, medium apparel units to close down their production, thus declining exports by about 25 percent, industry sources said on Friday.
They said that the government was going to reduce the 6 percent R&D to 3 percent from next fiscal year 2007-08. This move would hit the already declining apparel sector badly, as the cost of production would go up manifold higher to result in slump in exports.
They suggested a long-term policy, besides demanding of the government to increase the 6 percent R&D assistance to 9 percent for development of the value-added sector till 2010, which would help it grow in the face of increasing stiff competition in the world market.
They said that textile was being given 5 percent R&D and the government had decided to continue this assistance further, while R&D to apparel sector was going to be cut by 3 percent, which they termed it as unjust.
"We demand of the government to look into the matter, seriously, and it should increase R&D assistance to apparel sector to 9 percent for the next three years," they said.
The boost in export of value-added garments taken place recently was due to increasing production of a few big units of the industry, which had sold their commodities under-cost in the world market, whereas the 60 percent small medium enterprises (SMEs) remained at lower level of production.
The apparel sector is based on 60 percent SMEs, which are facing serious financial setback in the wake of the ever-increasing utility charges to meet the exports target, said Ijaz Khokhar, Chairman of Pakistan Readymade Garment Manufacturers and Exporters Association (Prgmea).
He said that 6 percent R&D was vital for the growth of the value-added sector, and added that reduction in it would cause severe problems for this sector. Expressing fears, he said that reduction in R&D assistance would hamper further investment in the value-added sector, as it would become impossible for investors to cope with manifold increasing financial burdens in the absence of any assistance from government.
He demanded of the Prime Minister to hold a meeting with the representatives of the apparel sector to resolve all problems of this sector. "Representatives' meeting of the apparel sector has never been convened by the PM, despite their request, and they still seek meeting with him for the development of the value-added sector," he said.
About export development fund, Ijaz said that for the last 12 years about Rs 20 million had been paid to government for the development of garment sector but it had not even spent a single penny to augment this sector. He demanded that such a big amount should be spent for the development of value-added sector.
He said that cut in R&D by three percent would also compel the investors to back out to survive which would badly hit te country's exports. He said that local industry should be given assistance, as is being given to foreign investors.
He said that the Ministry of Commerce had failed to achieve the exports fiscal target, and added that exporters had dispatched recommendations to it but they had not received any response from it so far.