PAK AIMS

(Institute of Management Sciences)

Subject: Economics (401) Course: M.B.A (morning) Section: A

This Project is Relate to :- Crisis in textile industry This project is made by: 092114-Tanveer Ahmad 092112-Sheraz Tariq This project is submitted to: ro!. M"hammad #mran. Submitted on: 2$% &"'( 2009

Contents:Summary:Introduction: History of Pakistan Textile Industry ! "ack of Research # de$elopment %R#&' in cotton sector:(! "ack of moderni)e e*uipment:+! ,inance -ill to burden industry further: .! Increasin/ cost of production:0- Internal issues pose a lar/er threat for Pakistan1s textile industry:2-3ner/y crisis: a' 3lectricity crisis:b' 4as Shorta/e:5-Ti/ht 6onetary Policy:7- Remo$al of subsidy on Textile sector:8- "ack of ne9 in$estment::- ;nited States # 3; cuts imports of textile from Pakistan:- Ra9 material Prices:(- 3<P=RT P3R,=R6>?C3 =, TH3 T3<TI"3 S3CT=R:-

+- The 3ffect of 4lobal Recession on Textile Industry:14-Effect of Inflation 15-Unemplo ment cause! " te#tile

0- Recommendation:

Summa$ :Pakistan1s textile industry is /oin/ throu/h one of the tou/hest periods in decades! The /lobal recession 9hich has hit the /lobal textile really hard is not the only cause for concern! Serious internal issues also effected Pakistan1s textile industry $ery badly! The hi/h cost of production resultin/ from an instant rise in the ener/y costs has been the primary cause of concern for the industry! &epreciation of Pakistani rupee durin/ last year 9hich has si/nificantly raised the cost of imported inputs! ,urthermore@ double di/it inflation and hi/h cost of financin/ has seriously effected the /ro9th in the textile industry! PakistanAs textile exports in turn ha$e /one do9n durin/ last three years as exporters cannot effecti$ely market their produce since buyers are not $isitin/ Pakistan due to ad$erse tra$el conditions and it is /ettin/ more and more difficult for the exporters to tra$el abroad! Pakistan1s textile industry is lackin/ in research # de$elopment %R # &'!The production capability is $ery lo9 due to obsolete machinery # technolo/y! Pakistan is facin/ hi/h cost of production due to se$eral factors like the hike in electricity tariff@ the increase in interest rate@ ener/y crisis@ de$aluation of Pakistani rupee@ increasin/ cost of inputs@ political instability@ remo$al of subsidy # internal dispute! The abo$e all factor increase the cost of production 9hich decreases the exports! 3xports receipts decrease from B :!( - to B 8!2 -! The /lobal recession also hit badly the textile industry! &ouble di/it inflation also caused decrease in production in textile sector 9hich cause the increase in unemployment le$el! -y the remo$al of subsidy the industry1s production /et hi/her effected 9hich pro$e as a last strike on industry1s back!4o$t should pro$ide subsidy to the textile industry for the sur$i$al of this industry! Continuity of pc contro$ersial 9ithholdin/ tax on

import of essential ra9 material %cotton # polyester staple fibre' for industry should be 9ithdra9n immediately! This 9ithdra9al 9ould enable the industry to procure some +m cotton bales annually from outside 9orld in order to meet the shorta/e and to compete 9ith re/ional competitors in international market to earn forei/n exchan/e for the country! =n imposition of 2C ,3& on bankin/ and insurance ser$ices such ad$ance taxes 9ould play ha$oc 9ith the /ro9th of the industry in already existin/ ad$erse circumstances and needed to be 9ithdra9n immediately! The /o$ernment should not 9ithdra9 sales tax and 9ithholdin/ tax exemption on machinery and parts@ as it 9ould add cost besides li*uidity problem for the industry!

Int$o!uction:The Pakistan textile industry contributes more than 60 percent to the country1s total exports!The sum of total export is around 9.6 billion ;S dollars!The industry of textile contributes approximately 46 percent to the total output produced in the country! In >sia@ Pakistan is the 8th largest exporter of textile products! The contribution of this industry to the total 4&P is %&5 pe$cent& 6oreo$er@ it pro$ides employment to 38 percent of the 9ork force in the country! Ho9e$er@ the textile industry currently faces massi$e challen/es! The All Pa'istan Textile Mills Association %>PT6>' needs to enhance the *uality of its products! Ho9e$er@ >PT6> ar/ues other factors such as hi/h interest rates and cost of inputs@ non conduci$e /o$ernment policies@ and non-/uaranteed ener/y supplies hinder their competiti$eness!!

(isto$ of Pa'istan )e#tile In!ust$

Increase in the cotton production and expansion of textile industry has been impressi$e in Pakistan since 8.5! Cotton D bales increase from ! million bales in 8.5 to : million bales by (:::! ?umber of mills increased from + to 2:: and spindles from about 55@::: to 7:0 million similarly looms and finishin/ units increased but not in the same proportion! Pakistan1s textile industry experts feel that Pakistan has fairly lar/e si)e textile industry and 2:-5:C of machines need replacement for the economic and *uality production of products for a hi/hly competiti$e market! -ut unfortunately it does not ha$e any facility for manufacturin/ of textile machinery of balancin/ moderni)ation and replacement %-6R' in the textile mills! Ee need to think about joint $entures for the production of complete spinnin/ units 9ith china@ Italy and production of shuttle less looms 9ith Forea@ Tai9an and Italy!

Cotton textile industry has been major source of export earnin/ and employment! It also helps in $alue addition to the manufacturin/ sector of the economy! &urin/ the six years bet9een 88+ and 887@ production of yarn %in *uantity terms' re/istered a steady annual /ro9th rate of +:(C in -an/ladesh and .:0C in India! =n the other hand@ Pakistan re/istered a /ro9th rate of : C per annum in yarn production! It ranked third after China and India in the /lobal yarn production durin/ the same six years! In exports@ 9hile Tai9an@ India and the republic of Forea re/istered an annual increase of 7! C@ (5!5C and 0!.C respecti$ely durin/ 88+- 887@ Pakistan re/istered a ne/ati$e /ro9th of .!7C one important de$elopment 9as that till 885@ Pakistan 9as the 9orld1s lar/est exporter yarn follo9ed by India! Ho9e$er@ in 887@ India /ained the ?= position@ lea$in/ Pakistan at ?= ( In the case of cotton cloth production! > lar/e number of >sian countries ha$e been emer/in/ in the international market to compete 9ith Pakistan! These countries are -an/ladesh@ India@ Tai9an@ Indonesia@ Thailand@ Turkey@ Sri "anka and Iran! The abo$e-mentioned discussion of international scenario hi/hli/hts the ad$erse position of Pakistan1s textile industry 9hich is likely to continue further follo9in/ the full implementation of ET= a/reement from (::0 on9ards! Reflectin/ on the state of affairs@ >bid Chinoy@ Pakistan cloth merchants >ssociation %PC6>' Chairman@ >ppreciated /o$ernment1s efforts to encoura/e ne9 exports and findin/ ne9 markets@ 9hich need a//ressi$e export marketin/! The steps taken on the monetary front@ such as the fre*uent de$aluation of Pak rupee in terms of dollar could not impro$e the cost competiti$eness of exportable products due to increase in prices of the local and imported inputs of the local textile industry! &urin/ the period 85+ to &ecember 88(@ some 5 spinnin/ units 9ith @ +2@ 7+0 spindles@ 2@2:: rotors ands 5@+(8 looms 9ere closed do9n! In 88(@ a forei/n consultant form 9as hired by the /o$ernment to look into the sta/nate conditions in the local textile industry! =ne of the obser$ations of the forei/n consultant 9as GPakistan has failed to make real pro/ress in the international market and is bein/ o$er taken by many of the nei/hborin/ competitor countries! The textile sector 9hich constituted 28C of total export durin/ (:: -(::(@ belie$es that enhanced *uota by the 3uropean ;nion and Turkey 9ould make this possible to fetch another ;SB billion this year! The rise in export of $alue-added products from Pakistan 9as another point of encoura/ement for the textile sector! GThe export of $alue-added products rose to 05!.C from 0+!8C in (::( 9hich is clear si/n that 9e are mo$in/ in the ri/ht direction@ Gsaid the Chairman of all Pakistan textile mills association! The trade policy is considered an acceptable paper@ but in the industry does not fine anythin/ that could lead to a hi/h le$el exports achie$ement and remo$e trade imbalance!

Pakistan1s textile sector earned ;SB0!55 billion durin/ the (::+ year@ compared 9ith ;SB0!055 -I""I=? =, (:::-(:: indicatin/ a /ro9th of :!28C! Industia!The total exports of textile sector in (::. 9ere ;S 0!5 billion 9hich sho9s (!0C /ro9th it increase to .C /ro9th in (::0 as compared to (::.!The textile sector sho9s 7C ne/ati$e /ro9th in (::2!The ne/ati$e /ro9th continue in (::5 aslo 9ith the $alue of 0C!The textile sector sho9s 0C /ro9th in (::7! ?o9 9e 9ill discuss the main reasons of crisis in textile industry step by step in detail

1& *ac' of +esea$c, - !e.elopment (+-/) in cotton secto$:The lack of research # de$elopment%R#&' in the cotton sector of Pakistan has resulted in lo9 *uality of cotton in comparison to rest of >sia! -ecause of the subse*uent lo9 profitability in cotton crops@ farmers are shiftin/ to other cash crops@ such as su/ar cane! In Punjab alone@ the cotton area so9n this season 9as less by ! . percent as compared to the last year! Textile o9ners ar/ue that althou/h the Cotton 0ision 1215 tar/ets 12 million bales till (: 0@ it is an ambitious tar/et as in reality cotton production is decreasin/ each year! It is the lack of proper R#& that has led to such a state! They further accuse cartels@ especially the pesticide sector@ for hinderin/ proper R#&! The pesticide sector stands to benefit from stuntin/ local R#& as hi/her yield cotton is more pesticide resistant!

1& *ac' of mo!e$ni3e e4uipment:6oreo$er@ critics ar/ue that the textile industry has obsolete e*uipment and machinery! The inability to timely moderni)e the e*uipment and machinery has led to the decline of Pakistani textile competiti$eness! &ue to obsolete technolo/y the cost of production is hi/her in pakistan as compared to other countries like India@-an/ladesh # china! >PT6> has hi/hli/hted that the Pakistan textile industry faces tou/h competition from the Indian@ -an/ladeshi and Chinese textile industries and local policies ha$e resulted in Pakistani textiles facin/ a critical condition!

5& 6inance 7ill to "u$!en in!ust$ fu$t,e$:

>ll Pakistan Textile 6ills >ssociation %>PT6>' has told that /o$ernment1s actions are not matchin/ 9ith its 9ords for the textile industry! Referrin/ to the Prime 6inister Husuf Ra)a 4ilani speech at the launchin/ ceremony of the Infrastructure &e$elopment of the Pakistan Textile City at Port Iasim Industrial >rea@ 9here Prime 6inister spoke hi/h of the textile industry contribution to9ards the country1s economy@ Chairman >PT6> Tari* 6ehmood said the federal bud/et (::8- : is a total ne/ation of the ackno9led/ement of the role of textile

industry on the part of the Prime 6inister! 3specially@ he said@ the pro$isions of ,inance -ill (::8- : are not textile industry friendly at all! Pro$isions like reintroduction of :!0C minimum tax on domestic sales@ C 9ithholdin/ tax on import of textile and articles@ 2C ,ederal 3xcise &uty on bankin/ and insurance ser$ices besides 9ithdra9al of exemption of 2C sales tax and .C 9ithholdin/ tax on machinery and parts in the ,inance -ill (::8- : are nothin/ but last strick on industry1s back! >ccordin/ to him@ reintroduction of minimum tax on domestic sales 9ould in$ite una$oidable li*uidity problem@ 9hich is already reached to the alarmin/ le$el! He said the textile industry 9as facin/ ne/ati$e /eneration of funds due to unaffordable mark up rate on the one hand and acute shorta/e of ener/y supply # unima/inable po9er tariff for industry!

4& Inc$easing cost of p$o!uction:The cost of production of textile rises due to many reasons like increasin/ interest rate@ double di/it inflation # decreasin/ $alue of Pakistani rupee! The increasin/ interest rate caused barrier in openin/ ne9 manufacturin/ units # also increase the production cost of existin/ units! The $alue Pakistani rupee is continuously decreasin/ 9hich increased the cost of imported ra9 material! The remo$al of subsidy # implementation of ne9 taxes from /o$ernment also increase the cost of production! The instant increase in cost of electricity also caused a increase in production! The abo$e all reason increased the cost of production of textile industry 9hich create problem for a textile industry to compete in international market!

5- Inte$nal issues pose a la$ge$ t,$eat fo$ Pa'istan8s te#tile in!ust$ :Pakistan1s textile industry is /oin/ throu/h one of the tou/hest period in decades! The /lobal recession 9hich has hit the /lobal textile really hard is not the only cause for concern! Serious internal issues outbreak Pakistan1s textile industry! The hi/h cost of production resultin/ from an instant rise in the ener/y costs has been the primary cause of concern for the industry! &epreciation of Pakistani rupee durin/ last year raised the cost of imported inputs! In addition@ double di/it inflation and hi/h cost of financin/ has seriously effected the /ro9th in the textile industry!PakistanAs textile exports ha$e /one do9n durin/ last three years as exporters cannot effecti$ely market their products since buyers are not $isitin/ Pakistan due to ad$erse tra$el ad$isory and it is /ettin/ more and more difficult for the exporters to tra$el abroad!

Tou/h competition in international markets and fallin/ industrial output at home ha$e held back the exports this year! 3xports of textile products decreased to 5!07C durin/ July-6arch period of current fiscal year to B5! 8+ billion as compared to B5!577+ billion of the same period of last year! The ne/ati$e /ro9th in most of the sub sectors of textile sho9s the need of stron/ policy in fa$our of textile sector from /o$ernment side! The industry $ie9s the hi/h cost of doin/ business due to increasin/ cost of financin/ and po9er shorta/e 9hich is primary reasons for the sharp decline in export /ro9th of textile products! The industry has to be efficient and professionally mana/ed to be able to sur$i$e these difficult times! The hi/her cost of production is of course in lar/e part due to the hi/her cost of inputs 9hich includes the ener/y cost primarily!The /o$ernment needs to play its part to help the industry to sur$i$e the industry from these difficult times! The /o$ernment has so far appro$ed a markup subsidy of +C to the spinnin/ sector for a period of t9o years! The period be/an from July @ (::5 and ends on June +:@ (::8! Rs !5 billion has been earmarked a/ainst the +C subsidy@ by depositin/ the same 9ith the State -ank of Pakistan!The similar relief is not extended for (::8- : 9hich is *uite disappointin/ act from /o$ernment! ! Textile exporters ri/htfully demand reduction of Fibor rate to 7C to a$oid a se$ere decline in exports! > three-year comprehensi$e textile policy is expected to be announced before bud/et (::8- :! The textile policy has been desi/ned to enhance the exports of textile sector to B (0 billion in next three years! This 9as stated by the 6inister for Textile Industry Rana ,aroo* Saeed Fhan !>ll Pakistan Textile 6ills >ssociation %>PT6>' chairman@ said that the textile policy 9as ready and 9ould be issued soon! This 9ill address the issues of up-/radation of machinery@ pro$ide infrastructure facilities and skill de$elopment of human resource of this industry so that they can compete in international market 9ith their competitors! Textile 6inister informed that the spinnin/ and 9ea$in/ sector 9ould /et its due share from the 3xport In$estment Support ,und@ 9orth Rs! .: billion allocated in the ,ederal -ud/et (::8- :! Rana ,aroo* pointed out that he has ad$ocated the case of immediate support to textile industry in the Parliament and also in the Cabinet meetin/s because he is confident that only textile industry 9as capable enou/h to bale out Pakistan from the current economic crisis! He said that the /o$ernment 9as determined to address the problems of textile industry! Secretary@ 6inistry of Textile Industry &r! Ea*ar 6asood Fhan said that preparation of Textile Policy 9as the main objecti$e of this ministry! He further said that althou/h 9e are .th lar/est producer and +rd lar/est consumer of cotton but unfortunately no9 9e are at number ( in the international trade of textile products! He assured that /o$ernment 9ill address the problems of textile industry 9ithout any further delay and he is confident that the first e$er textile policy of Pakistan 9ill address the problems and pro$ide immediate relief to industry and make it competiti$e in international arena! &urin/ speech the chairman hi/hli/hted problems and issues facin/ the textile industry:

He stressed that /o$ernment should take immediate measures to remo$e slo9do9n in the textile sector! He said that hi/h cost of doin/ business is because of intensi$e increase in the rate of interest 9hich has increased the problems of the industry! He said that record increase in markup rates is one of the major cause of defaults in ser$icin/ the loans a$ailed by the industry@ hence@ the $olume of non-performin/ loans has reached to an alarmin/ situation! He said that po9er shut do9ns may result in massi$e unemployment resultin/ in la9 # order situation !

9-Ene$g c$isis: a) Elect$icit c$isis:>s a conse*uence of loadsheddin/ the textile production capacity of $arious subsectors has been reduced by up to +: per cent! The representati$es of the all textile associations presented their serious concerns on the hu/e losses bein/ incurred due to electricity load sheddin/ and the instant rise in the 3lectricity tariff! They said that the industry has already been crippled due to record loadsheddin/ durin/ 9inter months! The joint meetin/ of >ll Pakistan Textile 6ills >ssociation %>PT6>' # other related or/ani)ation 9as held at >PT6> House to formulate a joint strate/y to address the alarmin/ electricity crisis bein/ faced by the textile industry! The meetin/ unanimously decided to constitute a joint 9orkin/ /roup of electricity mana/ement for the textile industry in the lar/er interests of the $alue chain of the textile industry! The joint 9orkin/ /roup 9ill meet shortly to desi/n a detailed plan to pursue the follo9in/ /oalsK Immediate total exemption from 3lectricity load sheddin/ for the textile industry $alue chainK Rationali)ation and reduction of electricity tariff! The loadsheddin/ of electricity cause a rapid decrease in production 9hich also reduced the export order! The cost of production has also risen due to instant increase in electricity tariff! &ue to load sheddin/ some mill o9ner uses alternati$e source of ener/y like /enerator 9hich increase their cost of production further!&ue to such dramatic situation the capability of competiti$eness of this industry in international market effected badly!

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") Aas S,o$tage:4as load-sheddin/ continues in Punjab and ?E,P despite a si/nificant increase in temperature! > spokesman for the >ll Pakistan Textile 6ills >ssociation claimed that 2: to 5: per cent of the industry had been affected and 9as unable to accept export orders comin/ in from around the /lobe! He said the textile industry had already endured o$er .0 days of /as disconnection o$er a period of four months@ causin/ extraordinary production losses and badly affectin/ capability of the industry! In Punjab@ he said@ the textile industryAs share 9as o$er 2: per cent@ accordin/ to >PT6>As study ener/y supply disruption only 9as causin/ an estimated loss of Rs billion per day! He re/retted that at a time 9hen the export-oriented industry had ready demand in terms of meetin/ export orders@ the policy-makers failed to take prudent steps to help ensure timely execution of orders! In the lar/er interest of the economy and exports@ he su//ested@ the /o$ernment should Gensure utility companies pro$ide smooth electricity and /as supply to the textile industry and accord the industry top priority at this critical time!L

;-)ig,t Moneta$ Polic :The continuity of ti/ht monetary policy cause an intensi$e increase in cost of production! >s due to ti/ht monetary policy the interest rate is not consistant # keep on increasin/ 9hich incease the cost of production # also the number of debt defaulter! &ue to hi/h interest rate financin/ cost increases 9hich cause a se$ere effect on production! The 9ith holdin/ tax of C also effect the production badly! The hi/h cost of doin/ business is because of intensi$e increase in the rate of interest 9hich has increased the problems of the industry! The record increase in markup

rates is one of the major cause of defaults in ser$icin/ the loans a$ailed by the industry@ hence@ the $olume of non-performin/ loans has reached to an alarmin/ situation! The /o$ernment should take immediate measures to remo$e slo9do9n in the textile sector!

%- +emo.al of su"si! on )e#tile secto$:The pro$isions of ,inance -ill (::8- : are not textile industry friendly at all! Pro$isions like reintroduction of :!0C minimum tax on domestic sales@ C 9ithholdin/ tax on import of textile and articles@ 2C ,ederal 3xcise &uty on bankin/ and insurance ser$ices besides 9ithdra9al of exemption of 2C sales tax and .C 9ithholdin/ tax on machinery and parts in the ,inance -ill (::8- : are nothin/ but last strick on industry1s back! Reintroduction of minimum tax on domestic sales 9ould in$ite una$oidable li*uidity problem@ 9hich is already reached to the alarmin/ le$el! The textile industry 9as facin/ ne/ati$e /eneration of funds due to unaffordable mark up rate!

<- *ac' of neB in.estment:Pakistan textile industry is facin/ problem of "o9 producti$ity due to its obsolete textile machineries! To o$ercome this problem and to stand in competition@ Pakistan Textile Industry 9ill re*uire hi/h in$estments! Pakistan is on the road to in$est in processin/ sector@ but traditional sector are also demandin/ hi/h amount of in$estments! There is a continuous trend of in$estin/ in spinnin/ since many years!PakistanAs textile industry estimates that around Rs @ .:: billion %;SB+( billion' of in$estment 9as re*uired till (: : in order to achie$e the /o$ernmentAs export tar/et!M The ne9 in$estment is decreasin/ rapidly due to un trusted internally conditions of Pakistan! Pakistan is facin/ externally as 9ell as internally problems 9hich restricts the ne9 in$estment! The un predictable internally condition of Pakistan cause a rapid decrease in forei/n in$estment! The decrease in forei/n in$estment effect all industries but especially textile industry! This industry is already facin/ many problem but it has to face the lack of forei/n in$estment also 9hich 9ill decrease its exports also!

12- Unite! States - EU cuts impo$ts of te#tile f$om Pa'istan:;nited States cancel more then 0:C of textile orders of Pakistan !;S also impose a hi/h duties on the import of textile of Pakistan 9hich effect the export in a bad manner! ;S # 3; are the major importer of Pakistan textile 9hich create a hu/e difference in export of Pakistan textile after imposin/ a restriction on import of Pakistani textile /oods!

11- +aB mate$ial P$ices:Prices of cotton # other ra9 material used in textile industry fluctuate rapidly in Pakistan! The rapid increase in the price ra9 material effect the cost of production badly! The increase in ra9 material prices fluctuate rapidly dur to double di/it inflation # instable internal condition of Pakistan! &ue to increase in the cost of production the demand for export # home as 9ell decreased 9hich result in terms of do9n si)in/ of a firm! Hence the unemployment le$el 9ill also increase! 4o$t should take serious step to sur$i$e the textile industry! In order to decrease the price ra9 material for textile 9e need to increase our production capability! In fact@ 9ithout adoptin/ of ne9 technolo/ies in seed-breedin/@ irri/ation@ morpholo/y and Pest Scout 6ana/ement@ 9e cannot increase our production appreciably! Ho9e$er@ the ille/al multiplication of smu//led seed from India N >ustralia may temporarily increase production but not other9ise unless real steps are taken in the ri/ht direction! Simultaneously@ the /o$ernment should make arran/ement for introducin/ international system of Cotton Standardi)ation in Pakistan to enhance *uality and $alue of Pakistan lint cotton by utili)in/ the technical ser$ices of Pakistan Cotton Standard Institute! It is sad@ that bein/ fourth lar/est cotton producin/ country@ the third lar/est cotton consumin/ country@ and the lar/est cotton importin/ %(::5-:7' country@ there is no proper cotton /radin/ system in Pakistan

11- ECP=+) PE+6=+MA>CE =6 )(E )EC)I*E SEC)=+:,or the second year in a ro9@ the country missed annual textile export tar/et of ( billion dollars by (: percent due to hi/h cost of production@ po9er shorta/e and stiff competition 9ith re/ional players! The federal /o$ernment en$isa/in/ 0 percent /ro9th had set textile export tar/et of ( billion dollars for ,H:8 a/ainst :!+0 billion

dollars for ,H:7! Ho9e$er@ in ,H:8@ the country not only missed its textile export tar/et but also re/istered a decline of some 2 percent as compared to ,H:7! =fficial statistics of the State -ank of Pakistan %based on receipts' re$ealed that the countryAs o$erall textile exports stood at 8!55. billion dollars at the end of last fiscal year o$er the exports of :!+0. billion dollars in ,H:7@ decline of 058!2(7 million dollars in ,H:8! =$erall textile /roup exports are also some (: percent or (!( billion dollars lo9er than the actual export tar/et of ( billion dollars set by the /o$ernment for last fiscal year! MHes@ the country has fallen short of textile export tar/et by o$er ( billion dollars due to the /lobal meltdo9n and se$eral barriers faced by textile industry on the domestic front@M said 6ir)a Ikhtiar -ai/@ Prime 6inisterAs >d$isor on Textile! Ikhtiar said that hi/h cost of doin/ business@ po9er shorta/e@ poor industrial infrastructure and slo9 external demand are some major factors contributin/ to the decline in textile export! He said that e$en Christmas textile in$entories 9ere in the shel$es of leadin/ stores till >pril due to the /lobal meltdo9n@ 9hile in pre$ious years it ended in January,ebruary! Ho9e$er@ he is confident that durin/ the current fiscal year textile sector 9ill sho9 better performance as the /o$ernment is tryin/ to remo$e the tariff barriers@ besides explorin/ ne9 textile export markets! MI am confident that the /o$ernments and the 6inistry of TextileAs efforts 9ill be helpful in boostin/ the countryAs textile export and enablin/ it to compete 9ith other re/ional competitors like India and China@M -ai/ said! Textile industrialists say that the risin/ costs of production has rendered the domestic industry uncompetiti$e on the international front as the 9orld firms ha$e di$erted textile export orders to other re/ional competitors! Ee are bein/ undertakin/ the re/ionAs costly textile export due to the hi/h tariff of po9er@ /as and other utilities! The risin/ hi/h cost of doin/ business and poor infrastructure ha$e posted lo9 textile export /ro9th durin/ last fiscal year! Special incenti$es to -an/ladesh and IndiaAs export-oriented textile industry by their /o$ernments ha$e encoura/ed them to explore a number of a$enues in the 9orld market@ as both are price-competiti$e as compared to Pakistan! =fficial statistics of the S-P sho9 that the countryAs textile exports is also some (!+2 percent lo9er than the export of fiscal year (::2-:5@ in 9hich o$erall textile exports as per receipts stood at :!: billion dollars! The central bank has also re$ealed that out of ( major textile export 8 re/istered ne/ati$e /ro9th and export of only three items - ra9 cotton@ bed 9ear and to9els has posted some increase! Eith 7!+. percent decline@ readymade /arments exports stood at 87+ million dollars and knit9ear export at (!:0. billion dollars after a decline to . percent in ,H:8!

15- ),e Effect of Alo"al +ecession on )e#tile In!ust$ :In economics@ the term Orecession1 means GThe reduction of a country1s 4ross &omestic Product %4&P' for at least t9o *uartersK or in normal terms@ it is a period of reduced economic acti$ityL The International 6onetary ,und re/ards periods 9hen /lobal /ro9th is less than +C to be /lobal recession! =n the =ctober 7@ (::7@ I6, released its Eorld 3conomic =utlook@ accordin/ to 9hich the 9orld economy 9as predicted to experience an all time lo9! Pakistan is (2th lar/est economy in the 9orld@ and .5th lar/est in terms of the dollar! It is sad to see our economy like this no9! Pakistan is actually a $ery economically di$erse country 9ith boastin/ industries of textiles@ a/riculture@ etc! The main reason for this slump has lar/ely been the political instability o$er the past fe9 yearsK no proper economic policies 9ere implementedK at least none that succeeded! This caused a $ery hi/h rate of inflation@ 9hich@ in (::7@ had increased to a 9hoppin/ (0C as compared to a 5!8C of (::2! In addition to this@ 9e already had a ne/ati$e balance of payments@ 9ith the *uantity of imports outstrippin/ the *uantity of exports! The result 9as that our main stock exchan/e@ the Farachi Stock 3xchan/e@ became sta/nant for the first time and then declined drastically@ and on top of that@ Pakistan1s 4&P dropped to .!8C! Ehat occurred after9ards is 9hat 9e call the domino effect! The $alue of the Rupee crashed from 2:- ;S& to 7:- ;S& in only a month@ the prices of commodities soared throu/h the roof@ the number of people li$in/ belo9 po$erty line increased from 2: million to 55 million@ and conse*uently@ the 9orkin/ class layman became

$irtually depri$ed from basic necessities like 9ater@ 9heat@ electricity@ natural /as@ and cookin/ oilK add to all this@ the preposterous amounts of load-sheddin/@ and 9hat 9e /et is a nation in shambles! The abo$e all situation of the economy badly effected the textile industry also! The demand for textile product cut do9n locally # internationally as 9ell! The export order reduced due to un predictable conditions of Pakistan # political instability! The cut do9n in the production of textile cause further unemployment le$el 9hich decrease the li$in/ standard of peoples!

14-Effect of Inflation
Inflation rate is measured as the change in consumer price index (CPI).Inflation is basically a general rise in the price level.It is decline in the real value of money.Inflation can have adverse effect on economy.Pakistan is one of prey of inflation.It still faces high double digit inflation. The increase in inflation cause the increase in the cost of production of textile good which return in down si ing.The double digit inflation cause reduction in exports of textile

!"#Unemployment caused by textile

Unemployment occurs when a person is available to work and seeking work but currently without work. prevalence of unemployment is usually measured using the unemployment rate$ which is defined as the percentage of those in the labor force who are unemployed.The unemployment rate in %&&' was '.' per cent which decreases &.! percent in %&&(.The unemployment rate reaches to (." per cent in %&&) due to global crisis.*s the +,- decrease the production that.s why the unemployment level risis very rapidly.The rise in unemployment level is !! per cent in %&&/. The unemployment rate in textile industry was very high during the current fiscal years because of recession 0 increasing cost of inputs 0 fluctuating situations of country.

Year %&&& %&&! %&&% %&&3 %&&2 %&&" %&&' %&&( %&&) %&&/

Inflation rate (consumer prices) '1 ".%1 21 3./& 1 %./& 1 2.)& 1 /.!& 1 (./& 1 %3.& 1 !(.%1

Unemployment Rate % (1 '1 '.)1 (.)1 (.(1 ).31 '.'1 '."1 (."1 !!1

Date of Information !/// est %&&& est %&&! est %&&% est. %&&3 est. 45&36&2 est. %&&" est. %&&' est. %&&( est. %&&) est

19- +ecommen!ation:
The /o$ernment is considerin/ curati$e measures on the recommendations of stakeholders to address the problems and issues faced by the textile industry of the country for enhancin/ its production and exports! The /o$ernment is likely to announce textile policy also called ?ational Textile Strate/y in the mid of current month to help promote the textile sector of the country@ sources told >PP! The Textile 6inistry has consulted all textile sector associations and the chambers of commerce and industry and taken them board before finali)in/ the textile policy and the policy 9ould be announced soon@ they added! The ministry recei$ed recommendations for )ero ratin/ on import of textile machinery@ )ero ratin/ exports@ tariff reduction@ incessant ener/y supply to textile units! Issues relatin/ to the market access and *uality products 9ith timely deli$ery and sin/le di/it mark up and special po9er tariff for the textile industry has also been recommended! It has been su//ested that textile policy mi/ht include the issue like duty free market access to 3uropean ;nion and ;nited States as Pakistan is the lar/est importer of ;S> lon/ staple cotton to the tune of B.:: million to B0:: million e$ery year! Prime 6inister Housuf Ra)a 4ilani has already constituted a Cabinet committee to e$aluate the ne9 textile policy@ for the pro$ision of incenti$es for moderni)in/ the industry and makin/ it more efficient! The economic obser$es belie$e that the textile sector 9as passin/ throu/h a difficult phase due to ener/y shorta/e in the country and needed curati$e measures for promotion! The textile /roup exports ha$e 9itnessed ne/ati$e /ro9th of 8!(5 percent durin/ the first ten month of current financial year! 3xports from July->pril %(::7-:8' 9ere recorded at B5!787 billion as a/ainst the exports of B7!5:2 billion durin/ the correspondin/ period of last financial year!

&urin/ the time under re$ie9 exports of cotton yarn 9ere decreased by 0!87 percent@ cotton carded or combed by !. percent@ yarn other than cotton yarn by 0.!5. percent@ knit9ear by 2!5 percent@ bed 9ear by (! 8 percent@ tents@ can$as and trapulin by .!5: percent ready made /arments by .!20 percent@ art@ silk and synthetic textile by ++!2. percent 9here as the exports of other textile materials 9ere declined by 0!.+ percent! The only t9o textile /roups includin/ ra9 cotton@ cotton cloth and to9els 9itnessed positi$e /ro9th as their exports 9ere increased by .:!+(@ o!50 and +!(2 percent respecti$ely durin/ the first ten months of current financial year as a/ainst the same period of last year! Some other Specific Recommendations

a- +eme! t,oug, 6/I:Ehile makin/ policy for the sur$i$al of textile industry @ 4o$t should considered to create attraction for frei/n in$estment! Current ,iscal year remain $ery lo9 in terms of ,&I due to instable internal situations # dispute! The decreasin/ $alue of Pakistani currency also restrict ne9 in$estment!

"- Image 7uil!ing of Pa'istan to Att$act 6/I :The 6inistry of Commerce@ 6inistry of ,orei/n >ffairs and The -oard of In$estment should launch Joint Campai/n to build positi$e ima/e of Pakistan as a *uality textile product supplier and to facilitate the international buyers in Pakistan

c- ,ocus on Palue >ddition :Pakistan is a leadin/ exportin/ nation in ra9 yarn@ cotton@ and fabrics! If 9e emphasis on the $alue added products like /arments@ Hosiery@ knit9ear and other textile madeups@ the export $olume of textiles can be increased by manifolds! In this respect top priority should be /i$en to stitchin/ industry that leads to hi/hest $alue addition and employment /eneration!

!- )ec,nolog Up-g$a!ation - capacit "uil!ing

The establishment of Textile Cities in major Cities of the country is an appreciable mo$e! 4o$ernment should either set up joint $entures in textile related areas or should pro$ide subsidi)ed credit to textile manufacturers to up/rade their technolo/y and capacity buildin/ throu/h OTechnolo/y ;p/radation ,und1! %T;,'! It is also su//ested that smaller units of po9er looms %up to 0: looms' should be up/raded to auto looms and po9er loom units lar/er than 0: looms into air jet looms!

e- (uman +esou$ces /e.elopment

The Textile 6inistry should establish a separate trainin/ 9in/ as a Center of Human Resource &e$elopment 9here trainin/ courses should be conducted for the capacity buildin/ of labor! There is also ur/ent need to increase the number of such Pocational Institutions 9here modern technical education is pro$ided! 7- Reducin/ the cost of doin/ -usiness in Pakistan >t present cost of doin/ business in Pakistan is hi/her as compared to the re/ional countries@ 9hich has resulted in bitter competiti$eness to Pakistani Products in ,orei/n 6arkets! China and India are the bi//er competitors of Pakistan! Ee fear if cost of doin/ business in Pakistan is not brou/ht at par 9ith other >sian countries@ our products 9ould find no place in 6arket both in terms of *uality and price! In the context of future trade@ there is an ur/ent need to brin/ all the utility char/es and le$y of taxes do9n to the minimum le$el!

f- >ee! 6o$ Imp$o.ing )e#tile P$o!uction

There is an ur/ent need to brin/ impro$ement in textile production@ especially in blended sector! -lended products made from a combination of natural and man-made fabrics@ are preferred in clothin/ the 9orld o$er! In Pakistan (:C protecti$e duty on the import of Polyester ,ibre is le$ied on account of 9hich (0C polyester fabrics is blended 9ith man-made fabrics@ 9hile a country like -an/ladesh blend +0C Polyester! This scarcity has resulted the poor contribution by Pakistan in this sector!

g- Imp$o.ement in p$o!ucti.it :Textile industry of Pakistan re*uired impro$ement in producti$ity of cotton sector! The /o$ernment should facilitate the farmer 9ith ne9 type of seed # technolo/y in order to increase the producti$ity of cotton sector! =n the other hand the producti$ity of final /oods from cotton like cloth is $ery lo9 due to usa/e of obsolete machinery! 4o$t should take step to /i$e subsidy for research # de$elopment%R # &' pro/ram in textile sector!

,-ABa$eness of Inte$national Dualit Stan!a$!s:There is a lack of a9areness of international *uality standards 9hich is only because of the less spendin/ on R # & from /o$ernment! The textile industry should maintain their *uality accordin/ to international standard in order to cut their cost of rejection! This is only the 9ay to maintain the international standard in order to compete in international market!

i- Int$o!ucing concept of on-t,e- Eo"-t$aining:There is need of introduction of concept of on the job trainin/ 9hich is $ery rare in Pakistan! -y this

concept the employee 9ill 9ell a9are of the moderni)e technolo/y! They can easily handle # operate the modern technolo/y in order to mo$e 9ith moderni)e 9orld!

E- Int$o!ucing efficient management tec,ni4ues:There should be introduction of efficient mana/ement techni*ues in textile industry in order to increase the production capacity # *uality as 9ell! The efficient mana/ement techni*ue 9ill /uide the industry @ ho9 to compete in the international market!

k- Su"si! $emo.al s,oul! "e ta'en a "ac'&

4o$t should take a back of subsidy remo$al! -y the remo$al of subsidy the industry1s production /et hi/her effected 9hich pro$e as a last strike on industry1s back!4o$t should pro$ide subsidy to the textile industry for the sur$i$al of this industry! Continuity of pc contro$ersial 9ithholdin/ tax on import of essential ra9 material %cotton # polyester staple fibre' for industry should be 9ithdra9n immediately! This 9ithdra9al 9ould enable the industry to procure some +m cotton bales annually from outside 9orld in order to meet the shorta/e and to compete 9ith re/ional competitors in international market to earn forei/n exchan/e for the country! =n imposition of 2C ,3& on bankin/ and insurance ser$ices such ad$ance taxes 9ould play ha$oc 9ith the /ro9th of the industry in already existin/ ad$erse circumstances and needed to be 9ithdra9n immediately! The /o$ernment should not 9ithdra9 sales tax and 9ithholdin/ tax exemption on machinery and parts@ as it 9ould add cost besides li*uidity problem for the industry!

l- Inte$est $ate s,oul! "e loB !oBn in o$!e$ to su$.i.e t,is in!ust$ :SC- should lo9 do9n the interest rate in order to cut do9n the financin/ cost of this industry! Eith the decrease in the mark up there 9ill introduce ne9 in$estment in the industry!

m- Elect$icit - gas ta$iff:Hike in the tariff of electricity # /as cause an increase in production cost 9hich cuts do9n the demand for Pakistani textile /oods in international market due to hi/h cost of inputs! In order to sur$i$e the industry /o$ernment should make electricity # /as cost cheaper!

n- +emo.al of Ene$g C$isis:4o$t should try to remo$e the ener/y crisis in order to sa$e the industry! >s the crisis in ene/y sector cut do9n the production! -y the reduction of production exports are also decreased!

o- E#plo$ation of neB E#po$t Ma$'ets:?e9 markets should be explore in order to boost up the export receipts! This the best 9ay for any industry to enhance their business by explorin/ ne9 market to increase the export 9hich ultimately /i$e the benefit to industry!

+E6E+E>CES:All Pa'istan )e#tile Mills Association (AP)MA) (0a$ious Issues) Annual Report. C,allenges fo$ Pa'istan& Asian Development Revie !a"istan Textile #ournal (122<) Pa'istan: Ao.e$nment of (122%-2<) !a"istan $conomic %urve&& Islama"a!: Minist$ of 6inance& )e#tile In!ust$ F Special +epo$t (122<)&