Business Recorder (BR) Research
The business community is appreciating the federal budget 2014-15, and some members from the textile sector have even termed it as a ‘Textile Budget’.
Textiles sector occupies a unique position in Pakistan’s economy as it accounts for more than half of the country’s exports. But recently, its performance has been subjected to bad harvest, delays in introduction of quality seeds, extensive energy shortages and high cost of borrowing.
However, the finance minister offered several incentives for the textile sector in his budget speech. These include the beneficial duty drawback rates where exports increased by 10 percent, implementation of an Expeditious Refund System (ERS) with the aim to settle exporters refund claims before 30th September 2014, duty-free import of machinery extended till the year 2016 (SRO-809) and training of 100,000 Pakistanis in the garments and made-up sector.
However, exporters seem uncertain whether the government will be able to realize its promise to refund the outstanding sales tax claims by September to end the liquidity crunch encountering the textile exporters.
The reduction of interest rate on new investments to 9 percent and cut in the export refinance rate to 7.5 percent may facilitate new investment. Moreover, the proposed rebate of 1 percent on export of fabric, 2 percent on made-ups and 4 percent on garments bodes well for future apparel exports.
A member of the All Pakistan Textile Mills Association (APTMA) described the budget as pro-textile as it will enhance the value-added textile sector.
On the other hand, the budget speech in writing shows a 10 percent increase in minimum labor wage which takes it to Rs. 11,000 per month. In addition to this, the GIDC rates have been increased from Rs. 100 to Rs. 300 per MMBTU, thereby increasing the cost of production and pinching the textile industry’s bottomline.
According to a Pakistan Textile Exporters Association (PTEA) member, the Finance Minister spoke about many development projects in all the sectors, but did not mention any proposal to slash the energy crisis at least by 50 percent immediately or any reforms to encounter the prevailing law and order situation in the country which is affecting the textile industries in Punjab and Karachi. But these two issues are admittedly the hardest to crack.
While there is guarded appreciation of the textile package, the scorecard of this package will become visible a year later. Implementation of measures and continued policy fixing will be the key to positive results.
