Key points
• Import of raw cotton rose by 75pc in first six months of current fiscal year
• Government set a target of 11 million bales for this year
• In first half of fiscal year 2024-2025 textile exports showed upward trend
ISLAMABAD: The severe shortfall in the cotton crop, coupled with flawed taxation policies, has led to a sharp rise in the import of raw cotton and yarn. Imports are expected to exceed $2 billion, and if the situation remains unchecked, they may reach as high as $3 billion—posing a significant blow to Pakistan’s dollar-starved economy.
At a time when the government is desperately trying to avoid a balance of payment crisis by rescheduling loans from the friendly countries like China, United Arab Emirates (UAE) and Saudi Arabia, the import of raw cotton rose by 75 per cent ($900 million) in the first six months of the current fiscal year.
According to Cotton Ginners Forum (CGF) Chairman Ehsanul Haq, the government set a target of 11 million bales for this year. But now it seems that the total output will not exceed 5.6 million bales, which is just 50 per cent of the actual target, he tells WE News English.
At a time when the government is desperately trying to avoid balance of payment crisis by rescheduling loans from the friendly countries like China, United Arab Emirates (UAE) and Saudi Arabia, the import of raw cotton rose by 75 per cent ($900 million) in the first six months of the current fiscal year.
Last year cotton production in the country was 8.5 million bales against the target of 12.8 million bales. Whereas, the cotton target for the fiscal year 2024-2025 was lowered down to 10.8 million bales but the production is likely to remain in the range of 5.5-5.7 million bales. The demand is, however, 9 million bales.
He goes on to add that unfavourable weather conditions and farmers’ decision to opt for better priced crops like sugarcane and wheat are the major reasons for this sharp decline.
“Both provincial and federal governments did nothing to support or incentivise cotton grower to enhance their cultivation area,” he complains.
Despite such a huge shortfall, stocks of cotton in the ginning factories are piling-up, which are even higher than the last year, he says.
“As per the statistics of Pakistan Cotton Ginners Association (PCGA), the ginning factories till January 15 received phutti [bulk cotton which arrives at the market from ginning factories] equivalent to 5.5 million bales, which is 34 per cent less compared to last year.”
He points out that cotton crop in the Punjab and Sindh declined by 35 per cent and 32 per cent respectively but the stocks of ginning factories jumped up by 11 per cent because of lack of buying by spinning sector.
On one hand we are implementing anti-people and unfriendly business policies of IMF [International Monetary Fund] for few billion dollars and on the other hand allowing seepage of foreign exchange because of incompetence of government officials.” – Pakistan Textile Council Chief Executive
“Up until recently, areas of Pakpattan, Sargodha and Kasur used to produce substantial cotton but this year they produce nothing and even in Sindh apart from Sanghar reports of cotton production is very discouraging,” he says.
The CGF head informs WE News English that not long ago three to four meetings of Cotton Crop Assessment Committee (CCAC) would be held annually. All the stakeholders and officials of the relevant ministries would discuss the problems faced by the growers and textile millers to take remedial measures. However, in the current year not a single meeting of CCAC could be held despite such a massive crisis.
“The major reason for decline in sales is government’s decision to allow duty-free cotton under Export Facilitation Scheme, whereas it imposed 18 per cent sales tax on the purchase of locally-produced cotton, which resulted in record import of cotton by textile millers.”
Former chairman of All Pakistan Textile Mills Association, Asif Inam, agrees with Ehsanul Haq.
According to him, the Federal Bureau of Revenue (FBR)’s decision of duty-free import and sales tax on locally produced cotton is proving not only disastrous for growers but also for the spinning mills. “The import of cheap yarn from China and other countries is not providing a level playing field to the local yarn manufacturers. As a result, local manufacturers are bearing 18 per cent extra cost,” he argues.
It is not just cotton, he warns, in fact if import of unabated yarn will also not stop, the import bill of textile sector may go beyond $4 billion, which will eventually destroy the spinning sector, followed by the destruction of weaving and garment sectors.
He accuses the FBR of misleading the prime minister on the issue of Sales Tax. Apart from Sales Tax issue, government’s decision to disconnect LNG gas supply to captive power plants will not only severely impact the textile industry but also cost Rs60 billion to government-owned gas supply companies. Both Sui Northern Gas Company and Sui Southern Gas Company are selling imported gas at very high rate to these captive power plants and they used their profit to provide subsidy to domestic consumers on the use of gas.
Pakistan Textile Council Chief Executive Muhammad Hasan Shafqaat believes that Prime Minister Shehbaz Sharif is only concerned about revenue collection, totally ignoring the industry. Wrong policies of the FBR, he says, is causing massive outflow of dollars.
“On one hand, we are implementing anti-people and unfriendly business policies of IMF [International Monetary Fund] for a few billion dollars and on the other hand allowing seepage of foreign exchange because of incompetence of government officials,” he says.
Shafqaat adds that in first half of fiscal year 2024-2025 textile exports showed upward trend mainly because of political instability in Bangladesh which diverted lot of orders to Pakistan. He claims that some Western countries also want to reduce dependence on China, which is why they increased their buying of textile goods from countries like Pakistan and Vietnam.
Last year cotton production in the country was 8.5 million bales against the target of 12.8 million bales. Whereas the cotton target for fiscal year 2024-2025 was lowered down to 10.8 million bales but the production is likely to remain in range of 5.5-5.7 million bales. The demand is, however, 9 million bales.
“The profit margin on the orders meant for Bangladesh is very low but the textile mills availed this opportunity to utilise their unused capacity,” he says, adding that the installed capacity of textile sector is around $25 billion whereas our exports are around $16-17 billion.
He draws an extremely bleak picture of the textile industry, stating that because of thin profit margins, the textile mills hardly made new investment on their infrastructure in last three years.
On the other hand, Pakistan Bureau of Statistics states that in first half of the fiscal year 2024-2025 textile exports went up by 9.67 per cent and touched the figure of $9.08 billion as compared to $8.28 billion of the corresponding year.
significance of the textile industry can be gauged by the fact that textile goods accounts make more than 55 per cent of Pakistan’s total exports.
However, despite this growth, the Large-Scale Manufacturing Sector is showing contraction of 0.64 per cent in last four months of current financial year. Clearly indicating that all is not well.