KARACHI: Due to more than one hurdles Pakistan would likely not able to capitalise benefits of Generalised System of Preferences (GSP) plus status by European Union (EU).
Extensive materialisation in orders, expected General Sales Tax (GST) on textile exports by government, US dollar appreciation against rupee and last but not the least Indian counter strategy against GSP plus status to Pakistan were the major hurdles that would hamper in the pace of export growth.
GSP plus status to Pakistan, which has been anticipated as biggest achievement for economic revival in Pakistan, has not been bode well for Pakistan yet as the new purchasing orders from EU were expected to materialise around the start of second quarter of 2013. Given the fact GSP plus status was awarded to Pakistan only towards the end of December 2013, “We might not see any significant volumetric uptick in sales in third quarter of Fiscal Year 2013-14 (FY14)”, said an analyst of BMA Capital Management Jehanzaib Zafar.
On the other hand, in a bid to give stiff competition to Pakistan, India has flexed its muscles by proposing huge subsidies coupled with offering a whole host of extensive subsidies to its textile exporters to stimulate exports which includes in-land freight subsidy, exemption from excise duty, subsidised loans to the textile sector, technology up gradation fund which gives huge incentives for R and D and product development.
Moreover, Indian textiles enjoys comparative advantage over its regional peers as it has lower factor costs such as labor, fuel and power and raw materials which skews the cost of doing business.
Though, these subsidies have been in place for a while now but to make their local industry more competitive especially to counter the volumetric decline expected to be caused by Pakistan enhanced exports to EU region, the Indian government has proposed new subsidies to their textile industry which are in tune of $1 billion (exact details are unclear), said Zafar.
With the price cut strategy adopted by Indian textile players due to above-mentioned subsidies, EU has recently taken anti-dumping measures against many Indian textile exports.
In addition, with the rupee appreciation of 2 percent since January 14against dollar is taking the charm away from the export-oriented sector as the exports become uncompetitive in global markets, Zafar added.
Along with this, there are also talks about government implementing 2 percent to17 percent tax on exports of textile products. If the proposed plan does go through it will negatively influence the profitability of the industry and will nullify the impact of duty wavers on exports to EU.
The profitability of the textile industry is likely to be suppressed in third quarter FY14. However, it cane be hoped the high-end textile players would benefit from the EU’s GSP plus status.
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