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Textile inventories begin piling up

* Partial closcure of units feared

By Hamid Waleed

LAHORE: Inventories in the textile sector, particularly in yarn and fabric, have started piling up due to mounting inflationary pressure, over-expansion and little access to leading international markets besides rising production cost.

“This could be the same old story, as it was before the BPD-29 introduced by the State Bank of Pakistan in order to get sick textile units out of crisis,” said one industrialist, fearing: “Reversal has started up.”

“Losses accruing out of piled-up inventories have started pinching that may lead to partial closure of production units soon,” said another seasoned textile miller. Former chairman of the All Pakistan Textiles Mills Association (APTMA) Tariq Saigol had also pointed out the issues such as rising interest rates, inflation and inadequate infrastructure in the presence of top notches of finance ministry at a recent roundtable conference and feared a slowdown in economy sooner than later. Sources in the industry said inflation had already crossed nine percent that had given rise to interest rates making them uncompetitive in the international market.

“The exporters can’t export inflation,” said one industry analyst, adding there was an immediate need for inflation adjustment. Asked about the way to ensure inflation adjustment, he said compensation should be ensured to exporters at the level of exchange rate. He also pointed out the absence of six percent research and development fund for the basic textile, announced by the federal government for garments and knitting sectors a few months earlier.

According to him, countries like India and Japan have extended such funds to the whole of the textile sector, a step boosting their industry by leaps and bounds. “Even in India, the government is bound by law to allocate similar amount of funds to the research cells created by different sectors of the industry on their own,” he said. “These research cells have set up their offices in international markets and they are involved in marketing and lobby for their respective sectors in markets such as the USA and the EU,” he added.

Dr Ishrat Husain, State Bank of Pakistan Governor, recently said one reason behind the rising current account deficit was heavy import of machinery over the past few years. The textile experts have strengthened his stance by pointing out that machinery worth over $5 billion has so far been imported by the sector. But they have added in the same breath that most of the machinery was imported when the interest rate was within the range of 4-4.5 percent.

“The 100 percent rise in interest rates, coupled with banks’ spread, has shot up the installments volume,” said the industry people. According to them, the phenomenon would put the viability of these units volatile soon in case the government does not take steps to curb rising interest rates. Some industrialists say the machinery imported in the recent past is not labour-intensive, another factor causing grave concerns among policy-makers. Dr Husain has also urged the business community to make investment in labour-intensive sectors, which experts believe that shows the panic on the part of government so far as import of excessive machinery in the textile sector is concerned. According to them, the only hope they have with regard to the government’s recent effort of persuading the international community for tariff relaxation on export of textile goods in the wake of October 8 earthquake, as is being done in the case of tsunami-affected countries.

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