The government has added 1% duty on imports. The cost of imported cotton and that purchased from the ginners is same.
Spinners are buying cotton worth Rs120bn from the local market. After the addition of one percent surcharge on imports, the spinners would now be paying Rs1.2bn more for local cotton purchase, which was twice the amount the government had provided on the industry’s loan.
The industry has taken Rs 20 billion loan from the government.
The government had not withdrawn import or anti-dumping duties on polyester yarn. The import of polyester fibre had been allowed under DTRE. The industry imports 500,000 tons of polyester fibre and the local industry supplied the balance 500,000 tons of polyester fibre.
Local producers of polyester fibre is given 3.5 percent R&D on their production. The local producers thus would have a 3.5 percent advantage against the polyester fibre imported under the DTRE. The importers, who were not registered under the DTRE, the advantage of local producers was of 6.5 percent import duty, 6 percent anti-dumping duty and 3.5 percent R&D.
Workers’ wages had been increased by 15 percent accounting for 10 percent of the production cost. The industry bought cotton worth Rs120 million and converted it into yarn worth Rs240 billion. After the addition of 15 percent increase in workers’ wages, the additional burden on the industry would be Rs3.75 billion.
The spinning industry is under pressure and it could resort to large-scale retrenchment to stay competitive. 85 percent of the locally produced yarn was exported in different forms of value-added products. The local value-added sector would come under pressure if the spinning industry started closing.
Yarn produced in the country should be totally consumed by the value-added sector that should upgrade value addition like India did in the past one year. As the per capita income in Pakistan continues to rise, the industry could lose the cheap labour advantage and export of low value products like yarn could come under pressure.