Islamabad Outlook

Knitwear sector losing export market due to subsidy given by competitors

Despite having technology and quality advantage over India, Pakistan's knitwear sector is losing its existing export market as the Indian government now encourages technology up-gradation coupled with 10% open and hidden export subsidy against 1.56% rebate in Pakistan.
At present knitwear manufacturers are finding it hard to compete with their Indian and Chinese counterparts as per unit rates of knitwear in the world market have declined by 10%-15% since September 11. The cost of production, according to the industry circles, has increased during the same period by another 10% -15%.
The high subsidy provided by Indian and the Chinese governments seems surprising as both countries produce their own dyes, chemicals and the basic raw material. In Pakistan the exporters import dyes, chemicals, labels and a number of other accessories that are subject to import duty and sales tax. The actual sales tax paid on different inputs used in manufacturing knitted garments is refunded to the exporters though after much delay. The refund of the import duty paid on inputs is not on actual duties paid but has been averaged out by the government at 1.56% of the exported value. This might appear realistic but it gives the Chinese and Indian knitwear exporters an advantage of 15% and 10% respectively.
Pakistani knitwear industry is suffering badly in the absence of a level play field against its competitors. According to industry sources 25 medium knitwear units have either closed down in Lahore or are operating at 1/3 of their installed capacity. In Faisalabad most of the smaller knitwear units have closed down.
During the last few years, the segment of knitwear has shown a highly welcome rising trend in exports. In the international market the USA is the major buyer, followed by UK, Germany, Canada, France and Belgium. Export of knitwear increased from 23 million dozens worth $464 million in 1992-93 to 52 million dozens worth $1,147 million in 2002-03.
Pakistan currently enjoys technological advantage over India as its entrepreneurs have installed state of art machines. Pakistan imported large numbers of hand knitting and semi-automatic flat knitting machines of different brands. Import of various knitting machines and parts into Pakistan increased from Rs. 837 million in 2001-2002 to Rs. 952 million in 2002-2003. The new imported machines have contributed to marked improvement in quality of knitted fabrics.
According to M I. Khurram, a leading knitwear exporter the Indian knitwear industry until recently relied mostly on locally manufactured machines. However, the Indian government realised the handicap of its knitwear sector and encouraged import of state of art knitwear machines. He said 10% subsidy enjoyed by them on exports provided them a huge advantage over their Pakistani competitors. The Indians are fast closing the technology gap and would overtake Pakistan in next three years if the Pakistani government failed to facilitate the local exporters to operate on a level playing field.
Former Chairman Pakistan Hosiery Manufacturers Association Shahzad Azam Khan said quota free textile exports in 2005 might turn into a disadvantage for Pakistan's knitwear sector if the situation is not controlled immediately. Foreign buyers place orders on the suppliers on lowest rates. Exporters from competitive economies enjoying high subsidies could discount their prices much below the rates afforded by Pakistani knitwear exporters. China would enjoy the quota free access in 2005. However, with right government policies the industry could embark on a sustained growth path on the strength of its technology, quality and reliability in the world market.