The textile industry in Pakistan is currently facing a severe economic crisis due to a confluence of factors, including poor economic management, political instability, natural disasters, high inflation, high energy prices, and immediate foreign debt payment obligations. In contrast, the Indian government is offering incentives to stimulate exports, which is anticipated to benefit Indian companies and enhance their competitiveness in the global market. This presents a substantial opportunity for the Indian textile industry to expand its market share and establish a stronger foothold in the global textile market.
During the initial eight months of FY 2022-23, Pakistan's exports suffered a significant decline of 8.65 per cent, amounting to $18.79 billion compared to $20.57 billion during the same period last year. This decline indicates that the government might encounter formidable challenges in achieving the export target this fiscal year. Furthermore, in February 2023, imports plummeted by 31.51 per cent, valued at $4.01 billion compared to $5.85 billion in February 2022. In the initial eight months of the current fiscal year, imports contracted by 23.56 per cent, amounting to $40.09 billion this year from $52.45 billion in the same period last year.
According to the latest provisional data issued by the All Pakistan Textile Mills Association (APTMA), Pakistan's textile sector witnessed a substantial drop of 28 per cent, reaching $1.2 billion in February 2023 compared to the same month’s $1.67 billion recorded in the preceding year. The association further disclosed that the country’s textile exports dwindled by 11 per cent to $11.24 billion in the initial eight months of FY23, from $12.60 billion recorded in the same period last year. The deteriorating state of textile exports is a matter of concern for Pakistan, especially since the country is already grappling with depleting foreign exchange reserves.
In February, the consumer price inflation rate in Pakistan skyrocketed to a staggering 31.5 per cent, the highest it has been in almost 50 years since 1974, as reported by the Pakistan Bureau of Statistics. In response, the State Bank of Pakistan (SBP) has raised its policy rate by 300 basis points (bps) to 20 per cent, the highest rate in around 27 years. This is the highest level seen since October 1996 when the policy rate was increased to 20 per cent. There is a growing apprehension that the economic predicament in Pakistan could exacerbate beyond the financial turmoil that had afflicted Sri last year.
As per SBP’s figures, the current account deficit (CAD) of Pakistan fell to $242 million in January 2023, the lowest level since March 2021. The CAD stood at $3.8 billion in July-January FY23, down 67 per cent compared to the corresponding period last year. The reduction in CAD was caused by a significant contraction in imports, which reflects almost a standstill in industrial activities that have brought the country on the verge of default. This has further exacerbated the crisis in the Pakistan textile industry, leading to a shortage of raw materials and higher production costs, thereby hindering the country’s economic growth. Many companies across the textiles sector have either suspended operations or scaled down production levels, leading to layoffs of over 7 million people. Hence, it is unlikely that Pakistan will achieve the projected GDP growth of 3.5 per cent for FY 2023-24.
In fact, Pakistan is scrambling to put in place measures to strike a deal with the International Monetary Fund (IMF) before time runs out. The agreement, pertaining to the successful conclusion of the ninth review of a $7 billion loan programme, has been stalled since late last year due to policy framework differences. If reached, the pact with the IMF will not only pave the way for a disbursement of $1.2 billion but also open the door for additional inflows from other countries.
On the other hand, in recent years, the Indian government has implemented several strategic measures to bolster its textiles sector, including allowing 100 per cent Foreign Direct Investment (FDI), enacting the Production Linked Incentive (PLI) scheme, launching the National Technical Textiles Mission (NTTM), and the forthcoming PM Mega Integrated Textile Region and Apparel (PM-MITRA) parks, along with the SAMARTH scheme, which has set a target of training over 1 million people within a span of 3 years. Additionally, the government has allocated ₹4,389.34 crore in Budget 2023-24, representing a significant increase of 22.6 per cent from the previous year. Moreover, the government has passed four labour codes to replace outdated laws, which, if effectively implemented, would have a major impact on the way businesses operate.
India has signed numerous Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs), including with countries such as the UAE, Japan, South Korea, and Australia. Furthermore, the Indian government is in discussions with many other countries, including the UK, European Union, and Canada, to provide duty-free access to their markets. However, India must more proactively engage with these countries and leverage the FTAs to increase exports to these markets.
One notable initiative is the PLI scheme for textile products, aimed at promoting the manufacture of man-made fibre (MMF) apparel and fabrics, products of technical textiles, and select MMF products to enhance the country’s manufacturing capabilities and exports. The government has approved a budget of ₹10,683 crore for this scheme, and projects worth ₹3,513 crore have already been approved in Madhya Pradesh. These initiatives are expected to increase India’s competitiveness in the global textile market and enable Indian exporters to gain a larger market share, particularly considering the challenges faced by the Pakistani textile industry.
