Indo-Pak Symbiosis On Cotton Trade Could Boost Textile Exports For Both Countries

Economy

Indo-Pak Symbiosis On Cotton Trade Could Boost Textile Exports For Both Countries

With a near 28 percent dip in farm production of raw cotton in Pakistan, the industry of the country has become highly reliant on cotton imports as textile output is an integral part of the economic development of the country. Over the years Pakistan’s economy has largely been dependent on the cotton industry and the textile sector.

A host of reasons including unfavorable climate, competition with other crops, lower market prices, eruption of pink bollworm, and substandard seeds provided to farmers has forced the local cotton production down the brink and the mill owners to look outside to keep their businesses running.

The balance of trade figures published for the year 2015 show that Pakistan has had unfavorable balance with majority of the countries it trades with. In view of this the prime concern for the importers will be to procure the cheapest means of cotton available to feed their textile mills.

A cursory glance at the summary figures of Pakistan’s cotton imports for the said period shows that the bulk of their cotton imports take place from India given their proximity and convenience of transport and time factor to procure the goods. According to the table of imports made available, Pakistan had imported US$ 31.3 million worth cotton from Australia, US$ 5.37 million worth cotton from Brazil, US$ 142.2 million worth cotton from the US and a whopping US$ 408.9 million worth cotton from India.

Obviously, Pakistani importers, mainly the mill owners have been finding it more economical and logistically sound to import cotton from India rather than any other sourcing country. However, in recent times, due to an escalation in tension between Pakistan and India on the border issue, the Pakistani government had declared an unofficial embargo on imports of cotton from India. Subsequently, this embargo was lifted by Pakistan’s Department of Plant Protection (DPP) which had placed cotton imports from India on hold through both the land and sea route meaning the Wagah border and Karachi port.

The ban evoked on November 23, 2016 had effectively stalled the import of 10,000 bales of Indian cotton worth US$ 3.3 million. Though the DPP has lifted the ban by allowing imports now, they have laid down stringent conditions for the importers. These include phytosnaitary certificate issued by authorities in the country of origin, and procurement of import permit 14 days prior to the arrival of the cotton consignment. Though these conditions are not new to Pakistani importers, what has unnerved them is that the DPP plans to implement these restrictions in the spirit of the letter which would also mean that the cotton imported should not have any seeds. “This would virtually halt all imports not only from India but from sourcing countries world over,” a mill owner explained.

The situation had developed when the country was just emerging from a phase where it had faced 40 percent deficit in cotton and had turned to imports from India in the alarm mode. More poignantly, the price of Indian cotton was low due to good monsoons and a bumper crop at that point of time.

Another anomaly in Pakistani government’s topsy-turvy policy is the high taxation cotton import attracts. According to the All Pakistan Textile Mills Association (APTMA) Punjab chairman, Aamir Fayyaz, “The sharp decline in cotton production in the previous year has resulted in a 15 percent dip in cotton sowing in the current year. This makes imports mandatory. Under the circumstances, duties and taxes on import of cotton would render the industry uncompetitive up the value chain. He called for the immediate revoke of 4 percent custom duty and 5 percent sales tax on the import of cotton to facilitate Pakistani spinning mills to be internationally competitive.

The claims made by industry further accentuate Pakistan importing Indian cotton as an attractive option, given the statistics furnished by the trade body. According to APTMA figures, Pakistan’s exports have plunged by US$ 3 billion during the fiscal year 2015-16. The textile and clothing export has taken the scalp of US$ 1 billion out of this figure quoted. The trade body expressed the sentiment that Pakistan’s exports in the textile segment would further decline if the government refuses to give up its intransigence.

From India’s point of view, this relation would be symbiotic as China which was one of the largest importers of Indian cotton has gone off the shelf and the void could be filled by Pakistan. In fact, Pakistan had replaced Bangladesh as the largest buyer of Indian cotton after China opted out of procurement earlier in 2015. Interestingly in the fiscal year that concluded in 2016, Pakistani spinners had imported 2.5 million bales from India despite incurring 9 percent import duty.