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Problems of readymade garments.

Problems of Readymade Garments

* Frequent price fluctuations create a serious problem for the industry, particularly for those

who manufacture garments on orders. * Relatively poor training as a careless attitude towards work seriously affects the quality of

the final product. * The common securities which the industry can offer include sewing machines and raw materials

which are removable, therefore these cannot be accepted as security. * The exporters of garments were dismayed as instead of increasing the rates in line with the

increased duties and taxes and very substantially higher prices of imported inputs for export

production, rebate rates have been curtailed on all garments without exception. * The demand for one-window operation for all labour matters was made in the past but has not yet materialised. Collection of all the levies by a single agency is quite feasible.

Pakistan enjoys an advantageous position in the manufacture of readymade garments having the essential raw materials in abundance as well as cheap labour. The industry has, however, not been able to acquire an important place in the world. Main problems impeding the growth of this industry are summarised below:

Standard of Cloth and Garments: The weaving of cloth is not made with due care which de-standardises its quality. Due to poor and careless weaving, the local cloth suffers from such defects as fillings or pocks with loose ends. It is particularly true of the cloth manufactured in the non-mill sector. The Pakistan Standards Institution is planning to undertake the standardization of the readymade garments. Some meetings in this context were also held between the garment manufacturers and the Institution, but policy issues are yet to be decided. One view is that only exportable garments should be standardized in the first phase, while the other point in that two standards cannot be enforced for one industry at a time. There are also two views about the nature of standardization one support only the standardization of the size of readymade garments, while the other includes the quality also. But, the manufacturers maintain that there cannot be any standardization of quality without extending the same to the textile and synthetic fabrics.

Price Fluctuations: Frequent price fluctuations create a serious problem for the industry, particularly for those who manufacture garments on orders. As the non-mill sector mostly manufactures cloth against advance payments, frequent price fluctuations make it difficult to comply with the orders. The effect of these fluctuations is however, less severe for the mill sector as the cloth manufactured therein is usually readily available.

Latest Fashions: The garments industry mostly produces simple garments which are not much in line with the latest fashions, due mainly to the absence of centres providing information about latest fashions and styles. In advanced countries, such agencies are a common source for providing information about changing fashions and styles.

Labour: Relatively poor training as a careless attitude towards work seriously affects the quality of the final product. There is only one training centre for the raw hands to learn the art of garment stitching in Pakistan that is the Swedish Pakistan Institute, Karachi. This institute has made headway in this direction, but that too has not been able to keep up with the demands. If more institutes are established in the country to train the manpower, it would greatly help the industry to increase production. Garment industry is a labour intensive industry. The application of labour laws to the garment industry has proved to be deterrent to the smooth running of the industry. The Garment makers have made a strong plea that these laws should be softened as far as the Garment Industry is concerned. The Government relaxed the application of apprenticeship training rules in Garment units.

Credit Facilities: As the bulk of this industry is in the small sector, its financial resources are not sufficient. As a result, most of the units need capital for their expansion and smooth running. Therefore, such industries purchase raw materials in parts and on credit over and above the market rates which affect the production cost of garments. Most of such units do not avail banking facilities of credit as they do not have tangible securities to offer to the banks. The common securities which the industry can offer include sewing machines and raw materials which are removable, therefore these cannot be accepted as security.

Export Refinance: There is an urgent need for change in the procedure of export refinance scheme. In Korea, export refinance is provided to exporters without any interest or profit. The Government would be well advised to follow suit so that the exports may be relieved of the crippling burden of bank interest on exports. It may be pointed out here that in Pakistan whenever a banker provides credit facility to a firm, it first probes its financial position and then asks whether any non-transferable property other than factory building and machinery can be furnished as collateral. In a nutshell, the banker demands all such guarantees from the borrower which are beyond the capacity of the exporter. Yet he has to furnish these securities in order to avail himself of the export limit facility. In contrast to this, Korea provides immediate credit under the export refinance scheme without interest. On top of it, an amount equivalent to the export L/C is sanctioned and is deposited in the exporter's account. Of this amount, the exporter buys the raw material from the market and also uses, the fund for other productive purposes without any hindrance. Thus he exports the required item promptly. Not only this, he also recovers the amount spent on labour and other charges from this refinance scheme. This frees the manufacturer/exporter of all financial worries. In Pakistan, the refinance scheme procedure is very cumbersome and time consuming. Although the State Bank of Pakistan sanctions the facility and intimates the finance bank within 24 hours, but the amount is not credited in the account unless the borrower pledges the raw material. Even after that, the amount equivalent to the value of raw material is credited. Worse still, some banks demand 10 per cent margin while others insist on 20 per cent. Although State Bank of Pakistan has exempted goods imported under RMR from L/C margin, the banks are authorised to claim 10 to 20 per cent margin. Raw material or finished good imported under RMR are generally pledged for availing credit facility 10 to 20 per cent margin is charged on these loans. While the exporter furnishes all sorts of securities for getting the limit fixed, he has to pledge the raw material or finished goods again for availing refinance facility. And when the bank extends loan from the refinance account, Rs. 80 to 90 are offered against worth Rs. 100. These double pledges and margins virtually cripple the exporter. Compound interest realised on these margins has gravely imperiled national industry and export.

Export Rebates: Central Board of Revenue on December 3 notified "reduced rebate rates" on all garments across the board. There was reduction of about 60 per cent for blended garments and 30 per cent on cotton garments. The exporters of garments were dismayed as instead of increasing the rates in line with the increased duties and taxes and very substantially higher prices of imported inputs for export production, rebate rates have been curtailed on all garments without exception." It was incomprehensible that blended garments made from the same fabrics should get a reduction in their rates instead of increase in line with the increase in fabric rates plus drawback for imported accessories used in garments making.

Quota Restrictions: The quotas fixed by the EEC and USA for Pakistani garments has blocked further penetration in this market. If the matter is persuaded on the Government level, it can enhance the exports of garments. As regards, the world demand for readymade garments, it has gradually increased. Pakistan's garments are very popular in a number of countries. For instance USSR, EEC countries and the Middle Eastern Countries are the potential buyers. Pakistan's traditional garments are also being introduced in the world market. Recently, a few exporters have introduced Pakistani dress-Shalwar and Kameez in some Middle Eastern countries. To circumvent the quota restriction, Hong King and Korea tried to enter into joint venture deals with countries like Philippines, Sri Lanka, Bangladesh and India as readymade garment exports from these countries were not subject to quota restrictions. The developed countries reacted by extending the scope of quota restrictions bringing within its purview other developing countries as well. The quota was fixed for individual countries on the basis of their past performance. As a result, even Bangladesh stole a march over Pakistan and got higher export quota fixed. In sharp contrast to this, we could not secure even one-fourth of Bangladesh's quota. It may be pointed out here that neither Sri Lanka nor Bangladesh has any textile mills. However, notwithstanding non-availability of basic raw material from indigenous sources, both the countries managed to claim a bigger quota than Pakistan.

Import Duty and Sales Tax: It is proposed that the import duty and sales tax on the needles of sewing machines and spare parts should be removed completely. If it is not possible, then at least those units should be allowed duty-free import of needless and spare parts which produce only exportable garments. In 1986-87 budget, an import duty of 80 per cent was imposed on the needles of industrial sewing machines while this is well known that no machine can operate without needles. The Government will get a meagre sum of Rs. 1 to 2 million as custom duty through the enhancement of import duty on this item. Everybody will agree that it is not advisable to increase the cost of a basic need of the garment industry and thereby add to the cost of production. This is certainly prejudicial to the promotion of exports and hence the policy needs rethinking.

More Incentives Needed: Although export of garments and fashion apparel has shown improvement over the past couple of years for want of measures and incentives commensurate with the encouragement being provided by countries like India, Thailand, Korea, Hong Kong, Taiwan and Singapore, Pakistan stands behind them in this sphere. There is very strong competition from Gulf countries where entrepreneurs from Hong Kong, South Korea, Taiwan and even Pakistan have established textile manufacturing units. Countries like India are already around US $1.5 billion mark in exports of garments while Bangladesh garments exports have grown phenominally - up from US $ 8 million in 1982 to US $ 415 million in 1988 (increase of about 50 times). Pakistan's garment export is more or less stagnant as increase for the same period is only from US $112 million to around US $350 million (only three times).

One Window Operation: A large number of Federal and Provincial Departments are involved in various aspects of labour management like the social security cess, employees old age benefits, professional tax, education cess, small and medium sized units feel harassed by the functionaries of these departments, visiting them frequently for one thing or another. They are prepared to pay all the labour levies but would prefer to deal with a single agency. The demand for one-window operation for all labour matters was made in the past but has not yet materialised. Collection of all the levies by a single agency is quite feasible.
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Title Annotation:Pakistan's garments industry
Publication:Economic Review
Date:Sep 1, 1990
Words:1892
Previous Article:Exports of readymade garments.
Next Article:Knitwear industry has taken big strides.
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