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| Sunday, 28 April 2002 |
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Textiles sector needs stitch in time to avoid total disaster by SUREKHA GALAGODA The reduction of import duty from 50 per cent to 35 per cent, the subsequent removal of duty on textiles in November 1997 and the large-scale dumping of imported textiles into the local market are the main reasons for the collapse of the local textile industry. According to a spokesman for the Ceylon National Chamber of Industries (CNCI), the local textile industry was never a 'sick' industry, but got totally crippled due to the ad hoc manner of liberalisation. First, it was the reduction of import duty from 50 per cent to 35 per cent in the first budget of the previous regime in February 1995 at a time when industrialists were manufacturing large stocks of fabric for sale during the New Year season. The manufacturers could not dispose of their stocks as dealers preferred to import their requirements for the season at a reduced rate of duty. Manufacturers were compelled to sell their stocks after the season at a much lower price, incurring heavy losses. Profits of textile mills at Pugoda, Veyangoda and Kuruwita came down as at March 31, 1995 due to the loss of projected revenue after the reduction of import duty to 35 per cent in February 1995. During the following year, the three companies suffered huge losses due to accumulated stocks being sold at low prices. This was the beginning of the downward trend of the local industry, the CNCI spokesman said. He said this disaster could have been averted if the government listened to industrialists and postponed the effective date for duty reduction by at least three months. The spokesman said that the deathblow for the industry came through the removal of duty on textiles in November 1997 when the industry was recovering from the earlier blow. Duty was expected to be gradually reduced to a lower level by 2004. Instead, it was removed totally, plunging the textile manufacturing industry to the brink of disaster. The apparel sector requested the removal of duty for the import of textiles since the industrialists felt that the major obstacle for the growth of their sector was the protection given to the local textile industry. Apparel industrialists expected a huge boom in their sector after the removal of duty for textiles. They also expected a free flow of good quality fabric into the country so that they could purchase their requirements of fabric from the local market. Apparel manufacturers have also indicated to the government that they would absorb employees from the textile sector if they were given further concessions such as additional quota allocations, but these expectations never materialised, said the spokesman. He said that instead of growth, the apparel sector started to decline after the duty removal on textiles. In addition, the local market is flooded with low quality imported fabrics which are not even suitable for domestic use let alone for use in the apparel sector. Thousands lost employment because many mills were closed while an unknown number of small-scale unregistered operations also perished. According to statistics, 41,821 people were employed by the local textile sector in 1995, but by 1998 this had come down to 18,208. At present only around 10,000 are employed in the sector. Competing in the open market is the biggest problem faced by the local textile industry due to large-scale dumping of imported textiles. All existing mills are operating on a very low scale even when the demand for textiles is at a peak. According to the spokesman, the local textile industry may not survive any longer unless remedial action is taken immediately. He added that an industry should not be over-protected, but there should be a reasonable level of protection to protect the industry from unfair trade practices. The local mills produced better quality chintz, pyjamas and fabrics for curtaining and batik industries compared to the imported fabrics. The spokesman said that the local textile industry is capable of competing in a liberalised market on a level playing field. He added that the annual requirement of fabric by the apparel sector is 600 million metres. This is in addition to the domestic requirement. He said the high cost of modern machinery prevented local industrialists from getting into this segment. A state-of-the-art weaving and processing plant will cost around 20 million US dollars. Therefore, government intervention is necessary to provide financial assistance at very low interest rates to create a conducive environment to attract investors. He said apparel buyers would be looking forward to developing their future contacts with apparel producers in countries where textile manufacturing bases are established to cut down on the lead time of their orders. Therefore, there is a need to set up world class textile mills in Sri Lanka to save the apparel industry, he said. |
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