Call to stop textile smuggling to boost domestic industry

Biratnagar, July 9:

Knitting, textile and spinning mills have urged the government to check the smuggling of cloth from India, China and other countries if it wants to see a thriving domestic textile industry.

The 100 per cent value addition textile and knitting industry has been severely hit by the illegal import of cloth as the smuggled goods come without paying customs duty and other taxes. They have strong competitive advantage over the internally produced cloth.

“About 75 per cent of the cloth used by Nepali consumers is illegally imported. The government should conduct regular market monitoring, and there should be a provision of mandatory business registration for all the cloth and garment suppliers and retailers,” said Jitendra Lohia, vice-president of Nepal Textile Association (NTA), who runs Pragati Textile Industries, one of the largest textile producers in the country, in Khanar, Sunsari.

The producers unanimously say that the bureaucracy should be proactive to curb the smuggling of cloth. According to one of the producers, a high level government official once said that illegal import was good since people could get clothes at a cheaper price.

But the country has long been paying a very high price for the illegal imports in terms of investment, employment, revenue and market share.

According to the NTA, complete control of cloth import is not possible due to the open border between Nepal and India and religious and cultural relations across the border, but better monitoring could improve the situation.

“If illegal imports were to be discouraged, I am ready to expand my factory. Currently, we are producing 350 million kilogrammes of cloth per year while running the plant at around 50-60 per cent capacity,” said  Rabindra Sharma, director of Jayakamal Hosiery Industries in Jatuwa, at the Morang-Sunsari Industrial Corridor in Biratnagar Metropolis.

He is ready to expand the capacity to 3,000 million kilos of cloth per annum if there is a favourable environment.

According to Sharma, majority of his products are of cotton, and the raw material is not available in Nepal. He buys synthetic yarn from Nepali producers. There is 100 per cent value addition with Indian yarn, which could reach as much as 300 per cent if the cotton is available in Nepal, he added.

Industrialists said that the recently announced government policy to do away with the Value Added Tax (VAT) refund system could be another setback for the manufacturing sector industry which has been trying to reemerge after a couple of decades.

“Indian textile producers are paying only 5 per cent VAT, and they have 40-45 per cent subsidy in technology transfer while we don’t have any incentives, and the recent government’s move could ruin the industry,” said Lohia.

The government’s announcement to annul the VAT refund system, which has been in place for the last two decades, will increase the price of Nepali cloth by 13 per cent for cotton and 9.1 per cent for synthetic.

“Internal consumption is the key to promoting domestic textile production,” says DP Mishra, chief executive of the Reliance Spinning Mills Limited, the largest industry in the sector and the largest employers in the country.

He pointed to the need for promoting local textile industries and products.

“Export is not our priority. We are exporting yarn to Turkey just because it has imposed anti-dumping duties on Indian textile and yarn. The Indian market is not competitive for us as we import raw materials from India, which means we need to spend an extra IC Rs.18s just to transport the raw material and finished goods,” said Mishra.

He said that the spinning and textile industry is a labour-intensive industry, thus contributes to employment generation.

Reliance employs about 4,000 people, of which 1,500 are women and 1000 are trainees.

Published in The Rising Nepal daily on 10 July 2018.