Domestic Textile and Garment Industries Struggling to Compete with Imported Goods

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Domestic Textile and Garment Industries Struggling to Compete with Imported Goods

Om Prakash Khanal

October 5: The annual consumption of textiles in Nepal is around 1 billion meters, according to the textile industrialists. However, an estimated 200 small and large domestic industries meet only 5 to 10 percent of this demand, while 900 million meters get imported from abroad.

Meanwhile, the industrialists also claim that only 10 percent of the imported garments come through formal channels, while 800 million meters come through unauthorized channels every year. Likewise, they inform that unauthorized import of Indian textiles is on the rise.

Hence, the domestic textile industries are forced to settle for a 10 percent supply. Although textile production is a crucial opportunity for domestic producers, they are unable to increase their capacity as the market is dominated by external products.

Ramesh Gadiya claimed that the climate of the Terai region of Nepal is suitable for the textile industry. Although both the production and the market are favorable, the domestic industries have not been able to increase their investment due to unfavorable government policies.

The industrialists claim that they can become self-reliant in textiles if the government gives policy protection to the textile industry. Gadia, who is also the executive director of Nobel Textiles, said investors did not want to increase investment in the textile industry due to the unstable policy.

Entrepreneurs understand that countries like the UK, China, and Bangladesh have moved ahead in industrial development by promoting the textile industry. Up to 90 percent subsidy has been allocated to the textile industry in India. Likewise, Chetan Gadiya argues that competition with subsidized Indian textiles has become challenging.

Until a few years ago, the government had given concession to the industry to refund value-added tax (VAT) on the sale of garments. There was a 70 percent VAT exemption on synthetic yarn and 100 percent on cotton yarn.

This policy was removed from FY 2075/76. At that time, India reduced the Goods and Services Tax (GST) on textiles to 5 percent, increasing the number of Indian textiles entering Nepal's market.

The textile industrialists had expressed their anxiety after the removal of VAT concession. The then Council of Ministers had given a 50 percent subsidy on electricity to quell the opposition of the entrepreneurs.

The grant received in FY 2076/77 was removed in FY 2077/78. The Nepal Electricity Authority (NEA) had terminated the grant scheme stating that the decision of the Council of Ministers was not included in the previous year's budget.

Hari Gautam, the coordinator of the Birgunj Chamber of Commerce and Industry, says that the textile industry has not been able to flourish due to the unstable policy of the government. "The government is working to demoralize the domestic industries," Gautam, who is also the union's vice-president, told New Business Age.

The industrialists have suggested that the government should take a policy to facilitate the textile industry as the cost of the textile industry. According to Gadiya, the government should take a long-term policy of not collecting VAT from the textile and garment industries.


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