Why isn’t Nepal Self-Reliant on Textiles? 

Thirteen out of 14 garment industries in Biratnagar shut down due to adverse conditions

  6 min 41 sec to read
Why isn’t Nepal Self-Reliant on Textiles? 

Om Prakash Khanal

June 13: The textile industry is considered to be the mother of industries. Nepal also has a long history of textile industry. However, despite good demand in the domestic market, the textile industry does not seem to be flourishing in Nepal. Even the existing industries are being shut down one after another.

What is the reason? The industrialists say that the government's policy toward the textile industry is not appropriate. "On the one hand, the government is gradually taking away the privileges of the textile industry, and on the other hand, the uncontrolled import of textiles from India has taken over the domestic market," said an industrialist.

Another industrialist Pitamber Kumar Munka shared his view that only a small part of the textile consumed in the country is produced by the domestic industries. “The rest of the demand is met by imported clothes. Lots of textiles are entering the country illegally from the open border with India than through the formal channels,” said Munka, who operates Crown and Kohinoor Textiles in Birgunj.

According to industrialists, the government in India grants subsidy up to 50 percent on equipment for the textile industry. "The concession in technology and energy to the textile industry in India is massive. The concession given to us for electricity was also withdrawn,” complained Vinay Shah, managing director of Nobel Textiles.

Until a few years ago, the government used to refund value-added tax (VAT) to textile manufacturers for the sale of garments.

The government removed the concession two years ago. The government had decided to give a 50 percent discount on electricity tariff following a protest by the industrialists. Entrepreneurs also got concession in electricity tariff for one year. According to industrialist Ramesh Gadiya, this incentive has been removed from last year.

"Even the Nepal Electricity Authority (NEA) has demanded refund on the discount used by the industrialists," Gadiya said.

India had reduced the Goods and Services Tax (GST) on textiles to 5 percent at a time when the Government of Nepal was removing VAT concession given to textile manufacturers. Jitendra Kumar Lohiya, vice-president of the Nepal Textile Industry Association, said that the inflow of Indian textiles into Nepal's market has increased rapidly due to the tax gap of 8 percent.

According to Lohiya, 13 out of 14 industries in Biratnagar have been shut down. The progress he has made in textiles is still going on. "A small portion of Nepali's annual expenditure on textiles goes to the domestic production and legally imported goods, while the rest goes to illegally imported garments," Lohia claimed.

Entrepreneurs say that it has become difficult for Nepali textiles to compete with the products of Indian industries which get subsidy from the government. On top of that, smuggling of clothes through the open border has become a big problem.

In order to compete with Indian textiles, the industrialists have demanded zero tariff on the import of yarn. Yarn is the main raw material for the textile industry. Entrepreneurs have been paying 5 percent customs duty on its import. The industrialists say that the domestic textile industry will be relieved if they get customs duty relief on yarn.

The association estimates that a large part of the clothing consumed annually in Nepal is illegal. The government been giving a 5 percent discount on interest for loans up to Rs 50 million for the textile industry from the current Fiscal Year 2021/22. However, the government has not given such concessions to all types of textile industries.

“All types of textile industries should be given this concession, the limit of Rs 50 million should be removed and the concession should be given for at least 10 years,” says Vice President Lohia.

According to the industrialists, there is a problem in investing in the textile industry due to the policy that changes every year. Most industries have not been able to invest in technology. "Investment is scarce because of the government's volatile policy. Most of the industries are producing goods by importing old equipment. This has not led to the expected improvement in cost reduction and quality assurance,” said an industrialist requesting anonymity.

He urged the government to take a long-term policy to protect the employment created by the textile industry with an investment of around Rs 20 billion. He demanded that the government should adopt a policy to protect the textile industry which is the most value-added and job-creating industry.

About a dozen industries in Birgunj and Biratnagar, which were once famous, have now been shut down. The government-funded Hetauda textile industry has been shut down for years. The government has mentioned in the budget of the upcoming fiscal year that 'arrangements will be made for the civil servants to use the garments produced by Hetauda Textile Industry'.

While about 250 industries are struggling for survival, the issue of reviving closed textile industry has been included in the budget. The industrialists are doubtful about the government’s intention of reviving the closed industries, believing it to be a move to benefit a certain group of businessmen.

 

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