Yarn import: restrictions and overcapacity
Wednesday, 4 March 2009
THE government, reportedly, has reintroduced the procedural restrictions on the import of yarn from neighbouring India using the Benapole land port as the local spinning mill owners and banks have sounded alarm. An order issued by the National Board of Revenue (NBR) has again subjected the Indian yarn imported through Benapole to tough procedural systems relating to customs and bond licences. In July last year, the caretaker government relaxed conditions which were put into effect in February 2006. The relaxation of conditions had prompted the local importers to buy the low-cost Indian yarn in large quantities, dumping the locally produced yarn.
The Bangladesh Textile Mills Association (BTMA) raised strong objections to the withdrawal of restrictions claiming that entry of the Indian yarn had come as a serious threat to the existence of the local spinning mills. According to the BTMA, a good number of spinning mills have already been closed down and many more have cut their production substantially. The industry which is worth over Taka 350 billion has at present an unsold stock valued at about Tk 250 billion. The unhindered entry of Indian yarn, thus, had come as threat not only to the local spinning mills but also to the banks and backward linkages. Banks in particular have invested substantial amount of money in the industry which was doing well until recently in the backdrop of ever-increasing demand for yarn from both knit and woven units. Many borrowers in the industry have already failed to keep their payment obligations, causing a great deal of concern among the management of the concerned banks.
The Indian yarn is cheaper than the locally produced one not only because the former costs less money. Irregularities, allegedly, indulged in by a sector of traders with the help of a section of customs officials do also help keep the prices of the Indian yarn lower than the locally produced yarn. Unscrupulous traders import Indian yarn in quantities far greater than what is shown in the original letters of credit (LCs). Such irregular import, thus, deprives the government of the actual revenue, on one hand, and creates price distortions in the market, on the other. Such evil practice at the import stage is an old one, which, however, subsided to some extent during the military-backed caretaker government.
Besides, the BTMA and others concerned might have overlooked another very important issue-overcapacity, a problem that might have posed a serious threat to the industry itself. According to an estimate, the country has 341 spinning mills with an annual production capacity of 1600 million kilograms of yarn. In the last financial year, the total consumption of yarn in the country was 789 million kgs and in the previous year 658.5 kgs. Such overexpansion of capacity is nothing unique in Bangladesh. It had happened in many other sectors, including re-rolling mills and cold-storages, in the past. Neither the entrepreneurs nor the institutional financiers, in most cases, feel the need for conducting sectoral feasibility studies before making their own investments. It is high time that the official agencies concerned and the BTMA jointly launch a comprehensive study on the existing capacities and future marketing potentials. This is necessary to save both the entrepreneurs and the banks from further difficulties. Such a study does need to take into cognizance the presence of a next-door supplier of yarn at cheaper rate and also the fact that it might prove difficult to restrict entry of yarn from outside source over a long time.
The Bangladesh Textile Mills Association (BTMA) raised strong objections to the withdrawal of restrictions claiming that entry of the Indian yarn had come as a serious threat to the existence of the local spinning mills. According to the BTMA, a good number of spinning mills have already been closed down and many more have cut their production substantially. The industry which is worth over Taka 350 billion has at present an unsold stock valued at about Tk 250 billion. The unhindered entry of Indian yarn, thus, had come as threat not only to the local spinning mills but also to the banks and backward linkages. Banks in particular have invested substantial amount of money in the industry which was doing well until recently in the backdrop of ever-increasing demand for yarn from both knit and woven units. Many borrowers in the industry have already failed to keep their payment obligations, causing a great deal of concern among the management of the concerned banks.
The Indian yarn is cheaper than the locally produced one not only because the former costs less money. Irregularities, allegedly, indulged in by a sector of traders with the help of a section of customs officials do also help keep the prices of the Indian yarn lower than the locally produced yarn. Unscrupulous traders import Indian yarn in quantities far greater than what is shown in the original letters of credit (LCs). Such irregular import, thus, deprives the government of the actual revenue, on one hand, and creates price distortions in the market, on the other. Such evil practice at the import stage is an old one, which, however, subsided to some extent during the military-backed caretaker government.
Besides, the BTMA and others concerned might have overlooked another very important issue-overcapacity, a problem that might have posed a serious threat to the industry itself. According to an estimate, the country has 341 spinning mills with an annual production capacity of 1600 million kilograms of yarn. In the last financial year, the total consumption of yarn in the country was 789 million kgs and in the previous year 658.5 kgs. Such overexpansion of capacity is nothing unique in Bangladesh. It had happened in many other sectors, including re-rolling mills and cold-storages, in the past. Neither the entrepreneurs nor the institutional financiers, in most cases, feel the need for conducting sectoral feasibility studies before making their own investments. It is high time that the official agencies concerned and the BTMA jointly launch a comprehensive study on the existing capacities and future marketing potentials. This is necessary to save both the entrepreneurs and the banks from further difficulties. Such a study does need to take into cognizance the presence of a next-door supplier of yarn at cheaper rate and also the fact that it might prove difficult to restrict entry of yarn from outside source over a long time.