Om Prakash Khanal

August 4: The textile industry is considered to be one of the most promising enterprises. However, most of the 200 small-scale textile industries in Nepal are running with age-old equipment. The textile industries of Nepal are importing second-hand machineries that have been used for at least one decade in third countries including India.

The Nepal Textile Industry Association estimates that the annual consumption of clothes in Nepal is worth Rs 6 billion. The share of home-made products is only 5 to 10 percent. The annual clothes consumption data of Nepal mentioned in a statement released by the association on June 2 is not official though. It is not possible to independently verify this data.

Why are industries relying on old equipment despite such a large market potential? Entrepreneur Ramesh Gadia's answers by saying that the market is small and the dominance of foreign clothes scare industrialists to invest in new technology.

Out of the total clothes consumed in Nepal, local production and import through formal means is worth Rs 1 billion. Jitendra Lohia, vice-president of the Nepal Textile Industry Association claims that the remaining clothes worth Rs 5 billion are imported through informal channels.

According to Gadia, the domestic manufacturers are afraid to invest in technology because of the cheap clothes imported or smuggled from India and China.

When Binay Shah, the owner of Nobel Textiles in Birgunj, introduced new technology in his industry, other textile industrialists suggested Shah that it would be risky. He said that he was ready to take risk. However, the most of the entrepreneurs do not want to take this risk.

“Production is taking place in the country since the last 30/35 years with the use of old equipment that has been used for over 10 years elsewhere,” said Gadia.

The lack of stability in the government's policy towards the textile industry is also the reason for the industrialists' hesitation. Vice President Lohia complains that the provisions brought by the government as concessions are also unreasonable. The government announced a subsidy of 5 percentage points on loans taken by the textile industry up to Rs 50 million. Not all types of textile industries are able to get this concession.

Industrialist Pitambar Munka complained that up to the year 2074/75, the textile industry was given a 100 percent VAT exemption, which was removed after the concession scheme.

“The government gave 50 percent subsidy on electricity tariff in the year 2076/77, which was also removed from the year 2077/78,” said Munka.

Most of the clothes consumed in Nepal are imported from India. Goods and Services Tax (GST) is levied at 5 percent on clothing in India. This tax is not levied on clothes entering Nepal legally. Although 15 percent customs duty is imposed on textile imports, most of them come under SAFTA concessions of 5 to 7 percent. Meanwhile, 5 percent customs duty is to be paid on yarn imported by the domestic industry.

Industrialists claim that most of the clothes are imported through illegal means without paying revenue. Gadia added, “On top of that, since India has given up to 50 percent subsidy to the textile industry, it is difficult to compete with the cheap textiles imported from there. Due to the competition, the domestic textile industry of Nepal is stuck with old technology.”