Pakistan’s textile industry embodies one of the country’s greatest economic paradoxes: the sector that earns the bulk of its merchandise export revenues, sustains millions of livelihoods and offers the clearest route to industrial expansion is being undermined by the very government that should be helping it grow. Rather than treating textiles as a strategic national asset, successive governments have burdened manufacturers with uncompetitive energy prices, exorbitant financing costs, excessive taxation and unpredictable policies.
Pakistan’s textile industry is more than a major manufacturing sector; it is the backbone of the country’s export economy, a source of employment for millions and one of its most promising avenues for sustainable economic growth. From cotton cultivation and spinning to weaving, dyeing, processing and garment manufacturing, the industry supports an extensive value chain that links agriculture with industry, domestic commerce and international markets.
A decade ago, Pakistan’s total merchandise exports stood at approximately $20.8 billion, of which textiles accounted for $12.4 billion. By fiscal year 2026, total exports had increased by $9.3 billion, with textiles contributing $5.5 billion, or nearly 60 per cent, of that increase. These figures demonstrate that textiles have remained the principal driver of export expansion while other sectors have struggled to emerge as significant sources of foreign exchange.
The industry’s resilience becomes even more remarkable when viewed against a decade of successive shocks. The US-China trade war, the Covid-19 pandemic, the Russia-Ukraine conflict, devastating floods in 2022 and 2025, Pakistan’s balance-of-payments and sovereign debt crisis in 2022–23, the military confrontation with India in May 2025, escalating US trade protectionism and instability in the Middle East have all disrupted supply chains, increased uncertainty and complicated international trade.
Despite these challenges, textile manufacturers have continued to supply international markets and generate much-needed dollars. The industry’s potential extends far beyond existing cotton yarn and fabric exports. Higher-value garments, technical textiles, home furnishings, sportswear, specialised fabrics and branded products offer opportunities to earn more from every unit of raw material. With the right policies, Pakistan could move further up the global value chain, create better-paid jobs and strengthen its position in international markets.
One of the greatest obstacles is the high cost of industrial energy. Electricity for Pakistani industry is estimated at around 11–12 US cents per kilowatt-hour, compared with 5–10 cents in India, 4–9 cents in China, 4–7 cents in Vietnam and 8–9 cents in Bangladesh. Although actual tariffs vary by consumer category, contract and applicable charges, the gap places Pakistani manufacturers at a serious competitive disadvantage. Recent history demonstrates the consequences of policy choices. Following the introduction of regionally competitive energy tariffs (RCET), textile exports rose from approximately $12.5 billion in FY2020 to $19.3 billion in FY2022. After RCET and other facilitation measures were withdrawn, exports fell to $16.5 billion in FY2023. They subsequently recovered to $17.9 billion but remained below the industry’s demonstrated potential.
The cost of borrowing presents another formidable barrier. Pakistan’s policy rate stands at 11.5 per cent, compared with 5.25 per cent in India, 4.5 per cent in Vietnam and around 3 per cent in China, according to the supplied figures. Textile manufacturing requires substantial investment in machinery, modernisation, working capital and compliance with increasingly demanding international standards. Expensive credit discourages investment, prevents technological upgrading and makes it harder for firms to accept larger export orders.
Taxation is equally damaging. Pakistan’s corporate income tax rate is 29 per cent, while the combined burden of taxes and levies on formal businesses can exceed 60 per cent by some estimates. Exporters face more than 18 federal and provincial taxes and levies, which, according to the industry figures, can amount to 7–11 per cent of turnover against profit margins of just 6–15 per cent. Small and medium-sized enterprises are especially vulnerable. Spinners, weavers, processors and garment manufacturers face cascading taxes, delayed refunds and liquidity constraints at successive stages of production.
Taxation should support economic expansion, not suffocate it. A growing industrial base generates employment, increases incomes, broadens the tax base and ultimately produces more sustainable government revenue. A policy that extracts excessive revenue from a stagnant economy may offer short-term fiscal relief but undermines the growth required to resolve the country’s long-term financial problems. A properly designed Drawback of Local Taxes and Levies (DLTL) scheme could provide part of the answer. Under such a scheme, exporters would receive rebates against eligible domestic taxes and levies embedded in production costs. An incentive of around 8 per cent, as proposed by industry representatives, could be linked to verified export performance and incremental exports, with transparent eligibility rules, independent audits and safeguards against misuse.
A comprehensive reform programme is essential if textiles are to become a dynamic engine of national development. First, the government should establish a predictable, regionally competitive energy-pricing framework. The industry’s proposed benchmarks of 7 cents per kilowatt-hour for electricity and $7 per million British thermal units for industrial gas deserve serious examination against fiscal realities, energy-sector costs and regional competitors.
Second, financing costs must decline as macroeconomic conditions permit. Targeted export-financing facilities, access to long-term investment credit and incentives for modern machinery would help firms improve productivity and quality. Third, the tax system needs simplification. The government should eliminate cascading taxation, expedite legitimate refunds, rationalise levies and reduce compliance costs. Stable policies are essential because textile investments require years to recover their costs.
Fourth, Pakistan must revive domestic cotton production through better seeds, research, irrigation management, extension services and improved pest control. Climate-resilient agriculture and stronger links between farmers and textile manufacturers would reduce dependence on imported raw materials and improve quality. Fifth, the industry must move towards higher-value exports. Investment in modern processing, technical textiles, garment design, automation, sustainable production and internationally recognised environmental standards would allow Pakistani businesses to capture a greater share of global value chains.
Pakistan’s textile industry has demonstrated resilience, created livelihoods for millions and contributed disproportionately to the country’s export earnings. Its limitations are real, but many are rooted in the wider economic environment rather than an absence of entrepreneurial capacity. The government cannot reasonably demand export expansion while imposing uncompetitive energy costs, expensive credit, excessive taxation and policy uncertainty.