India and Turkey are major export destinations for Nepali yarn. Along with rising demand for yarn, Nepali factories have started utilising their capacity towards upper level and have doubled their capacity utilisation from 35 or 40 per cent to 70 or 75 per cent.

Currently there are four spinning mills in Nepal that import raw materials from various countries and they are also trying to create backward linkages to maximise the benefits of yarn export. Around 10,000 people are directly employed in yarn production at present.

The four yarn producers in the country jointly produce almost 40,000 metric tons of yarn a year and production could go up if the factories operate at optimum capacity. Earlier factories were largely running below capacity as the country was facing a crippling power shortage and labor unrest.

Turkey has suspended the generalised system of preferences on export of yarn from Nepal since January on the ground that Chinese yarn is being circumvented to Turkey via Nepal. Nepali exporters who were largely focused on the Indian market are increasingly attracted toward the Turkish market as the latter fetches better prices. The country now fears about the possible adverse impact on jobs and exports of the country due to Turkey’s decision to suspend the GSP facility.