INDIA: Budget invokes mixed reactions from the textile sector

MUMBAI: Indian textile makers welcomed a slew of positive proposals in the federal budget on 28th February, but shares were mixed after the finance minister failed to address labour law reform, industry experts and analysts said.

Palaniappan Chidambaram proposed to halve customs duty for textile machinery to 10 percent and cut excise duty on polyester filament to 16 percent from 24 percent. He also proposed a 10 percent capital subsidy.

Other proposals included augmenting a technology upgradation fund and a cut in import duty on textile products to 15 percent.

While speaking to, managing director of Wellknown Polyester Pvt. Ltd. Mr. Anil Gupta said, "FM has a done a good job by reducing excise duty on polyester. Also independent texturizers will have the option to avail of the exemption route or pay 8 per cent excise duty with CENVAT credit. Exporters and quality-concious texturisers like Wellknown would opt for CENVAT credit route".

"The government has acknowledged that the textile industry is in a major growth phase and these measures are an important step to attracting greater investment," said Pradeep Bhandari, deputy group president of suit and apparel maker Raymond Ltd.

Shares in Raymond were down 2 percent at 335 rupees after climbing as much as 3.8 percent to a new 52-week high of 355 rupees earlier.

Shares in the biggest denim fabric maker, Arvind Mills Ltd., rose as much as 3.4 percent to 132.95 rupees and home linen maker Welspun India Ltd. rose as much as 3 percent to 135.80 rupees.

"This is an exemplary budget ... the 10 percent capital subsidy will give an impetus, and the reduction in duty on textile machinery and on polyester yarn are also big positives," said Dilip Jiwrajka, managing director of Alok Industries Ltd.

Shares in Alok were down more than 1 percent at 67.75 rupees after rising as much as 5 percent to 72 rupees earlier.

But the industry was disappointed by a failure to address labour law reform, seen as particularly vital after the lifting of textile quotas on Jan. 1, 2005.

"We were expecting some changes in the labour law to make the industry more competitive in comparison with China and other low-cost centres, but that did not come," said Bhandari.

China is expected to grab half of all U.S. clothing imports, and experts estimate India's share of the $400 billion world textiles market should quickly double to 6 percent.

"There are a lot of positives for the industry, but there is big disappointment on the lack of progress on labour law reform," said Chirag Shah, an analyst at SKKI Securities.

"That's what's keeping investors wary of textile stocks."

February 28, 2005

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Added: February 28, 2005 Source: Agencies
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