INDIA: Textile Industry upbeat over duty-cut and fund flow

NEW DELHI: Now, cotton and polyester are on level-playing duty turf and textile industry is expecting major gains in the years ahead on the back of the Finance Minister's decision to cut key duties and enhance the allocation for the technology upgradation fund in the Budget 2006-07, but labour reform is a missing link!

Finally, man-made fibre (MMF) got its due from Finance Minister P Chidambaram when he proposed to cut excise duty on all MMF yarn and filament yarn to 8% from 16% for the next financial year.

Besides, the import duty on all manmade fibres and yarns has been reduced from 15% to 10%. PC fulfilled the long-standing demands of the textile sector and his budget 2006-07 provided industry players a platform to be competitive in the ''global bazaar''.

Justifying the duty reductions, Chidambaram said the cotton textile industry had greatly benefited from the relief granted two years ago. ''The manmade textile industry is a growth and employment driver,'' he added.

MMF products will now be better placed to compete against the powerful Chinese textile juggernaut. Garment makers can lower their price-tags and increase the volume business. The last two Budgets had created an enabling environment for the growth textile industry, especially cotton textiles.

Indo Rama synthetics (I) Ltd CMD O P Lohia said the thrust given in the Union Budget 06-07 to the textiles industry in general and the man-made fibres/yarns segment in particular, will provide an immense growth momentum to this sector.

''The reduction of customs and excise duties on synthetic fibres and yarns will make these items available at a more economical price to consuming industries in the downstream sectors of the textiles value-chain,'' he added.

Rajasthan Spinning & Weaving Mills Ltd Joint Managing Director Riju Jhunjhunwala also felt the same and said, ''The reduction in excise duty on manmade fibers will give a major boost to the synthetic spinning industry.

The industry will stop accumulation of the unutilized CENVAT. The reduction in import duty on our raw material will reduce the input costs and the industry will have better competitive edge due to reduction in excise and import duty.''

Jhunjhunwala pointed out that the extension of exemption under u/s 80IA of the Income Tax, for new power plant will result in lower tax liability, and the surplus cash flow can be used for growth. It could not have been a better and more fulfilling budget for the synthetic textile industry, given the scenario emerging post WTO.

''Now it is upto the Synthetic Textile industry to live upto the expectations of the Government in terms of exports earnings and generation of employment. Our wish list from the Government of India stops here,'' he stated.

''The duty cuts will ease the cost pressure on the companies and improve their profitability in the years ahead. The industry's competitiveness will also improve in the global market,'' said Vijay Jindal, Joint Managing Director, SPL Industries Ltd, India's leading garment exporter.

Alok Industries CFO Sunil Khandelwal observed that the Union Budget allows exporters to sell their goods in the domestic market at a reduced rate. Now, the export oriented units have a level playing field with domestic tariff area units.

Pointing out that there has been an encouraging response to the technology upgradation fund (TUF) scheme, as part of the sops, FM also enhanced the allocation for TUF scheme for textile companies from Rs 435 crore to Rs 535 crore.

According to industry representatives, the TUF scheme has helped small power looms and big textile industries to modernise and equip themselves to face global challenges. Textile Minister Shankersinh Vaghela has expressed his willingness to continue with the scheme.

''After TUFS was introduced, there has been a phenomenal increase in the exports. Man-made textiles which began in a small way with exports of limited items to neighbouring countries have touched an all time high of Rs 9,681 crores during 2004-05,'' Vaghela said, adding that the government is committed to create and enable a conducive atmosphere for the textile industry to modernise and the TUFS has played a major role in this regard.

The scheme, he said, was growing in popularity and according to his estimates, the outlay may have to be doubled to Rs 1000 crore from the current Rs 500 crore within a year. The Centre has set a target of earning $50 billion through textile exports by 2010.

''Budget will help textile companies achieve this target,'' the Textile Minister hoped. Arvind Mills Managing Director Sanjay Lalbhai said reduction in excise and import duties will encourage production of spun yarn and blended and improve their competitiveness both for the domestic and the export market.

Analysts said the thrust on infrastructure in the budget would help in improving the overall efficiency of the textile industry as it suffers from high cost structure compared to their counterparts in China and Pakistan.

Chidambaram gave Rs 189 crore for the scheme of integrated textile parks. Under the scheme, seven parks have been sanctioned and 10 parks have been identified for development. A jute technology mission would also be launched in the fiscal year 2006-07 to harness the potential of the golden fibre.

According to textile merchant Arun Zariwala, the need of the hour is a continuous upgradation of technology in the textile industry, which the government has ignored. The 16% customs duty on machinery imports still exists.

The government has also remained silent on labour reforms though this need was starkly represented in the recent economic survey meeting. Like China pays more to its labour as their production costs less than what it is in India. FM has ignored the aspect that Indian labourers produce more goods than what China does in the textile market. There should be incentives for the labourers at least.

If the Budget 2006-07 brought smile on the faces of textile and garment players, the Economic Survey 2005-06 forced them to scrutinise their wrongs. It can become eyeopener for the industry.

Despite dismantling of the quota regime, India's exports of textiles and clothing (T&C) has been much below expectations at 5 and 4 per cent in global exports with China grabbing a major share at 18 per cent and 35 per cent, respectively.

''China with a share of about one sixth of the total world exports of T&C has performed well and far better than India,'' the Survey noted with concern.

India's exports to the US during January-September 2005 grew by 25.17 per cent, which was higher than that of Pakistan at 10.86 per cent, and Bangladesh at 19.81 per cent, but much lower than China hitting an astounding figure of 58.60 per cent.

In January-May 2005, China’s T&C to the EU of products liberalised in January 2005 surged by 80 per cent as compared to India’s modest 10.5 per cent. Similarly, the US data for the first six months of 2005 showed that exports of T&C of liberalised products lines from China surged by 242 per cent.

The revaluation of Chinese Yuan around by 2.05 per cent has helped India in becoming price competitive vis-a-vis China in some items like girls skirts, women/girls shorts and blouses and men’s shirts, but the impact of the revaluation has been limited.

China, the survey says, enjoys substantial advantage on account of huge capacities across the entire textile value chain with economics of scale, flexible labour laws, cheaper power, low interest rates, efficient and sound infrastructure and cluster-oriented integrated industrial structures.

The Survey underlines that a number of steps were taken by Indian T&C sectors for the post-quota period, ''but the opportunities unleashed have not materialised because of reservation of certain items for small scale sector until recently, absence of labour market flexibility and effective exit policy which has prevented development of scale economies, longer lead time and infrastructural and administrative bottlenecks including delays at customs.''

Greater FDI in the T&C sector from major textile importers like the EU and the US can catalyse the sector, it said, stressing the the need to increase productivity with effective use and to redress the problem of lackluster growth in the synthetic segment, where the world demand is high, but India’s output of fibres and fabrics have fallen in the current year.

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Added: March 18, 2006 Source: Nitika Sinha
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