INDIA: FICCI Seeks Special Package for Textile Industry

Expressing deep concern over the steep decline in the profitability and investment in the Indian textile industry, FICCI has immediately sought a ‘SPECIAL TEXTILES PACKAGE’ for the industry to face the current economic crisis.

FICCI noted that profitability of Indian textile industry fell by over 99% in June 2008 quarter and investment in the current year (for April-July) has been less than one third of last year for the same period.

FICCI also said that competing countries are also bailing-out their textiles industry in the midst of these crises and in fact Pakistan Government has only last week approved the incentive package for its textile industry.

Under ‘Special Textiles Package’ FICCI has demanded, among other things, Moratorium for one year on term loans for textile industry; Increased drawback rates; Export credit at international rates; Extension of Sunset Clause for EOUs for 5 years; Release of Pending Funds of last year under TUFS; Reduction of Excise duty on man-made fibres; 10% Import duty on Man-made fibres; and 7% Duty Free Scrips as a refund of State taxes.

FICCI emphasised that unless these steps/measures are implemented swiftly to bail-out the Indian textiles industry, these is a risk of large scale lay-offs in the industry.

Pointing out the employment intensive nature of the industry, FICCI said that for every 1 unit of capital in textiles industry 7 people are employed whereas, in case of steel and auto sector only 1 and 2 people are employed respectively for every unit of capital. So diminishing investment in the textile sector could have significant impact on the employment front.

FICCI said that under the ‘Special Package’ Government should provide a moratorium of one year for repayment of principal amount of term loans taken by textile industry. For this there is no need for brining any change in the Act or rules by RBI and financial institutions only need to be advised to restructure their loan portfolios accordingly.

Further, FICCI noted that Drawback rates have been reduced by 1 to 3% for textile products with effect from 1st September 2008. Whereas, the input cost for the industry has substantially gone up in the last few months.

Therefore, FICCI said that these drawback rates need to be increased to their levels that were existing prior to 1st September 2008.

The Chamber also demanded that Sunset Clause for EOUs should be extended for another 5 years at least. Under this Clause, EOUs are entitled for income tax exemptions under Section 10 B of Income Tax Act for a period of 10 years that is expiring by March 2009.

Given the profitability position of textile industry currently, it would not be appropriate to withdraw this benefit next year as a result of which tax for EOUs would be around 34% after March 2009, FICCI pointed-out. Also, Indian textile exporters need to get export credit at international rates as is the case incompeting countries.

Exporters in competing countries are getting export credit at a lower rate of 6%, whereas in India the interest subvention for packing credit that provided export credit at BPLR (Benchmark Prone Lending Rate) minus 4.5% was withdrawn by Government w.e.f. 30th September 2008.

Besides, there is a need to increase custom duty on PSF (Polyster Staple Fibre) & PFY (Polyster Filament Yarn) to 10% from the existing 5%. Currently, there is a surplus capacity of synthetic fibres and yarns globally.

Also, as a result of steep increase in the price of Naptha (from Rs.27000/MT to Rs.52000/MT since April 2007) the entire chain of Polyester fabrics has suffered. The difference between the raw material price and selling price of finished product (PSF & PFY) has reduced so much that it does not cover even the variable cost, FICCI pointed-out.

FICCI further noted that the growth of textiles industry has come down from 8% in 2005-06 to merely 0.8% in April-August 2008-09. Looking at the Industrial Entrepreneur Memorandum (IEMs) filed, the investment has come down drastically in the current year, FICCI observed.

Last year, 174 IEMs were filed during April to July representing an investment of Rs.9477cr. However, this year only 108 IEMs have been filed for April-July with an amount of Rs.3000cr. only, FICCI study pointed-out.

FICCI emphasised that the Government needs to swiftly announce a package for textiles industry that would not only make our exports competitive but also incentivise investment.

While neighbouring countries like Pakistan has already announced one such package for its textile industry, the other neighbouring country i.e. Bangladesh is optimistic that the demand for their garments would increase despite these crises since their garments are the cheapest.

Unless the package is announced now by the Government, Indian textiles industry would lose out to its competitors like Bangladesh, Pakistan etc in international markets, FICCI said.

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