By: Kaval Mehra


State of Economy


The global financial melt down and consequent economicrecessions in developed economies have clearly been major factor in India'seconomic slowdown. Every developing country has suffered to a varying degree. No countryincluding India remained immune to the global economic shock. Theeconomic growth decelerated in 2008-09 to 6.7%, a decline of2.1% fromthe average growth rate of 8.8% in the previous five years. The extraordinary situation due to the crisis led to a sharp shrinkage inthe demand for exports. Domestic demand also had moderated considerably leadingto a down turn in India as seen in the GDP growth.


Short Term Measures


To counter the negative fallout of the global slow down onthe Indian economy, the Government responded by providing 3 focused fiscalstimulus packages to boost demand and increase expenditure on public projectsto create employment. However, the textile sector in general and our powerloomindustry in particular especially the man-made sector still has a long way torecover. This is mainly because of the anomaly in the fiscal structure ofexcise duty on raw materials. The current rates of excise duty on variousfibres and filament yarns and fabrics can be seen from the table-I:


 

With the increase of 4% Excise Duty on man-made yarn/fibres, the target of production and export of value-added man-made fabrics can not be achieved, which has to compete with cotton fabrics selling in the common market. We have therefore requested the Government to restore the Pre-Budget position, as more and more units in the MMF sector will shut down causing huge unemployment problems in the main units as well as in the ancillary units supplying dyes, chemicals, embroidered materials, machinery supplying units, etc. It is due to the Excise Duty difference between cotton yarn and man-made filament yarn over the years that the percentage of man-made filament fabrics is continuously decreasing as can be observed from the table-II.



Another point to be noted is that exports of man-made yarnhave increased over the years and as a result the prices of the yarn suppliedto the domestic users have been increased. This has pushed the users to importthe yarns, where again Government has imposed antidumping duty. The result iscosts of raw material are on the higher side which makes it extremely difficultfor the weavers to sell their products at competitive prices with a wafer thinmargin.


In case ofman-made fabrics, when the exporters purchase the fabric from the market, it ismostly through Non-CENVAT routs. Hence, the cost of the fabrics bear Excise /State VAT Duty paid on yarn which is not compensated, DEPB only considers theroutine Custom Duty paid (without including anti-Dumping Duty). Besides Excise/ State Duty on capital goods, dyes-chemicals, machinery spare parts, ServiceTax, etc. are also not compensated. In this scenario how can the exports ofgarments and made-ups of synthetic fibres grow at a higher rate. This will onlybe possible if the supply of polyester yarn to the manufacturers of the fabricsshould be made either at the same cost that of Chinese yarn or preferably lowerthan Chinese cost. It is possible for the yarn manufacturers in India to supplythe yarn at a cheaper rate than Chinese supplier; because the raw material costviz. PTA and MEG is cheaper in India by 24% and 15% respectively than in China.

The solution for supply of cheaper cloth to the garments manufacturers would be removal of anti-dumping duty on imported yarn and also the local spinners should agree to supply a portion of their yarn at international prices to the local cloth manufacturers who have agreement to supply man-made fabrics to garment/made-up manufacturers for export. Such a sale may be termed as export for the supplier.


Technical Textiles


The subject of technical textiles is in the news for quite some time now and Government of India is pushing hard to promote production and usage of technical textiles. Whilst apparel production to a large extent is stagnated, the technical textiles have noticeably increased in importance due to their broad product and application range. Amongst the range of technical textiles products, India agro-textiles market is estimated at Rs.1, 300 crore by 2012-13. In the words of Mrs. Rita Menon, Secretary (Textiles) the application of technical textiles in agriculture will help to bring in the second green revolution in Indian agriculture.

Government has already selected Synthetic & Art Silk Mills' Research Association (SASM I RA) as the Centre of Excellence for agro-textiles to provide one stop facilities for testing, and research and development. Maganlal H. Doshi, President, SASMIRA and his team needs to be congratulated in this matter. Government has constituted a Development Council for Technical Textiles, which is headed by Arunbhai Jariwala, Chairman, FIASWI.


National Fibre Policy


I am happy to observe that Government of India has taken note of the fact that man-made fibre industry has been left far behind vis a vis the cotton industry. Ministry of Textiles is in the process of formulating a 'National Fibre Policy' with a view to achieve a growth rate of 7 to 8% for the textile industry. As per their record, the fibre consumption is in the ratio of 57:43 between cotton and man-made fibres in contrast to the 40:60 ratio prevailing world wide. The endeavor of the Government is to bring a balance between cotton and non cotton fibres closer to international trends.


Already sub-groups have been set up for different fibres. Arunbhai Jariwala is included in the Sub Group of Manmade fibres.


State VAT (Sales Tax) On Fabrics and Levy of Proposed GST on Textiles


It needs to be noted that manufacturing of fabrics in the decentralized sector does not take place in one State. Yarn is manufactured in one State, grey cloth is woven in another State, processing of fabrics is done in third State, cloth is sold in fourth State and has to go to fifth or sixth State, if it could not be sold earlier. Hence, the issue of likely imposition of VAT Sales Tax on fabrics is of great importance to the textile industry.


If VAT Sales Tax is imposed on fabrics, the problem of imposition of tax regulation will result, once again, in wide non-compliance as it happened when Excise Duty (Central VAT) was introduced in Budget 2003-2004. This is bound to happen, because, not only there are more than 17 lakh powerlooms in the country, but, also more than 1,000 independent process houses and more than 25 lakh traders of fabrics all over India.


TUF Scheme

  1. Limit of 15% and 20% capital subsidy should be increased from Rs.1 crore to Rs.5 crore and semi-automatic and two-for-one machinery which are excluded in the new scheme should be included.
  2. The capital subsidy for machinery for technical textiles should be increased from 10% to 20%.
  3. All the banks have received the subsidy money for release to the customer. In several cases the banks are unable to credit the same to customers because SIDBI is still not releasing ECA code number of their application which should be expedited.



The author is President of SASMA


Originally published in The Stitch Times: December 2009