CITI places pre-budget memorandum before Finance Ministry

After detailed discussions and consultations within the industry on the fiscal issues that need to be addressed by the ensuing Central Budget, we have formulated the following recommendations for your kind consideration:

EXCISE DUTY

The optional duty regime for textile products may be continued. The current stipulation of duty payment with the facility of cenvat credit or duty exemption without cenvat credit has been working well and has led to growth both in investments and production.

The duty on manmade fibers and their raw materials may be reduced to 8 percent from the current 12 percent. Both the industry and government have recognized the need for a fiber neutral excise regime for the textiles industry, in order to realize the immense potential for growth that exists in our manmade fiber based products and also to remedy the mismatch between the fiber consumption patterns in India and our major importing countries.

A reduction in the excise duty rate for manmade fibers will help in achieving this objective at least partly, since natural fibers are not subject to excise duty. And this may not lead to revenue loss, since demand and therefore production will increase, leading to increased revenue.

With cost of production going up in China, the manmade fiber based textiles industry of India has an opportunity opening up for expansion of its market share, if competitive raw materials can be ensured. The reduction in the duty for raw materials such as PTA, MEG and DMT is necessary to avoid an inverted duty structure once the duty on fibers is reduced.

The mandatory duty of 12 percent on branded garments and made ups may be converted to 8 percent optional duty. The benefits of the optional regime were available to all textile products until the mandatory duty was introduced for branded garments and made ups from 2011-12 onwards.

Garments and made ups are the most labor intensive and the final products in the textiles chain and play a major role in creating and sustaining demand for all textile products. They are not in a position to avail any cenvat credit since their suppliers are mostly in the exemption route.

CUSTOMS DUTY

Customs Duty and SAD on manmade fibers may be abolished and accumulated SAD may be refunded. This will help the textiles industry to source fibers from global markets whenever there is a shortage or price spiral in the domestic market.

Though SAD is cenvatable, most units in the industry are not in a position to avail this facility since they are in the exemption route for excise duty. Accumulated SAD is already being refunded to traders. This facility may also be allowed to the textiles industry in the context of the optional excise regime.