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If policy space used judiciously, sector can re-employ 1 mn workers
06
Feb '09
The textiles and clothing industry can re-employ about one million workers who may lose jobs this year and create another 2.5 million additional jobs in the next couple of years for the poorest and least educated among our work force, if the available policy space is used judiciously. This industry is the most effective vehicle we have for ensuring inclusive growth with minimal government expenditure.

The following are the major adverse factors currently impacting the industry:
-Declining exports and UVR
-Huge incentives available in competing countries
-Insufficient working capital because of declining profitability
-Uncompetitive raw material and input costs
-Volatility in currency movements

The stimulus packages of 7/12 and 2/1 have not addressed any of these issues effectively. Releasing funds for TUFS for the period up to 30th June 2008 (which were due around one and a half years back), a partial reinstatement of interest subvention on export credit that had been withdrawn from October 2008 and some cosmetic changes in duty refunds incorporated in the packages do not have the potential to rescue this industry from its current crisis and to lead it to a path of sustainable growth.

Declining exports and UVR:
DGCI&S figures show significant and persistent decline in T&C exports. In August and September 2008, there has been export deceleration by 2.3 percent and 8.8 percent respectively, compared to the same period of 2007. Data available from USA for January-November 2008 show that their imports of T&C products from India during this period not only had a negative growth compared to the previous year, but also registered a decline of 4 percent in UVR. The situation in the other major markets is similar and the subsequent months will be substantially worse because of the increasing impact of global economic crisis.

Incentives Provided by Competing Countries:
Most of our competing countries have implemented rescue packages for their T&C industries, in the context of the current global economic meltdown. Some examples are given below:
China-
-In July 2008, China announced a 2-4 percent increase in the rates of VAT refund on T&C exports to take them uniformly to 13 percent.
-In October, they increased VAT refund further to 14 percent.
-From January 2009, it has again been hiked to 15 percent.

Pakistan-
Following additional incentives were announced by Pakistan during July-October 2008:
-R&D assistance of 6 percent for garments
-5 percent refund of interest paid on loans for machinery purchased by T&C industry
-3 percent interest subvention for spinning industry
-A two year moratorium on repayment of principal amounts and interests on term loans taken by the T&C industry.

Declining Profitability:
Financial Results of textile companies appearing in BSE for the first three quarters of the current fiscal show that profitability has been negative or negligible for most of them and declining for all, compared to the same quarters of the previous year. And the situation becomes graver when viewed against the negative growth during 2007-08 mainly because of currency appreciation.


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