By: Dr.H.K.Sehgal


It is not only conventional but also fashionable to quote the Father of Indian Political Economy, Kautilya, who has been quoted in the opening paragraph of FM's speech, Part-B, which states, "Thus a wise Collector General shall conduct the work of revenue collection in a manner that production and consumption should not be injuriously affected.Financial prosperity depends on public prosperity, abundance of harvest and prosperity of commerce among other things. "


With all due respect to Hon'ble Finance Minister, if he thinks that Kautilya's advisory prompted him to formulate his Budget Proposals, I seek to disagree with him, going by what he has provided for as also not provided for in so far as textile and garment sectors are concerned. His tax proposals as also those of exem ption from taxes do not conform to his opening statement. True, he has taken care of social sector, but it has come about at the cost of production sector, on which the prosperity of the nation would rest.


It is a matter of fact that numerous representations had been made by the trade bodies relating to textile and garment sectors on the crying need of providing them with level playing ground either with the foreign competitors or even those who are fortunately located in the SEZ areas, but the FM has failed miserably to consider, judge, evaluate and decide on the demands being made on him by the trade and industry. All demands, which were well based on logic and public interest have summarily been ignored.


What Industry Gains


First, let us see as to what the Budget ProposaIs for 2010-11 have to offer to textile and garment export sectors.

 

  1. Central Plan Outlay of Rs. 2,400 crore under TU F Scheme
  2. Integrated Skill Development Scheme to impart skills to some 30 lakh persons over a period of five years.
  3. Provision of grant of Rs. 200 crore for Common Effluent Treatment Plant, installed by dyeing units in Tirupur, Tamil Nadu.


Now let us examine what has been offered in these Budget Poposals.


1.Allocation under TUF Scheme


The Technology Upgradation Fund (TUF) Scheme essentially involves provision of incentive of 5% on interest charged by bankers on the import of machinery/technology by textile industry. It will be recalled that The Stitch Times has regularly been pointing out that the funds availability under this Scheme has been far too short of the actual requirements. So much so, that the so-called stimulus package provided to textile industry in terms of allocation of funds under TUF was not adequate to cover the Government obligations under the Scheme, even on the day of announcement of the stimulus package. Now the question is whether the funds being provided under the Scheme would even match the requirements of funds under the Scheme. I do not think so.


2.Integrated Skill Development Scheme to impart skills to some 30 lakh persons over a period of five years


It is a good proposal, so far as it goes, but it must be pointed out that it is not that the entire funding required for the programme of imparting skills to some 30 lakh persons would be done by the Government. In fact, in his wisdom, the Finance Minister left it unexplained as to what percentage of the contribution is being met with by the Government and what would be the modus operandi of the Scheme. The Speech says, "The resources of the private sector will also be harnessed by incentivising training through an outcome-based approach. Through these instruments, the Ministry of Textiles has set an ambitious target of training 30 lakh persons over 5 years." What is the precise role of the Government vis-a-vis private sector remains unspelled out; and therefore difficuIt to comment.


 

3.Provision of grant of Rs. 200 crore for Common Effluent Treatment Plant, installed by dyeing units in Tirupur, Tamil Nadu.


Indeed, a good proposal, but leaves one wonder as to how come this project ALONE was considered to be fit for funding by the Government, when there are a number of more pressing needs to be looked after. Seems, prima facie, to be a case of a political decision.


Now after having known and discussed whatever the Hon'ble Finance Minister has to offer to textiles and garment sector, let us turn our attention as to what has not been provided for or denied.


What Industry lost


The textiles and garment export industry, however, for sure lost what it had been granted in the previous fiscal, apart from suffering from new taxation proposals.


These areas are:


  1. Interest subvention of 2% on pre- shipment export credit.
  2. Increase in Excise duty
  3. Tax on petroleum products
  4. Non-operationalisation of GST


1.Interest subvention of 2% on pre-shipment export credit


For the sake of clarity, I quote the Budget speech, "Exports : 42. Government has provided interest subvention of 2 per cent on the preshipment export credit up to March 31, 2010 for exports in certain sectors. I propose to extend the interest subvention of 2 per cent for one more year for exports covering handicrafts, carpets, hand looms and small and medium enterprises."


Significantly, the Speech does omit "textiles and garment sectors", the implications and importance of which need not be overlooked in our enthusiasm to support the Budget Proposals, as made out by AEPC, which has "welcomed the initiatives of interest subvention on export credits". I would tend to agree with Rakesh Vaid, President, Garment Exporters Association, who has "regretted that while extending 2% interest subvention for exports for one more year, the Finance Minister has not included textiles and garments in the list."


The FM has failed miserably to consider, judge, evaluate and decide on the demands being made on him by the trade and industry. All demands, which were well based on logic and public interest have summarily been ignored.


2. Increase in Excise duty


The Budget Speech says, "142 Therefore I propose to partially roll back the rate reduction in Central Excise duties and enhance the standard rate on all nonpetroleum products from 8 per cent to 10 per cent ad va lorem."


The notification issued by the Central Board of Excise and Customs states that DMT, PTA, MEG and benzene to produce caprolactum and acrylonitrile have been raised from 8 per cent at present to 10 per cent. While caprolactum is a raw material for producing nylon yarn, other petrochemicals are raw materials for polyester yarn. This will result in an increase in the final product prices of synthetic yarns.


So much so, that the so-called stimulus package provided to textile industry in terms of allocation of funds under TUF was not adequate to cover the Government obligations under the Scheme, even on the day of announcement of the stimulus package.


The duty on fibre too has been increased from 8 to 10 per cent. All this is likely to raise prices of manmade fibres, whose prices are already high in India.





 

3.Tax on petroleum products


In the Budget Proposals, the basic duty of 5 per cent on crude petroleum, 7 per cent on diesel and petrol, and 10 per cent on other refined products has been restored. Central Excise duty on petrol and diesel has further been enhanced by Re 1 per litre each.


This has increased the prices of petrol and diesel by Rs. 2.80 and Rs. 2.60 to the consumers. This has not been taken kindly by the Opposition in particular and the industry in generaI, as it is considered to aggravate the inflation, already afflicting the economy. So much incensed was the combined Opposition that in their rare gesture they staged a spontaneous walk-out. Before even the din and noise raised by them had settled, the co-partners within UPA formation were also upset about the cascading effect of increase in petroleum products and have demanded their roll-back.


4.Non-operationalisation of GST


The Stitch Times, as also almost all the trade organizations within or without fold of textile and garment sectors, had repeatedly been imploring the Government to operationalise Goods and Services Tax (GST), which would make things easier for trade and industry by the originally proposed date of 1 April 2010, but the same has not been done. This is what the Budget Speech had to offer on this, "On Goods and Services Tax, we have been focusing on generating a wide consensus on its design. In November, 2009, the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made a number of significant recommendations relating to GST, which will contribute to the ongoing discussions. We are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of the expeditious implementation. It will be my earnest endeavour to introduce GST along with the DTC in April, 2011."


Industry Reacts


The trade bodies have given a thumbs-down to the Budget Proposals almost with total unanimity. Premal Udani, Chairman, AEPC said that while the Union Finance Minister has been able to maintain expenditure and fiscal discipline, he has not provided a short-term or long-term roadmap for the growth of labour-intensive apparel industry. He welcomed the continuation of interest subvention on export credits, grant being given to train three million workers in the textile and clothing industry and Rs. 200 crore grant for the effluent discharge project at Tirupur. He, however, added that "The increase in Excise duty coupled with about RS.2 increase in prices of petrol and diesel will substantially increase raw material and input costs. He added that the industry, already struggling mainly on account of high costs will be further suffocated with these cost increases. He lamented that the Finance Minister had turned down exporters' plea for exemption from Service tax rather than claiming refunds. The refund procedure being so cumbersome, hardly any exporter has been able to get the same so far. He concluded that the Budget has failed to give a thrust to the textile and clothing industry which generates the largest employment after agricuIture .


Rakesh Vaid, President, Garment Exporters Association expressed his disappointment for lack of any special provision for the garment sector in Budget Proposals for 2010. He regretted that the Finance Minister did not include textiles and clothing industry while extending two per cent interest subvention for export credits by one year. "The Budget has not given due consideration to various recommendations of the exporting community. The Finance Ministry should have appreciated the fact that labour-intensive garment export sector requires special consideration as it adds maximum value to the exported products using over 95 per cent indigenous materials." He observed that the Budget did not touch upon issues of India's cost competitiveness vis-a-vis neighbouring countries, specific concerns relating to high transaction costs, poor infrastructure and realistic duty drawback rates. "It has also failed to provide the necessary exemption from Service tax on all export related services." He further pointed out that increase in Excise duty and prices of petroleum products will further increase the input and transaction cost of exporters, who are still reeling under the impact of global economic slowdown. He, however, welcomed the proposal to launch an extensive skill development programme by leveraging the strength of existing institutions to train three million workers in the next five years


I would tend to agree with Rakesh Vaid, President, Garment Exporters Association, who has "regretted that while extending 2% interest subvention for exports for one more year, the Finance Minister has not included textiles and garments in the list.

 

Shishir Jaipuria, Chairman, Confederation of Indian Textile Industry pointed out that restricting the interest subvention on export credit to the hand loom and SME sector would leave a large number of exporters in the textiles and clothing sector without this benefit. He said, "I hope the Minister of Commerce and Industry would pursue this matter, especialIy considering the export potential and labour intensity of this sector." Pointing out that policy inputs are required to correct the mismatch in the fibre consumption pattern between India and the global markets, Jaipuria said that there was a case for reducing the tax burden for man made fibres as CITI had requested; but the Budget has increased their burden by hiking excise duty on manmade fibres and textile products manufactured from them from 8 % to 10 %. He requested the Finance Minister to at least revert to the original level. Shishir Jaipuria, while reacting to the proposal of allocation of Rs. 2,400 crore for TUF Scheme said that this amount would only; cover the period up to June 2010. "I would request the Minister of Textiles to take up this issue with the Finance Minister and get at least another Rs 1500 cr in the Revised Estimates."

So much incensed was the combined Opposition that in their rare gesture they staged a spontaneous walk-out. Before even the din and noise raised by them had settled, the co-partners within UPA formation were also upset about the cascading effect of increase in petroleum products and have demanded their rollback.

G.K. Gupta, Chairman of Synthetic and Rayon Textiles Export Promotion Council said, "It is disappointing that there is nothing in the Budget for the textile exporters. Even the funds allocation under the Technology Upgradation Fund scheme has not been increased. The Service tax rates has been retained at 10 per cent. Exporters were looking forward to exemption of Service tax on export-related services as the current refund mechanisms are cumbersome. However, the Budget has not addressed this issue."

Siddhartha Rajagopal, Executive Director, The Cotton Textiles Export Promotion Council of India said "We wiII request the interest subvention given to exports of handicrafts, carpets, hand looms to be extended to the textiles sector too which used to be the case earlier."

Conclusion

As I said in the previous issue of The Stitch Times we should adopt only one point programme i.e. treating textile and garment units outside the SEZ areas at par with those located in SEZ areas, which should not only be able to stand the scrutiny, but also carries massive support of logic and the laws of governance.

Here 'I' refers to the Author

Originally published in The Stitch Times: March 2010