Expect up to 40% production cuts in textile sector - FICCI

December 10, 2008 - India

Despite Government’s stimulus package, Indian manufacturing sector is not likely to see any revival in its growth soon. According to FICCI Survey on Slowdown in Indian Manufacturing Sector, manufacturers in some of the major sectors like textiles, metal and metal products, machinery & equipments, leather and chemicals etc. have reportedly planned cuts in their productions ranging from 10-50% for the period November ’08 to March ’09.

This implies that growth of manufacturing sector could further slowdown in the coming months, if the current economic uncertainties continue. Even for the month of October 2008, FICCI Survey noted that sectors like textiles, metal and metal products, leather could see negative growth whereas sectors like chemicals, machinery & equipments would witness a positive growth.

Based on the responses received, the textiles, leather and metal sector are expected to clock negative growth of -3.9%, -13% and -30% respectively but sectors like chemicals and machinery will register positive growth of 5% and 17% respectively for the month of October 2008 (These figures are only indicative as they do not cover the entire sector).

FICCI noted that sectors like Cotton textiles, textile products and leather products registered negative growth in the month of September 2008 also. And metal products registered a negative growth of -16.7% in August 2008.

According to the survey, in the textiles sector, there has been a dip in production by 3.9 percent in October 2008 vis-a-vis October 2007. Production cuts can be expected to be between 10-40 percent in the next five months and employment downsizing could be in the range of nearly 15 percent.

FICCI Survey also observed that some units in sectors like textiles, metal and metal products, leather, jewellery could see downsizing of their employment level in the range of 10-30% in the next few months. However, sectors like machinery & equipment, chemicals and products may not see any loss of employment in the current scenario.

In terms of exports, FICCI Survey pointed out that exports of textiles, leather and metal products have plunged sharply in October 2008 vis-à-vis October 2007. Textile exports are expected to decline by around 10% in October 2008. Maximum impact is likely to be in the leather sector’s exports as the respondents reported that on an average their orders have declined by 62% from abroad.

In order to boost the manufacturing sector growth, FICCI Survey has highlighted some of the measures that need to be implemented by the Government in its next package of fiscal stimulus. FICCI pointed-out that some of the major demands of the manufacturing sector remained unaddressed or were addressed partially only in the recently announced package by the Government.

Firstly, almost all the respondents of FICCI Survey emphasized that the interest rates were still high and the Government needs to further bring down the interest rates for Corporate Sector. Globally, credit is available to the industry at very competitive rates of 8 to 10% which is not the case in India. Secondly, the major demand of textiles industry to increase the duty drawback rates and interest subvention at 4% remain unaddressed or partially addressed by the recent package.

FICCI urges the Government to consider providing more relief to textiles sector by increased drawback rates and interest subvention at 4% (Government has provided 2% interest subvention in the recent package). Thirdly, the Government should also consider reducing the corporate tax rate immediately and also to restore income tax exemption for exports. Fourthly, another major demand of neutralizing the incidence of State levies for exports remain unaddressed.

State levies constitute 6% of the export price of manufactured item. Fifthly, transaction cost still constitutes 6% of the export value of manufactured good and needs to be rationalized. Sixthly, adequate power supply remains an issue of grave concern to the manufacturers. Seventhly, FICCI has urged the Government to pump in more money for infrastructure sector as the growth of many manufacturing sectors is directly dependent on the growth of infrastructure in the country.