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Cover Story | March 2018

Good in part!

The Budget 2018-19 is good in part for the textile industry thanks to corporate tax cut for MSMEs and higher allocation of ATUFS. The ITJ Cover Story takes stock of the Budget implications and the industry’s reactions.

The Budget 2018-19 did not ignore the textile industry like the last few ones, which blatantly bypassed the interests of the textile industry. Arun Jaitley’s Budget this time around clearly reiterated the Government’s resolve to consider the textile industry as one of the engine’s of growth of the India’s economy. There were bouquets all the way from the industry, and hardly any brickbats, though the Budget did not reveal any specific incentive or policy related directly to the textile industry.

The Union Budget proposed an allocation of Rs 7,148 crore for the textile sector, which includes the entire textile value chain and segments such as silk and jute. The major allocation is for the Amended Technology Upgradation Fund scheme, a programme that looks at improving productivity through technology upgradation with higher fixed capital investment. The scheme has got Rs 2,300 crore as against Rs 1,956 crore for the year 2017-2018.

The other substantial allocation is towards Rebate of State Levies (ROSL), which is to boost exports. The scheme has received an allocation of Rs 2,163.85 crore compared with Rs 1,555 crore earmarked for the sector in the previous budget. The outlay for schemes for powerloom units is Rs 112.15 crore, covering programmes under the Power Tex India and Comprehensive Powerloom Cluster Development Programme.

Commenting on the budget, Chairman of The Cotton Textiles Export Promotion Council (TEXPROCIL) Ujwal Lahoti called the budget “Pragmatic, Growth Oriented and all inclusive.” He praised the government move to increase the financial expenditure under the comprehensive textile sector package for apparel and made ups segments from Rs 6,000 crore to Rs 7,148 crore. “This initiative will not only promote exports but also increase production in these 2 labor intensive sectors,” he added.

Lahoti further said the sector is expecting that increase in fund allocation for textiles will cover fabrics also under ROSL scheme. Also the government attempt to contribute 12 per cent of the wages of new employees in EPF for all the sectors for next three years with the extension of fixed term employment in all sectors and reduction in women employees’ contribution to 8 per cent for first three years from 12 per cent are also positive steps for the textile sectors, he added.

He said these sort of measures will create employment opportunities especially for women in textiles sector and contribute significantly towards “Make in India” campaign. With regard to increase in allocation of funds under the TUF Scheme from Rs 2,013 crore in 2017-18 to Rs 2,300 for 2018-19, the chairman said that the proposal is a positive one. The reduced income tax rate of 25 per cent will immensely benefit the micro, small and medium enterprises who have reported turnover up to Rs 250 crore in 2016-17.

Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI), said that the increase in the outlay looks prima facie was positive but, it is yet to be seen how impactful the enhanced outlay would be for the entire apparel value chain.

Referring to the reduction of women employees’ contribution towards EPF to 8 per cent for the first three years, Mehta pointed out that workers in apparel industry will be among the primary beneficiaries of this provision, since the sector extensively employed women. Mehta thanked the Finance Minister for enhancing the turnover limit from Rs 50 crore to Rs 250 crore for eligibility to the reduced corporate tax rate of 25 per cent and sated that a large number of units in the apparel sector would benefit from this.

He stated that the enhanced economic growth envisaged in the Budget will help in improving demand for apparel, which is one of the primary needs of the masses. Mehta added that the positive impact of the Budget on the apparel industry will also be reflected in job creation, since this is the most labour-intensive industry in the country.

Ashok G Rajani, Chairman, Apparel Export Promotion Council (AEPC), said it was an excellent announcement and would also increase women’s employment and boost export growth. He added that when the last package was given India’s exports grew at 12 to 14 per cent subsequently.

The domestic market growth rate of apparel industry was flat during 2017-18 due to demonetisation and GST. However, things are stabilising and the growth rate is anticipated to be between 10 and 12 per cent in the fiscal year 2018-19. On the export front, if the government does not increase duty drawback rates, there could be a possibility of negative growth in the export sector, said Mehta.

“We have been asking the government to support the apparel exporters to survive. There have been blockages of funds as very few people got GST refunds between July and December. The dollar, which was worth Rs 65, came down to Rs 63, hurting exporters further. We have become uncompetitive and Bangladesh has started cashing in on this by offering its products 10-15 per cent cheaper in global market,” said HKL Magu, Chairman, AEPC.

P Nataraj, Chairman of the Southern India Mills’ Association (SIMA), has welcomed the increased allocation of Rs 7,148 crore that includes Rs 2,300 crore for Amended Technology Upgradation Fund (TUF) scheme and the balance for other schemes as against Rs 6,251 crore allocated during last year. “Extending 12 per cent EPF employer’s contribution for the first three years of employment and also the fixed-term employment for all the sectors of the industry would encourage job creation in the textile industry,” says Nataraj.

SIMA Chairman has also welcomed the scheme for MSMEs to address the issues relating to NPA norms and stressed assets, a long pending demand from the industry. He has also welcomed the reduction of corporate tax rate from 30 per cent to 25 per cent for the units having up to Rs 250 crore annual turnover. He has stated that more than 80 per cent of the textile units would be benefited out of the reduced corporate tax rate that would help them to plough back the amount for creating additional jobs and value addition.

Sanjay Jain, Chairman, CITI, and Managing Director, T T Limited, welcomed the budgetary allocation for textile sector of Rs 7,148 crore and the announcements pertaining to the MSME sector.

CITI Chairman pointed out that the Budget has given a big thrust to MSMEs to boost employment and economic growth. Jain stated that several measures have been announced in the Budget which will benefit the MSME sector. However, steps need to be taken to correct the imbalance caused by the GST. The whole industry is being hit by the imports post GST. The industry has been asking the Government for increase in import duty across the value chain (yarn and fabric) and it is a big disappointment for the industry that industry’s recommendations have not been addressed.

Basic custom duty on silk fabric increased to 20 per cent from 10 per cent would save the industry from dumping from China. The industry post GST is facing higher imports post GST across the value added segment and was seeking increase in BCD across yarn and fabric – hence disappointed with this partial measure.

Dr Jairam Varadaraj, Managing Director, ELGi Equipments, said: “The budget has introduced some interesting schemes towards agriculture and rural development. They continue to support investments in infrastructure, which will support our portable compressor range. Many of our suppliers will benefit from the MSME tax reduction and perhaps the tax reduction will encourage capital expenditure, which could in turn support our industrial compressor range. Overall, while there are no explicit manufacturing boosters, we hope that the momentum from the last quarter will sustain through 2018.”

According to RS Jalan, Managing Director, GHCL, “The 20 per cent higher allocation in infrastructure development in this budget shows the government’s thrust on renewing spurt in economic activity. The allocation of Rs 5.97 lakh crore for infrastructure spends, which include the completion of 35,000 km under the Bharatmala project and targeted completion of 9,000 km of national highways by end of FY19 will have a positive impact on the overall growth of the country. The textile sector gets an increased allocation of Rs 7,148 crore from Rs 6,230 crore in the last budget. The budget it is very balanced with a youthful flavour on one hand that focuses on growth and supporting innovation within the economy with special incentives for small and medium enterprises, and on the other hand has something for senior citizens and women.”

Jagdish Lulla, Chief Financial Officer, Spykar Lifestyle, expresses, “The Budget 2018 has mainly focussed on measures for uplifting education, healthcare along with rural development and infrastructure. It has layered a base for a stronger agriculture sector. There has been an increase in the allocation for the textile industry and this industry will also benefit from reduction in Corporate tax since most of its units fall in this segment. India is looking to bring in social security reforms. There are no immediate benefits for the retail sector. The LTCG announced is on expected lines. No announcement of any changes in the personal tax slabs which would have lead to more disposable income, though is a dampener.”

Arun Roongta, Director, Texzone India, “The budget was better than expected as it did not contain populist measures for urban citizens and corporate sector driven by elections. Instead, the entire focus has been on energising the economic growth rather than giving financial sops to individuals. This budget will trigger a structural and long-term positive change in the Indian agro-economy and welfare of people. Consumption and income in the rural and semi-urban areas will definitely get a boost if implementation takes place as intended. This year, the concentration has shifted from the ease of doing business to ease of living which in turn will have a cascading effect on the productivity of people especially due to the implementation of the healthcare policy.”

Roongta added, “As far as the textile and MSME sector is concerned the impetus of the previous budgets were such that not much was left to be done. Yet, allocation of Rs 7,148 crore for the textile sector is a welcome announcement, indicating the importance and priority for this sector in Government’s scheme of things. TUFS benefit has been revised upwards to 18 per cent, which will trigger more investment in textile and apparel sectors. Besides, all other benefits that will roll out to the MSMEs, in general, will automatically help the textile sector as well since over 95 per cent textile production is in SME sector. The retail sector was not touched upon probably because it is too soon after implementation of GST and easing of FDI in single-brand retail. However, Jaitley’s speech made it clear that textile continues be a priority sector.”

D Ravishankar, Founder Director, Brickwork Ratings, said “Contrary to the expected populist budget, this year budget provides impetus to growth and is a good balancing act of driving growth agenda and keeping some popular measures for the masses. A strong emphasis has been given for uplift of rural sector, healthcare, education and infrastructure to accelerate economic growth. The budget is credit positive for business environment especially for the MSME sector, one of the largest job generators in the country.”

He added, “The companies with a turnover up to Rs 250 crore would enjoy the concessional rate of income tax at 25 per cent. This move will benefit 99 per cent of the MSMEs that file tax returns and the surplus could help them to use it for creating more jobs. In addition, allocation was made for credit support to MSMEs. The government will also announce measures to address the issues of NPAs and stressed accounts of MSMEs.

Professor JD Agarwal, Chairman & Professor of Finance, Indian Institute of Finance, welcomed the budget and considered it to be one of the best budgets in the last few years. The budget is welfare oriented, pro-poor, pro-agriculture and rural people, promoting education, taking care of health of the people particularly of middle class and the poor. The budget has rightly focused on generating employment by making a provision of 70 lakhs formal jobs and through an investment in infrastructure, road, railways, airports and helipads, rural infrastructure, interconnecting rural with urban areas with a view to boost employment and quality of life of people.

He has been very concerned about MSMEs which constitute 99 per cent of the companies, by providing them Rs 3,794 crore and Rs 7,148 crore for textile sector companies and bring the tax rate to 25 per cent with a turnover of up to Rs 250 crore.

“We welcome the Union Budget announced by Finance Minister which has recognised infrastructure as a growth driver of the economy. The investments in infrastructure are estimated to be in excess of Rs 50 lakh crore. This will support the growth of GDP and connect and integrate the nation with a network of roads, airports, railways, ports and inland waterways, said Aneel Gambhir, CFO, Blue Dart.

Blue Dart CEO added, “To facilitate trade and e-commerce, the government should consider Aviation Turbine Fuel (ATF) under the ambit of GST as the excise / VAT paid on these products are not available as input credit. Under the Service Tax regime, input credit was available for the excise paid on ATF. Under GST, this has a negative impact on logistics costs.”

Sheril Vaidhyan, President, DuPont South Asia, said, “The 2018 budget promises to boost India’s manufacturing and infrastructure development. We are confident that measures announced by the government today will lead to a better quality of life for all citizens of India.”

He added, “The Union Budget 2018 is forward looking and focuses on job creation with an emphasis on rural healthcare, education and employment along with raising disposable income of citizens to revitalize the economy post demonetization thereby encouraging stability and growth. Flagship schemes announced by the Prime Minister earlier in his term such as “Make in India”, “Skill India”, “Digital India” have been strengthened to address the objectives of overall development. Steps taken towards making India a more tax compliant country are welcome and will boost tax buoyancy and growth.”

Avinash Mayekar, Managing Director and CEO, Suvin Advisors, concludes: “After the initial outlay of the textile budget, I feel that the ministry has justified the amount allotted to its pocket. If we compare the current budget allocation with last year’s budget, we can understand that the government is rightly taking decisions in the favour of cotton-based industry and at the same time giving major thrust in the interest of Indian textile industry to boost the weak links. Overall a balanced budget allocation among the internal sub segments of textiles. However, the assistance of this budget for growth of the sector in domestic and international market depends on the proper and easier allotment of the funds to the industry entrepreneurs. The pace of execution of this budget will be the deciding factor for the shinning future of textiles. It is only fair from the industry to be satisfied with what is allotted and encash every penny of support that is been given by the government.”

Budget highlights for textile industry

Technology upgradation support enhanced: The Government’s flagship technology upgradation scheme, ATUFS, received a higher allocation at Rs 2,300 crore for the upcoming year as against Rs 1,956 crore in 2017-18. This is a welcome move and would provide boost to capacity expansion in the textile and apparel sector. However, no budgetary allocation is done for Scheme for in-situ upgradation of plain powerlooms in the current budget which received Rs 68.31 crore in last year’s budget.

PowerTex India scheme would be driving force: Launched last year, PowerTex India scheme to drive the growth of powerloom sector as budgetary allocation has been increased to Rs 87.15 crore for FY 2018-19. This scheme seems to be helpful for the decentralised powerloom industry across various clusters. Powerloom Mega Cluster development would also be continued in the coming year with a budget allocation of Rs 25 crore.

Incentives to stimulate competitiveness, employment and skilling: Allocation under Remission of State Levies (ROSL) has been increased sizably to Rs 2,163.85 crore from Rs 1,855 crore in FY 2017-18. This scheme includes the refund of State taxes to apparel exporters to make the industry competitive. Industry has been regularly asking to boost the ROSL incentive from current 1.5 per cent as they believe the tax paid are not recovered fully. Government continued the Pradhan Mantri Paridhan Rojgar Protsahan Yojna (PMPRPY) that contributes 12 per cent towards EPF of new employees and its applicability has been extended for next three years. This will provide an additional momentum to hiring of workers by the apparel industry.

Integrated Scheme for Skill Development for the textile sector receives a budget allocation of Rs 200 crore, which is operational for last several years.

Cotton fibre might get dearer: The government’s objective of doubling farmers’ income by increasing Minimum Support Price (MSP) of crops indicates towards higher support price for cotton in the 2018-19 season. This might go against the cotton textile industry.

Other measures that matters textile industry: Corporate tax rate reduced to 25 per cent for the companies having turnover up to Rs 250 crore. The increased turn over limit from Rs 50 crore to Rs 250 crore would benefit majority of the textile and apparel sector. Basic custom duty on silk fabric increased from 10 per cent to 20 per cent to protect domestic industry.

SIMA hails Budget 2018-19

Nataraj, Chairman of the Southern India Mills’ Association (SIMA) has welcomed the increased allocation of Rs 7,148 crore that includes Rs 2,300 crore for Amended Technology Upgradation Fund (TUF) scheme and the balance for other schemes as against Rs 6,251 crore allocated during last year. “Extending 12 per cent EPF employer’s contribution for the first three years of employment and also the fixed-term employment for all the sectors of the industry would encourage job creation in the textile industry,” says Nataraj.

SIMA Chairman has also welcomed the scheme for MSMEs to address the issues relating to NPA norms and stressed assets, a long pending demand from the industry. He has also welcomed the reduction of corporate tax rate from 30 per cent to 25 per cent for the units having up to Rs 250 crore annual turnover. He has stated that more than 80 per cent of the textile units would be benefited out of the reduced corporate tax rate that would help them to plough back the amount for creating additional jobs and value addition.

P Nataraj has stated that the Union Budget has allocated Rs 2,164 crore for emission of State Levies (RoSL) as against Rs 1,855 crore allotted last year for the exports of garments and made-ups. He said that the amount is inadequate as there is huge backlog even for the year 2017. He has pointed out that timely disbursement of government dues is very much essential to ensure adequacy in working capital and achieve a sustained growth rate in exports and job creations. He has appealed the government to clear the long pending RoSL benefits, IGST refund and other dues at the earliest to ease the financial position of the exporters.

Industry hit by imports post-GST: CITI Chairman

Sanjay Jain, Chairman, CITI, welcomed the budgetary allocation for textile sector of Rs 7,148 crore in the Union Budget 2018-19 and the announcements pertaining to the MSME sector. CITI Chairman’s response to some of the key budget announcements related to Textiles sector are as follows:

MSME sector

Jain pointed out that the Budget has given a big thrust to MSMEs to boost employment growth.

  • In order to reduce the tax burden on MSMEs, the corporate tax has been reduced to 25 per cent who have reported turnover up to Rs 250 crore will benefit 99 per cent of textiles sector as it’s primarily in the MSME segment.
  • Finance Minister may soon announce measures to effectively address NPAs and stressed accounts for MSMEs which will have a fa-reaching impact on the textile industry.
Textile and apparel sector

Outlay for textiles is Rs 7,148 crore for 2018-19 against Rs 6,222 crore last year.

  • ROSL: The budgetary allocation for ROSL has been increased from Rs 1,855 crore to Rs 2,164 crore. This will help the exporters of made-ups and apparels as backlog will be cleared and working capital released.
  • ATUFS: For ATUFS also, the allocation has also been increased from to Rs 2,300 crore from Rs 1,956 crore. This would mean that companies will get their arrears faster.
  • Procurement of cotton by CCI: A large part of the increase has gone to CCI for performing MSP operations and hence won’t help the industry. The allocation has been increased from Rs 303 crore to Rs 924 crore. It will benefit farmers but as market prices are higher than MSP in this year hence the budget may not be actually increased. Hence the actual fund allocation increase is just Rs 276 crore for the industry.

Basic custom duty on silk fabric increased to 20 per cent from 10 per cent would save the industry from dumping from China. The industry post GST is facing higher imports post GST across the value added segment and was seeking increase in BCD across yarn and fabric – hence disappointed with this partial measure.

MSP on cotton

MSP of all crops shall be made 1.5 times that of the production cost. This will benefit cotton farmers, however, it will result in high inflation for the consumers of the country (as cotton constitutes 70 per cent of the consumption) and the downstream segments. This would also make our industry uncompetitive internationally. Currently cotton MSP is 22.71 per cent over A2 + FL (actual cost plus imputed value of family labour) which is Rs 3,276 per quintal as per CACP data. If we take this as base, it means another 22 per cent increase which will make the industry uncompetitive and lead to high inflation of cotton textiles. The industry has been requesting to change from MSP to direct subsidy system, so that the profit protection measure of farmers doesn’t impact the textile consumer and the value-added industry. Three years back, China has also converted from MSP system to direct subsidy system to reduce the huge stock pile which happened due to MSP being much higher than international prices.

EPF and Labour Reforms

Extension of fixed term employment for all segments which was earlier only for apparel and made-ups and contribution of 12 per cent of the wages of the new employees in the EPF for first 3 years is welcome measure.

Others

  • Health care programme—Modi Care—will benefit textile workers and reduce the problem of absenteeism and cost of healthcare on workers
  • Construction of 9,000 km of national highways by end of FY19 and Rs 50 lakh crore for infrastructure development will enable smooth textile trade
  • National Livelihood Scheme of Rs 5,750 crore will benefit textile sector in rural areas

Jain stated that several measures have been announced in the Budget, which will benefit the MSME sector. However, steps need to be taken to correct the imbalance caused by the GST. The whole industry is being hit by the imports post GST. The industry has been asking the Government for increase in import duty across the value chain (yarn and fabric) and it is a big disappointment for the industry.

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