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Cover Story | March 2017

Budget spin-offs LIFT HOPES

Budget measures like corporate tax cut for MSMEs, plan to set up 100 international skill centres, and support to cluster approach for contract farming have brought cheer to the textile industry. An ITJ Report on the pros and cons of the Budget 2017-18.

Never had any Budget in the past brought succour directly to the textile industry: its perpetual grouse! The Budget 2017 is no exception. But this time around, the Budget spin-offs -- including measures like corporate tax for MSMEs below Rs 50 crore turnover -- have brought bucketful of reliefs and hopes to the textile industry.

“Over the years, budget allocation for the Ministry of Textiles has increased by a few hundred crores, but this year the allocation is significant with a total budget of Rs 6,226.5 crore compared to Rs 4,595 crore last year (35 per cent increase). This shows the positive attitude government has towards the textile sector. As a part of larger initiative of ‘Make in India’, much needed impetus is being provided by the central government,” says Amit Gugnani, SVP, Fashion – Textile & Apparel at Technopak.

Amidst global slowdown, India is expected to be among fastest growing major economies in 2017 and is expected to grow at 7.6 per cent. The Government has fiscal deficit target of 3.2 per cent from 3.5 per cent of GDP last year.

Welcoming the Budget as a growth-oriented Budget, M Senthilkumar, Chairman of the Southern Indian Mills Association (SIMA), said that the main demand of the Association of continuing the existing tax structure including the service tax and optional Cenvat route extended for textile industry till the GST is implemented has been considered in the Budget.

“The other benefits extended such as 5 per cent reduction in the tax for MSME industrial units, additional allocation to the banks for NPA accounts, cashless transaction, labour reform, relaxation of FDI norms by abolishing Foreign Investment Promotion Board (FIPB) would also benefit the textile industry. The Cluster Approach for contract farming would greatly benefit the predominantly cotton-based textile industry,” opined the SIMA Chief.

The textile bodies have welcomed Union budget 2017-18, which has focused on the development of infrastructure facilities. Infrastructural development will boost Indian exports and will also promote textile business in the domestic market due to reduction in logistics costs. This Budget will help in the growth of Indian economy in the long run.

The Cotton Textiles Export Promotion Council (TEXPROCIL) welcomed the Budget and appealed the Government to restore some of the incentives relating to interest subvention for merchant exporters and cotton yarn and MEIS benefit for cotton yarns.

“Overall the budget is positive, wide ranging and inclusive” said Ujwal Lahoti, Chairman, TEXPROCIL.

Lahoti was glad that the job creating package of the textile sector found a worthy mention in the latest Economic Survey 2016-17, which was presented by Arun Jaitley. However, the made-ups sector which is included in the package still awaits the rates on ROSL scheme (Refund of State levies). The Chairman hoped that the rates will be announced soon so that the sector could take advantage of this path breaking scheme.

He welcomed the 5 per cent reduction in corporate income tax for medium and small enterprises with Rs 50 crore turnover. This will benefit a large number of MSMEs in the textile sector also. Yogesh Gaikwad, Business Manager - ASEAN Region, Country Manager, India, thinks otherwise about the Budget. He thinks that textile industry has been ignored in the past and still continues to be ignored.

He adds, “Training of the existing workforce remains a major challenge as this is effecting the quality of goods that we produce. Incentive based in performance in exports (based on price per unit and quantities) should have encouraged organisation to upgrade their skills and production leading to more jobs and demand for skilled labour.”

Gaikwad said, “The budget speech has mention of the word textile very scarcely. It says about job creation, some existing schemes and duty changes in imported garments. A sector which has been hugely effected by demonetisation, increased competition from imported garments (mostly Chinese) and interference from bureaucracy and local politicians deserved to be listened and supported adequately. India is falling behind high value exports in textile (apparels and technical). We are still considered as producers of cheap textiles.”

However, Gaikwad had some recommendations for the textile industry:

  • A special incentive for 100 per cent EOU (export oriented units) should have been provided.
  • The labour in India is still cheap but not skilled. Special institutes for low wage labourers which provide food for education should have been created.

Avinash Mayekar, MD & CEO, Suvin Advisors, said, “The positive part is TUF scheme which is supposed to be ended last year is kept alive and we’ll be getting almost Rs 2,000 crore benefits under A-TUFS scheme. At the same time for the State incentives almost Rs 1,500 crore is the incentive kept. So, for the total industry size of almost Rs 90,000 crore Government is giving total subsidies budgeted for Rs 6,000 crore, i.e., merely 6 per cent of the total industry size as subsidy.

He added, “The industry which is doing $40 billion export and giving direct employment to 40 million people, I think it is a total injustice. If at all this government wanted to create good infrastructure under ‘Make in India’, create large employment, new startup units, they should have boosted textile industry quite a lot.

This is what I was expecting because with skill development programmes and ‘Make in India’ efforts textile industry would be the most suitable and right candidate to take this ahead and implement things faster. So sort of a disappointment in my mind as far as textile industry is concerned. However, the entire Union budget is positive. A lot of things will come as a budget benefits, which will give some relief to the textile industry. But per se textile industry, the budget is not attractive.”

Arun Ganapathy, CFO, Spykar Lifestyle Pvt Ltd, feels that the Budget for the financial year 2017-18 was on expected lines. He said, “As anticipated by us, the reduction of personal income tax would increase the disposable income in the hands of individuals.

As mentioned by the Finance Minister, about 96 per cent of individuals have an income of less than Rs. 5 lakhs and they tend to gain on reduction in income tax rate for income up to Rs. 5 lakhs. Also, there were no changes in the indirect taxes as expected by us, though there were some expectations in the market that there would be a change in service tax.”

“Demonetisation has impacted the retail industry per se. The statement of the Finance Minister that the impact on demonetisation will not spill over to the next year is a welcome one and would augur well for the industry. Though the reduction in corporate tax rates for SME corporate will help smaller retail entities, it is quite disappointing that the rate reduction was not extended to all corporates. Also, we expect a reduction of Merchant Discount Rate (MDR) charged by banks post waiver of duties for manufacture of POS machines and allied spare parts proposed in the Budget. We need to read the fine print as there were few proposals where the Finance Minister mentioned that though they are not included in his speech, they are a part of the annexure to his budget speech,” added Ganapathy.

Deepak Chiripal, CEO, Nandan Denim Ltd, thought that is an inclusive budget with a clear focus on agriculture, infrastructure, digitisation and employment generation. Medium and Small Enterprises (MSMEs) are the backbone of the industry and generate the maximum employment. He thinks that tax cut for the MSMEs with an annual turnover of Rs 50 crore is a welcome gesture and will drive the growth engine as most of India’s companies will get this benefit of 5 per cent tax reduction which will be a relief for them.

He adds, “Labour reforms was much sought demand and budget announcement will definitely help foster a conducive labour environment leading to harmonious labour relations which will further lead to higher productivity.”

Chiripal says, “Expanding tax net by increasing tax limit slab up to Rs 5 lakh will give more money into low-medium income groups. This move will give more money into hands of such people which will trigger more demand in markets. After short term sluggish demand due to demonetisation, this will surely help to boost the market sentiments. Considering the benefits provided to the poor including affordable housing, it is a good budget for the poverty stricken as it mainly focuses on the rural economy.”

He added, “Government has increased allocation to Prime Minister Employment Generation Scheme by three times which will definitely help to achieve employment generation targets. Abolition of FIPB (Foreign Investment Promotion Board) to ease flow of FDI is a good move which will reap good benefits as it will speed up the process.”

Growth-oriented budget: SIMA

For the first time, the Union Budget and Railway Budget merged together and announced as a single Budget giving importance for thrust areas. Yet another special feature of the budget is merging planned and non-planned expenditure enabling different

Ministries to get proper allocation for meeting the expenditure. Transform, Energize and Clean India (TEC India) vision with 10 point agenda set by the Government to frame the Budget would enable the nation not only to grow at a faster rate, but also achieve a sustained growth rate.

M Senthilkumar, Chairman, The Southern India Mills’ Association (SIMA) has welcomed the Union Budget 2017-18 and termed it as a growth oriented budget enabling all the manufacturing sectors to grow at a faster rate and the people of the Nation to improve their standard of living. The objective of doubling farmers’ income, housing for one crore rural Indians, skilling of youth by establishing 100 India International Skill Centre, Development of Infrastructure to provide end to end solution by integrating road, rail and ship would greatly benefit the textile industry that is spread across the nation, says Senthilkumar.

Senthilkumar has stated that the main demand of the Association of continuing the existing tax structure including the service tax and optional Cenvat route extended for textile industry till the GST is implemented has been considered in the Budget.

The other benefits extended such as 5 per cent reduction in the tax for MSME industrial units, additional allocation to the banks for NPA accounts, cashless transaction, labour reform, relaxation of FDI norms by abolishing Foreign Investment Promotion Board (FIPB) would also benefit the textile industry. The cluster approach for contract farming would greatly benefit the predominantly cotton based textile industry, according to SIMA Chief.

SIMA Chairman has hoped that the textiles being a mass consumption item, the Government would consider bringing the entire textile value chain under lowest slab rate of GST (currently announced as 5 per cent) without any exemption to have proper compliance.

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