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Budget Reactions | April 2016

A bag of mixed fortunes

The overall proposed structure to revive rural consumption and rural development in the Budget is likely to give an indirect impetus to the textile industry.

Budgets have rarely brought complete cheers to the Indian textile industry in the past. Often, it is more of a matter of omission of the textile industry in the scheme of things. This time around, there are more brickbats than bouquets for the Finance Minister Arun Jaitley’s measures that directly or indirectly affect the textile industry.

The most disgruntled segment belongs to the branded garments. Terming the move to impose 2 per cent central excise duty without Cenvat credit facility or 12.5 per cent central excise duty with Cenvat credit facility on branded ready-made garments and made-ups materials priced above Rs 1,000 as the most ‘deplorable’ step, garment manufacturers, who are mostly in the SSI sector are up in arms. Prices of branded garments are set to go up by 2 to 5 per cent, laments the industry. Says Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI): “The very task of collecting this duty from the highly dispersed and mostly tiny units in the garment sector would be a formidable one for the government, especially when the rest of the value chain remains exempted and therefore traceability will be a serious issue. The large number of small and tiny units in the sector will also find it impossible to follow the procedures involved. The result will be that evaders will prosper and compliant units will suffer. He added that the revenue for government from this decision will be negligible, whereas the problems that it would create for the industry will be huge.”

However, the textile industry has hailed the Government’s attempt to strengthen the infrastructure and technology upgradation. “Reduction in customs duty on MMF would marginally improve the competitiveness of the MMF and their blended textile manufacturers in the country,” says M Senthilkumar, Chairman, The Southern India Mills’ Association (SIMA). Another move welcomed by the industry is the Government’s allocation of Rs 1480 crore for Technology Upgradation Fund Scheme. However, Senthilkumar cautions that additional funds would be required to meet the pending subsidies since September 2014.

Amit Gugnani, Sr VP, Fashion – Apparel & Textiles at Technopak, said, “While, there were no big bang changes for the textile industry as such, the overall proposed structure to revive rural consumption and rural development will give an indirect impetus to the textile industry also.”

Many textile industrialists had anticipated and build up expectation with 2016 Union Budget such as cut in excise duty on man-made fibre and filament and reforms in labour laws in the budget for next financial year.

The Indian textile sector has been pushing for free trade agreements with various countries for reduction in duties on Indian textile exports in respective countries, which could have provided higher market penetration. However, it should be noted that there were not major announcements for textile sector, as anticipated by the industry.

The budget did make some announcements to impact the overall textile and apparel industry. The most significant among those was on the excise duty on ready-made garments. The budget highlighted that 60 per cent of retail sale price or the tariff value would be eligible for excise or countervailing duty (CVD) on ready-made garments and made-up articles of textiles. Earlier the tariff value for calculating excise or CVD (countervailing duty) was fixed at 30 per cent of retail sale price. “This will make the garments more expensive in domestic retail and it has been taken up very negatively by garment manufacturers who thrive on domestic retail demand,” said Gugnani.

He added, “Further, the ready-made garment industry is burdened with existing excise duty of 2 per cent (without central value added tax credit) and 12.5 per cent (with central value added tax credit) on branded ready-made garments and made up articles of textiles of retail sale price of Rs 1,000 or more. This would affect in the increase in the cost of garments by 5-6 per cent to final consumers. It also raised excise duty on polyester staple fibre (PSF) and polyester filament yarn (PFY) to 12.5 per cent for manufacturers who claim ITC from the existing 6 per cent.”

“On the customs duty front, the budget proposes that the basic customs duty on import of specified fabrics [for manufacture of textile garments for export] of value equivalent to 1 per cent of FOB value of exports in the preceding financial year being exempted subject to the specified conditions. The changes in customs and excise duty rates on certain inputs are to reduce costs and improve competitiveness of the textile industry,” said Gugnani.

However, there has also been some relief for the synthetic industry in the new budget. The customs duty in the case of man-made fibres is reduced by 50 per cent from 5 per cent to 2.5 per cent and this could bring in the reduction of manufacturing cost of these fibres and yarns. This initiative has been welcomed by the industry as a whole.

Prakash Awade, former Maharashtra textile minister, expressed unhappiness over the Budget. “We were expecting Jaitely to rescue the industry from recession. Instead, he chose to watch the situation. The powerloom modernisation programme started during the earlier Union government’s regime may receive a setback,” he said.

“Prices of ready-made garments will go up in the range of 2 to 5 per cent depending upon the retail price of the product. We strongly condemn this move of the Finance Minister as it will hurt small and medium size industries, which are manufacturing garments for big brands,” said Ajit Lakra, Head – Textile, Federation of Industry and Commercial Organisation. Lakra is a Ludhiana-based garment maker. He said that rather than imposing tax, the government should have announced some liberal steps for the promotion of labour-intensive industry and employment generation.

“There is hardly anything for the common textile industry in this Budget,” said Dhanpal Tare, chairman of Indian Powerloom Federation. “I am surprised that the Minister forgot the textile industry, which is the second largest employer in India. The industry was expecting something from the Budget as we were aiming for programmes such as Make In India. The export is declining for the last 11 months. We are worried. Under such circumstances, we were expecting incentives from the government to boost export,” he added.

Tare said the textile industry provides more than 50 per cent employment to women and unskilled workers. “What the government has offered in the Budget is reduced basic customs duty on specified fibres and yarns. The duty has been reduced from 5 to 2.5 per cent, which will benefit ready made garment manufacturers, especially big brands,” Tare said. He added: “Indian technical textile contributes only 1 per cent to the world industry and the minister should have focused on it. The technical textile industry is dominated by China and Western countries. I think we have missed the bus again.”

Dipali Goenka, Chief Executive Officer & Joint Managing Director, Welspun India, thinks that the Budget is rural focused with a lot of impetus on the infrastructure sector, which is good. “From the textile point of view, bringing 5 lakh crore acres of farms under organic farming is a positive move since internationally, there has been an increased demand of organic cotton. Another encouraging announcement is the empowerment of youth through skill development under the National Skill Development Mission and the setup of 1,500 multi skill training institutes. Also worth mentioning is the widened scope of duty drawback scheme that will include more products and countries which will strengthen the export sector. Overall, it is a forward looking budget with focus on infrastructure, employment and social welfare.”

A Sakthivel, president of Tirupur Exporters’ Association, said this will give a boost to garment manufacturers in the State.

Textile Industry has been demanding reduction in excise duty on man made fibres, which is retarding the growth of the industry. However, nothing has been done in this regard feels ML Jhunjhunwala, President, RSWM Ltd, a Bhilwara based textile company. “Similarly industry has been demanding abolition of 4 per cent SAD on import of man made fibres but that has also not been done. There is no loss of revenue to the government as hardly any imports are coming,” says Jhunjhunwala.

Feeling completely disappointed with the Budget, Jhunjhunwala adds that excise duty imposed on branded garments and made ups will bring in a lot of complication to the industry as most of the garmenting is under unorganised sector.

He adds, “Cess on coal has been enhanced by Rs 200 per tonne, which will make the power generation costly. Mills are already reeling under high power cost. This cess will increase the cost of power further.”

Sanjay Jain, Managing Director of T T Limited, feels that the budget isn’t really relevant for an industry unless specific duty is imposed. He looks forward to the textile policy, which is expected in April this year. In the textile policy, Jain wishes that export incentives to fabric and garment be extended to yarn, and labour laws to be liberalised. He also wishes TUF dues to be cleared immediately and all policies should be made long term and should be honoured once announced by the government.

Echoing views, Sandeep Jain, Executive Director, Monte Carlo Fashion, also dubbed the levy of excise duty as a negative move for the garment industry.

“When the consumer sentiments are already low, the levy of excide duty will further hit the demand for items priced more than Rs 1,000,” he further said.

Arun Ganapathy, Chief Financial Officer, Spykar Lifestyles, is on the same page as most of them. He too thinks that the additional excise duty imposed with be an additional cost on apparel players. Even the Krishi Kalyan cess of 0.5 per cent will be an additional impact for most of the apparel players.

However, Ganapathy pointed out some positives about the budget as well. He thinks that the non-litigious approach is a welcome move as it will reduce the time spent on tax appeals and litigations.

The textile industry did not get its due in the Budget, feels Deepak Chiripal, Chief Executive Officer of Gujarat-based Nandan Denim Limited. “The move of bringing small and medium enterprises engaged in garment manufacturing under the ambit of indirect tax will hurt the industry”, he said.

Chiripal even lauded some of the aspects of the Budget. According to him, “The Budget is a clear one with a focused growth trajectory for the next 3-4 years, broadly in line with the expectations of India Inc.

The focus on agriculture, infrastructure, health and education will enhance the social fabric and contribute to equitable growth. Infrastructure is the main theme for this Budget and necessary allocation has been given for the rail, road, electricity, port development. Special emphasis and measure announced for ease of doing business, tax reforms promoting start-ups are steps in the right direction.”

Vineet Agarwal, Managing Director, Transport Corporation of India, says: “The Budget has some excellent announcements that will help in developing the infrastructure of the country. The Government’s decision to focus on developing roads and highways would prove to be very beneficial for the growth of the logistics sector with the allotment of Rs 97,000 crore towards the sector.”

He added: “We also welcome the decision of converting national highways and state highways into national highway roads. This would prove to be a great enabler in moving cargo in high traffic density corridors efficiently. The proposed investment into railways, ports and inland waterways should help in the growth of multimodal logistics strengthening the country’s competitiveness.”

Besides investment in infrastructure, the government should have also focused on the ‘soft’ logistics infrastructure to ensure smooth facilitation and transit of cargo like minimal paperwork through electronic data interface, seamless connectivity between multimodal transport and ease of taxation. Given the high growth in e-commerce and other consumption sectors, incentives to build world-class warehouses would have been far reaching,” adds Agarwal. Agarwal feels that the announcement of a uniform GST would have lead to pricing efficiency and enormous savings in terms of time and money for delivery of goods and services.

Shashi Kiran Shetty, Founder & Chairman, Allcargo Logistics, feels that the Indian Government’s vision of ‘Transforming India’ was very well articulated in the Budget. “On one hand the measures announced in agriculture, rural and healthcare sectors will increase the confidence of rural India while on the other financial and tax reforms will increase the confidence of investors. Besides, the Government’s focus on skill development, job creation, infrastructure development and higher education will help create more job opportunities,” he avers.

“From a common man’s perspective too, the budget has presented some good news. Measures such as increase in HRA and lesser tax burden on individuals with income less than Rs 5 lakh will surely be welcomed. The Government’s impetus on increasing the efficiency and modernising of ports and improving the road infrastructure will definitely provide a fillip to our sector. Overall this is a realistic budget with more focus on rural and infrastructure development while keeping the fiscal deficit in check,” adds Shetty.

Some reliefs, major promises unfulfilled

- Amit Gugnani

The Union Budget 2016 was presented on March 29, 2016, sequentially third time by Finance Minister Arun Jaitley with a basic focus to revive rural consumption, rural development and uplift the infrastructure. Despite the global crisis, the Government has managed to keep the fiscal deficit of 3.5 per cent from 3.9 per cent with economical growth accelerated to 7.6 per cent in 2015-16. While, there were no big bang changes for the textile industry as such (in fact, the Finance Minister mentioned the textile industry only once in his speech), the overall proposed structure to revive rural consumption and rural development will give an indirect impetus to the textile industry also.

Indian textile and clothing industry play a vital role in the Indian economy with contribution of about 14 per cent to total industrial production, 5.4 per cent to the country’s GDP and 12.14 per cent share of total export earnings of the country in FY2014-15. Indian textile industry has been witnessing a robust growth and was estimated to be worth $97 billion (Rs 5,81,200 crore) in 2014, including both domestic consumption and exports, and is projected to grow at a CAGR of 9 per cent to reach $234 billion (Rs 14,01,300 crore) by 2024. The last year has witnessed a reduced growth in exports and it is expected that a good domestic economy will be able to compensate for the slow export growth.

Many textile industrialists had anticipated and build up expectation with 2016 Union Budget such as cut in excise duty on man-made fibre and filament and reforms in labour laws in the budget for next financial year. The Indian textile sector has been pushing for free trade agreements with various countries for reduction in duties on Indian textile exports in respective countries, which could have provided higher market penetration. However, it should be noted that there were not major announcements for textile sector, as anticipated by the industry.

The budget did make some announcements to impact the overall textile and apparel industry. The most significant among those was on the excise duty on ready-made garments. The budget highlighted that 60 per cent of retail sale price or the tariff value would be eligible for excise or countervailing duty (CVD) on ready-made garments and made-up articles of textiles. Earlier the tariff value for calculating excise or CVD (countervailing duty) was fixed at 30 per cent of retail sale price. This will make the garments more expensive in domestic retail and it has been taken up very negatively by garment manufacturers who thrive on domestic retail demand. Further, the ready-made garment industry is burdened with existing excise duty of 2 per cent (without central value added tax credit) and 12.5 per cent (with central value added tax credit) on branded ready-made garments and made up articles of textiles of retail sale price of Rs 1,000 or more. This would affect in the increase in the cost of garments by 5-6 per cent to final consumers. It also raised excise duty on polyester staple fibre (PSF) and polyester filament yarn (PFY) to 12.5 per cent for manufacturers who claim ITC from the existing 6 per cent. On the customs duty front, the budget proposes that the basic customs duty on import of specified fabrics [for manufacture of textile garments for export] of value equivalent to 1 per cent of FOB value of exports in the preceding financial year being exempted subject to the specified conditions. The changes in customs and excise duty rates on certain inputs are to reduce costs and improve competitiveness of the textile industry.

There has also been some relief for the synthetic industry in the new budget. The customs duty in the case of man-made fibres is reduced by 50 per cent from 5 per cent to 2.5 per cent and this could bring in the reduction of manufacturing cost of these fibres and yarns. This initiative has been welcomed by the industry as a whole. The key step however, is towards the new job creation. While in the budget, this has been put across for all sectors, it could benefit the new employment generation for the textile and apparel industry and specially apparel manufacturing, where the number of people employed per unit of investment is far higher than any other industry.

This budget also provides a thrust to employment generation and skill development in various sectors giving focus to textile and clothing having vision to establish 1,500 multi-skill training institutes across the country. In his speech, the Finance Minister had set aside of Rs 1,700 crore for these initiatives.

The government also proposes to absorb 8.33 per cent of EPF (employment provident fund) amount for a period of three years for incremental workers who are on the rolls of company. This should also promote on roll employment as compared to short term contractual employment. The additional deployment for skills development may also be used by the Indian T&A industry to improve skills and hence the productivity of the manufacturing plants.

The author is Sr VP, Fashion – Apparel & Textiles at Technopak.

Growth oriented budget: SIMA Chief

The Union Budget 2016-17 has come out with nine thrust areas to enable the country to achieve a sustained growth rate despite slowdown in the global economy.

M Senthilkumar, Chairman, The Southern India Mills’ Association (SIMA) has welcomed the nine pillars of growth trajectory budget marking at developing infrastructure, skill upgradation, agriculture development (doubling farmers income by 2022), health care, social development, education, etc. SIMA chief has also welcomed the nine point agenda to ensure compliance, ease of doing business, curbing black money, providing opportunity for declaring undisclosed income, etc.

With regard to textiles, he thanked the Government for continuing optional Cenvat route on cotton textiles which was the main demand of the association. He has expressed his gratitude to the Prime Minister, Finance Minister and the Government for allocating Rs 1,480 crore for Technology Upgradation Fund Scheme (TUFS). He has stated that additional funds would be required to meet the pending subsidies since September 2014. Senthilkumar has also welcomed the reduction of basic customs duty on MMF from 5-2.5 per cent though the association has demanded for total withdrawal. He has stated that reduction in customs duty on MMF would marginally improve the competitiveness of the MMF and their blended textile manufacturers in the country.

Senthilkumar has opined that the Government could have avoided imposing 2 per cent central excise duty without Cenvat credit facility or 12.5 per cent central excise duty with Cenvat credit facility on branded ready-made garments and made-ups materials priced above Rs 1,000. He has said that as the Central government is expected to implement GST in short while, the Centre could have avoided levy of central excise duty on such items. He has stated that the tariff value of ready-made garments/made-ups for the purpose of levying central excise duty has been increased from 30-60 per cent of the MRP which would marginally increase the cost for the consumers.

However, SIMA chief has thanked the Government for exempting non-branded textile items below the value of Rs 1,000 from the purview of excise duty which would benefit the people below the poverty line. Senthilkumar while commenting on the various benefits extended for the skill development and job creation in the nation, has hailed EPF benefit of 8.33 per cent extended for the new entrants in the EPF. He has stated that this would significantly improve the compliance and also ensure social security of the employees. SIMA Chief has also appreciated the enhancement of limit of house rent allowance from Rs 24,000 to to Rs 60,000 which would benefit the salaried class.

Budget hits branded garments: CMAI

Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI) has expressed anguish at the way the Central Budget presented in Parliament today has hit the garments and made ups segment of the textiles industry. In a statement issued here he recalled that introduction of duty on finished products, while sustaining the exemption for upstream products, was an experiment implemented a few years back by the previous government and withdrawn subsequently when the disastrous consequences were understood. Repeating that experiment is the last thing that the industry needed, especially when the entire textiles and clothing industry in the country is already going through a crisis because of demand recession both in the domestic and export markets.

Mehta pointed out that the very task of collecting this duty from the highly dispersed and mostly tiny units in the garment sector would be a formidable one for the government, especially when the rest of the value chain remains exempted and therefore traceability will be a serious issue. The large number of small and tiny units in the sector will also find it impossible to follow the procedures involved. The result will be that evaders will prosper and compliant units will suffer. He added that the revenue for government from this decision will be negligible, whereas the problems that it would create for the industry will be huge.

According to Mehta, the imposition is all the more surprising when the Finance Minister rightly emphasised in his speech the importance of job creation and the Make in India thrust. Textile is the highest employer after agriculture, and hence it is indeed ironical that new taxes are being levied on such an industry. As it is, the industry is going through a rough patch, with the onslaught of online companies with their high discounting, and the somewhat sluggish sentiments of the market. This imposition will worsen the situation. It is also crucial to note that the current period was seeing a lot of exporters, hoping to off set their slow down in global markets, making an entry in the domestic sector. Their efforts would again hit a roadblock.

Mehta requested the Finance Minister to withdraw this duty and continue the optional duty regime that applies currently, until GST is introduced. He pointed out that once GST is introduced, the whole value chain will be covered by duty and traceability as well as compliance will improve tremendously and implementation problems will also ease considerably.

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