 Budget 2006-07: Textile
The Indian textile industry, in the first year of the non-quota regime, registered a growth in exports to the US by 27% YoY in 2005. The dismantling of quotas have given exports a boost, as the growth in 2005 was much higher than that in 2004 (13% YoY in dollar terms). Indian textile firms have also clocked a growth of 22% in volumes as against the growth of 15% YoY in 2004. With India’s advantages of cheap skilled labour and access to low cost cotton, it is estimated that the textile exports could grow by as much as 35% YoY over the next 5 years, with India’s share doubling from the current 4% of global textile exports.
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Allocation to the Technology Upgradation Fund (TUF) enhanced from Rs 4.4 bn to Rs 5.4 bn. |
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Provision for the interest subsidy on term loans to the handloom sector to be increased from Rs 2.0 bn to Rs 2.4 bn. |
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Rs 1.9 bn to be provided for the Scheme for Integrated Textiles Parks (launched in October 2005 with the intention of creating 25 textile parks). |
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Excise duty on all man-made fibre yarn and filament yarn to be reduced from 16% to 8%. |
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Import duty on all man-made fibres and yarns to be reduced from 15% to 10%. |
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Reduction in duties on manmade fibres is likely to boost the sector prospects, as produces get cheaper and competitive in the export markets. |
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Interest subsidy on loans to handloom sector will help growth of the SSIs in the sector. |
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Higher allocation to the TUF is a step in the right direction. This would encourage existing textile mills to avail loans on favorable terms (interest subsidy is offered to borrowers through the TUF route). |
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Allocations of funds to the Scheme for Integrated Textiles Parks will facilitate setting up of dedicated textile hubs (7 parks have been sanctioned and 10 parks have been identified for development). |
Identification of the textile sector as a priority one for 'job creation' by the government certainly augurs well for the long-term. This is particularly a positive for players in the garmenting side, the same being very labour intensive. Tax sops by way of lower excise and import duties on yarn are likely to reduce the raw material cost. Given the latent opportunities present in the global scenario, the measures are likely to help the textile companies become more competent and attract sizeable orders from the US and European markets. More importantly, it would enable textile companies to increase capacities and gain scale, which is critical element while bidding for global orders. |
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Basic customs duty on inputs for manufacture of textile machines having 10% to 15% rate of duty be reduced by 5% |
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Specific custom duty on textile products to be continued, if necessary extend certain concessions to member countries of SAFTA |
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Customs duty on synthetic fibre should be reduced from 15% to 10% |
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Apparel Export Promotion Council (AEPC) is pitching for 100% tax exemption on profits from apparel exports |
| Budget 2003-04 |
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Budget 2004-05 |
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Budget 2005-06 |
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Reduction of excise duty on polyester filament yarn from 32% to 24%
Excise duty on all knitted cotton fabrics and garments reduced from 12% to 8%
Basic customs duty on paraxylene reduced from 10% to 5%
Excise duty on garments reduced from 12% to 10%
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Cenvat duty on handloom and powerlooms withdrawn. Instead, a new tax regime for the textile sector introduced
Mandatory Cenvat chain abolished
No mandatory excise duty on pure cotton, wool and silk, be it fibre, yarn, fabric or garment
Blended textiles and pure non-cotton items like polyester, viscose, acrylic and nylon to have a different tax regime
Mandatory excise duty on man-made staple fiber at 16% imposed
2% education cess on all taxes
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Duty on textile machinery reduced from 20% to 10%
Duties on polyester and nylon chips, textile fibres, yarns and intermediates, fabrics, and garments reduced from 20% to 15%
Excise duty on Polyester Filament Yarn reduced to 16%
Allocation of Rs 4.4 bn for Technological Upgradation Fund (TUF) and a 10% capital subsidy scheme introduced for the textile-processing sector
30 products related to hosiery and knitting exempt from the reserved category.
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[Read more on Budget 2004-05] |
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[Read more on Budget 2005-06] |
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| Key Positives |
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| Aiding the growth: An additional 10% capital subsidy was allowed for processing machines under the Technology Upgradation Fund Scheme (TUFS). The additional subsidy shall encourage more processors to opt for the scheme. This will help in upgradation of machinery and will be beneficial for the processing sector in the long term.
| | Vision 2010: The Union textiles ministry has unveiled a white paper - Vision 2010 - for the apparel sector, which set the target of US$ 50 bn exports by 2010.
| | Consolidation is the key: Every manufacturer is ramping up capacities to meet the challenges of the quota free regime. Also, large textile firms within India are buying small-scale garment manufacturers to shore up their production facilities
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| Key Negatives |
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| Technology constraints: The rush of garment exports in the quota-free regime has not yet materialised in the Indian textiles sector. Lack of state-of-the-art technology poses the most serious challenge to India's attempt to increase its exports. The total number of shuttleless looms as a percentage to total looms in India in 2003 was 9.5% as against 94.8% in USA and 95.2% in Austria (Source: Ministry of Textiles). India's number of shuttleless looms as a percentage of total looms is the lowest, next only to Pakistan with 7.6%.
| | Unfavorable labour laws: Labour laws in India have been traditionally less favourable to the industry. In the absence of concrete labour policies, the industry has often got paralysed due to labour strikes, thereby compromising on efficiencies of scale of operations.
| | Logistical pains: India also has logistic disadvantage due to its geographical location, which is distant from major markets as compared to its global competitors like Mexico, Turkey and China, which are relatively located in close vicinity to global markets like the US, Europe and Japan. As a result, the cost of shipments is higher.
| | Archaic regulatory regime: Although quota restrictions have been dismantled, domestic textile players continue to be caught in archaic Indian government regulations like the 'Handloom Reservation Order’ and the 'Hank Yarn Obligation Order'.
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