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Schemes for Integrated Textile Parks (SITP) and the Technology Upgradation Fund (TUF) to be continued in the Eleventh Plan period. Provision for SITP to be maintained at Rs 450 crore in 2008-09. |
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Provision for TUF to be increased to Rs 1,090 crore in 2008-09 from Rs 911 crore in 2007-08. |
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250 clusters being developed and 443 yarn banks established under the cluster approach to the development of the handloom sector. |
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Over 17 lakh families of weavers to be covered under the health insurance scheme by March 2008. Allocation for this purpose being increased to Rs.340 crore in 2008-09; |
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Infrastructure and production being scaled up by taking up six centres for development as megaclusters. Varanasi and Sibsagar to be taken up for handlooms, Bhiwandi and Erode for powerlooms, and Narsapur and Moradabad for handicrafts. Each mega-cluster to require about Rs 70 crore. Initial provision of Rs 100 crore made in 2008-09. |
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National calamity contingent duty (NCCD) of 1% removed on polyester filament yarn and the levy shifted to cellular mobile phones. |
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General CENVAT rate on all goods reduced from 16% to 14%. |
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Additional allocation to TUF to accelerate the capital investment in the textile sector. |
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Continuation of schemes for Integrated Textile Parks (SITP) to attract additional investment in this sector. |
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Clusters for yarn, handloom, handicraft and powerloom to bring more pricing power to these unorganised segments of the textile sector. |
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Health insurance schemes for weavers to offer protection to employees in the unorganised segments of the sector. |
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Removal of national calamity contingent duty (NCCD) of 1% on polyester filament yarn to benefit the companies that have spinning capacities. |
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Additional allocation to TUF will help companies like Alok Industries and Welspun India to accelerate their capex plans |
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Continuation of schemes for Integrated Textile Parks (SITP) to benefit Alok Industries |
Mr. Sunil Khandelwal, CFO Alok Industries
Adequate provision for TUFs subsidy in the budget - Looking to the overall loan disbursements of about Rs 400 bn made under the scheme and the backlog in disbursement of subsidy, a provision of at least Rs 20 bn should be made in the budget to ensure timely benefit to the industry.
Large amount of CENVAT credit and service tax credit has accumulated with the textile companies. Companies that have adopted exemption route have no means to utilise the accumulated credit. This needs to be looked into.
Reduction of excise duty and custom duty on polyester fibre from 8% to 4% or zero. Custom duty from 5% to 4% and SAD of 4% to be made zero.
Reduction of custom duty from 7.5% to 5% on textile machinery. In case of import under EPCG scheme, the duty to be made zero from present 5%.
Blending of Textile SEZ with Integrated Textile Park Scheme (STIP) - Extend the benefits of STIP to Textile specific SEZ with higher allocation of funds.
Focus Market and Focus Products Scheme - to be made more attractive to suit the Textile Industry.
FICCI
Excise duty on synthetic fibres, PP fibre and filament yarns along with their raw materials be reduced to 4%
There has been a history of dumping of synthetic fibres for the last several years particularly from the Asian countries such as Taiwan, Korea, Malaysia, Thailand, Indonesia, China etc. The import duty on synthetic fibres is only 7.5%. A study carried out by NCAER has shown that even with 20% import duty, synthetic fibres do not get sufficient protection. It is, therefore, suggested that no further reduction of import duty is made on polyester chips, synthetic fibres.
Specific custom duty on textile products to be continued, if necessary extend certain concessions to member countries of SAFTA.
Apparel Export Promotion Council (AEPC) is pitching for 100% tax exemption on profits from apparel exports
| Budget 2005-06 |
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Budget 2006-07 |
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Budget 2007-08 |
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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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Allocation to the Technology Upgradation Fund (TUF) enhanced from Rs 4.4 bn to Rs 5.4 bn.
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.
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).
Excise duty on all man-made fibre yarn and filament yarn to be reduced from 16% to 8%.
Import duty on all man-made fibres and yarns to be reduced from 15% to 10%.
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Provision for Integrated Textiles Parks (launched in October 2005 with the intention of creating 25 textile parks) to increase from Rs 1.9 bn to Rs 4.3 bn.
Technology Upgradation Fund (TUF) scheme to continue during the 11th plan (2007- 2012) with provision of Rs 9.1 bn for FY08.
Reduction in duty on polyester fibres and yarns from 10% to 7.5% and on raw materials such as DMT, PTA and MEG from 10% to 7.5%.
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| [Read more on Budget 2005-06] |
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[Read more on Budget 2006-07] |
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[Read more on Budget 2007-08] |
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| Key Positives |
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| Government aid: The Ministry of Textiles, announced in November 2007 a 10% reduction on export credit guarantee premiums, a 10% to 40% increase in prevailing duty drawback rates, and a 2% reduction in pre-shipment and post-shipment credit interest rates. The government also released about Rs 6 bn to clear all arrears of terminal excise duties and central sales tax reimbursements. |
| Facilitating 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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| Dollar debacle: The United States is the largest buyer of Indian textiles and apparel, at 19% and 33%, respectively. That helps explain the degree of pain the dollar's fall has inflicted. Apparel and textiles together contribute more than 30% of India's net export earnings. While the rupee has appreciated more than 15% compared with the dollar over the last year and a half, competing countries' currencies have not appreciated correspondingly. The troubles come amid slackened demand from the Western consumer. With U.S. economic growth slowing, U.S. retailers have offered deep discounts. That has left India's exporters squeezed by customers who want more for less and by a currency whose appreciation provides less when they do make sales. The Confederation of Indian Textile Industry estimates that for every 1% fall in the value of the dollar compared with the rupee, profits of Indian textile companies fall by 1.2%. |
| Technology constraints: The rush of garment exports in the quota-free regime has not yet materialised in the Indian textiles sector. Lack of a state-of-the-art technology present the most serious challenge to India's attempt to increase its exports. The total number of shuttle less 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 shuttle less 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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FY08 was the year of troubled times for the Indian textile industry. As the rupee appreciated against the U.S. dollar by more than 15%, the small and medium-size firms have been contemplating either laying off workers or closing down. The Clothing Manufacturers Association of India (CMAI) estimates that 500,000 to 600,000 jobs are at risk. As exporters struggle to secure profitable orders, the Ministry of Textiles' US$ 25.1 bn export target for the fiscal year seems well beyond reach. Companies are also trying to add niche value-added material to their product mix to stabilise their margins. Some firms that have ventured into retail chains are finding rising commercial real estate prices an impediment to their ability to roll out with the speed necessary to attain critical mass.
