The appointment of Dayanidhi Maran as Union Minister for Textiles, India has raised lot of optimism among the industry following his excellent track record as the Minister of Information and Technology in the previous government. It is hoped that the new minister will be able to guide this important and economically beneficial sector to help weather the current crisis it is facing for the past several months.


&sec=article&uinfo=<%=server.URLEncode(1950)%>" target="_blank">Fibre2fashionas always, took the initiative to speak to industry leaders across the entiregamut of the value chain; from petrochemical to garment manufacturingcompanies, to give an idea and bring forth to our readers, the expectations thesector has laid at the door steps of the new textile minister to revitalise thesector, which is going through a very depressing phase.


IndoRama Synthetics India Ltd:


Inverted excise duty structure on Mono Ethylene Glycol (MEG)and other items of raw materials and consumables: The problem of inverted dutycontinues to the detriment of the sector. Excise duty on MEG and other rawmaterials and consumables @ 8 % is much higher compared to the duty on finishedgoods; i.e. fibers and yarns @ 4 %. This scenario continues to generateunsalvageable CENVAT accumulation on a daily basis creating cash flow andliquidity problems. The matter needs to be resolved immediately by bringingparity of duty on raw materials and finished goods.


Pending CENVAT accumulation of the Industry: Huge amountsof blocked funds in the form of un-realizable credits are lying in the PLAaccounts of the manufacturing units. The problem is more severe for units whomade investments to upgrade technology and enhance capacities. Needless tomention this puts extreme strain on our financial health. Government needs totailor out a mechanism to reimburse these funds to the industry.


Since in the past, the excise duty structure on SyntheticFiber chain was not reduced simultaneously, it has created an inverted dutystructure which has resulted in accumulation of over Rs.1500 crores of cenvatfor the Synthetic Fiber chain. Over Rs.800 crores of cenvat accumulation iswith the Synthetic Fiber producers while another Rs.700 cores is with thedownstream users of Synthetic Fibers and Filament Yarns. It needs to be notedthat wherever the duty on raw material is more than the duty on finished product, the same cannot be modvated and such un-modvated portion continues to accumulate.


On imported capital goods procured forexpansion/diversification, besides Customs, CVD and SAD are also leviable.These besides the service tax component supplement the already burgeoningCENVAT account. As such, substantial amounts go into the system without anyexit mechanism by way of utilization. These funds so stuck up is neither arevenue for the government because it is to be modvated/refunded, nor it can beused by the industry, which suffers in its day-to-day working for such hugecash outflow.


To overcome the problem, it is imperative to rationalizeduties by having duty structure of raw material lower than the finished product or at least at par with the later, as also providing a mechanism of refunding of creditaccumulated in CENVAT account in cases of inversion, within a stipulated timeframe, to help in improving the cash flow position of the units for theirday-to-day working. Alternatively, Government can introduce an excisecertification / exemption system where the manufacturer should be allowed to procure his inputs without payment of duty to the extent of cenvat accumulation in the books ofaccount.


Customs Duty on Purified Terephthalic Acid (PTA) and MonoEthylene Glycol (MEG) in neighboring countries like Thailand, Indonesia and Pakistan is ZERO. To ensure availability of raw materials and finished products at competitive prices in line with neighboring countries CUSTOMS DUTY on PTA and MEGshould be brought down to ZERO.

 

CENVAT Accumulation-NCCD: With effect from 1st March 2003 Polyester yarns comprising Partially Oriented Yarn (POY) Fully Drawn Yarn (FDY) and Draw Textured Yarn (DTY) were levied NCCD @ 1%. This duty was withdrawn on DTY vide notification 46/2003 CE dated: 17.05.2003. This created an anomaly for the texturising industry where their raw material i.e. POY was subjected to NCCD but the finished product was exempted.


While NCCD is cenvattable, the credit cannot be adjusted for any other duty payment except NCCD itself. Hence NCCD on raw material (POY) could not be offset on DTY since same exited from this duty. This resulted in a scenario where the inflow of credit did not have a corresponding outflow thereby causing pile up of un-refundable funds for the industry. NCCD has now been withdrawn completely on Polyester sector. The amount lying as credit under NCCD be allowed to be credited to the Basic Excise Duty account of the assesses under excise rules.


Customs Duty on Titanium Dioxide (TIO2) and Spin Finish oil should be reduced from the 10 and 7.5% respectively to 5%. Special Additional Duty @ 4% leviable on imports should be abolished altogether. To begin with the facility of refund of SAD on similar lines availed by merchant trader importers, be extended to manufacturer importers also. Customs duty on PSF, POY, FDY, DTY and polyester chips which is presently @ 5% is considerably low leading to rampant dumping. To arrest this trend, import duties on these should be increased immediately to discourage cheap imports.


Equality in excise duty structure between Synthetic Fiber and Cotton i.e. 4% or optional route needs to be put in place to ensure level playing field. Simultaneously duty on all raw materials / consumables of synthetic fibers and yarns also should be brought down to 4%. Both customs and excise duties on Capital Goods and their spare parts used by the Polyester industry should be reduced to 5% and 4% respectively.


Textile Companies setting up small capacity captive power plants to augment, their power requirements should be encouraged, since same also leads to lessen burden on the national grid. Power forms a significant production cost for textile sector, hence excise and customs duties on plant and machinery for power projects up to 50 MW should be abolished. This will encourage and add up new capacities in the sector and surplus if any can be sold to the grid. This will also support capital goods manufacturers for power Industry.


Furnace Oil (FO) extensively used by manufacturing units for running their DG sets for augmenting their power requirements, has been kept out of excise cuts in all the three stimulus package announced by the government. Presently excise duty on this item continues @ 14% against duty on polyester yarns and fibers @ 4% leaving a wide gap of 10% causing considerable CENVAT accumulation which is not salvageable. It is to be noted that power occupies up to 15% of the manufacturing cost and hence has a direct bearing on the final price of the finished goods. It is imperative that input costs of power production also be accorded duty cuts leading to a cascading effect on prices of all the manufactured goods. Excise duty on Furnace oil should be immediately brought down to 4%.


Garden Silk Mills Ltd: Mr Rajesh Sharma, Deputy GM (Marketing)


Being mainly associated with the Polyester based Chips, Filaments and Fabrics sub-sector, our views are obviously with regards to Polyester industry. PTA / MEG are raw materials for Polyester and hence, their Import Duty should be 5% or lesser. Finished Polyester yarn like POY / DTY and FDY are finished products, hence their import duty should be 12% or higher. Duty drawback of Polyester Chips and yarns should be brought back to its original levels. DEPB rates of Polyester Chips and Yarns should be increased by at least 2% to counter Chinas increased export incentive and to make Indian exports competitive. Excise duty should be kept unchanged for all products and for MEG, it should be brought down to 4% (same as that of PTA). TUF should be increased and continued and finally GST should be brought in as quickly as possible.

 

Arvind Mills Ltd: Mr. Naishadh Parikh


It is unfortunate that the Indian textile industry moved in to a crisis since the later part of 2007 when the Indian Rupee gained against foreign currencies and appreciated by almost 25%. Industry had received a good momentum after dismantling of quotas, lower interest rate regime coupled with interest subsidy through TUFS and investments exceeded Rs.125,000 Crore. Textile Industry is a capital and power intensive industry providing perhaps the largest employment opportunity in the industrial sector and exporting almost 50% of its output amounting to US $22 billion, thus relying both on global market and potential domestic market. Agenda for the new Textile Minister as well as the forthcoming budget with respect to textile sector is clear with unanimity amongst all sectors of the industry.


With regards to fibre policy, ad hoc decisions on issues like MSP, export incentives and taxation have been affecting our fibre segment significantly. An integrated and comprehensive fibre policy with a long term vision is necessary to avoid this. The objective of the fibre policy should be to ensure stability in supplies, equitable pricing and proper balance between the interests of producers and consumers of fibres. This will provide sustainable growth for both. High MSPs (after unprecedented 40% hike for cotton last year) and the 5% export incentive for raw cotton announced by the Government has pushed up domestic cotton prices further and our cotton will now be available to competing countries at rates lower than what the Indian industry pays. This incentive would only help a selected group of traders and hence should be withdrawn.


Man-made fibres currently attract customs duties which affect the cost competitiveness of downstream textile products. Since fibres are primary raw materials and can help in creating additional jobs in the textiles industry, the customs duties on all man-made fibres should be withdrawn, which will also help in reducing the mismatch between the global and Indian markets in the pattern of fibre consumption. In fact fibres are also subject to safeguard duty on account of antidumping measures and recently fibres imports also have been regulated through licensing. Needless to remind, fibres manufacturers operate in oligopolistic market.


Drawback and DEPB rates for textile products were reduced substantially in September 2008. The DEPB rates have subsequently been restored to the original levels as part of the stimulus package, in view of the crisis in the export front. Drawback rates, which are what the T&C industry uses mostly, should also be restored, for the same reasons. There is also a need for a mechanism for refunding the duties and taxes levied by state governments by integrating textile Industry in VAT chain or moving to GST on schedule in 2010 as tax suffered, amounts to around 2-3% percent of export value. China & Pakistan increased drawback rates after the global meltdown to support local manufacturers, due to which Indian textile industry is at a disadvantage over their competing countries, like China, Pakistan, Bangladesh etc.


The rate of interest in India is highest amongst industrialised nations and significant disadvantage for the export as well as industry in general especially for capital & working capital intensive industry like textiles. Lowering of interest rate to 7-8% is essential for revival and healthy growth of the industry. In addition, exporters should have to flexibility to borrow in foreign currency for their working capital requirements to avail benefit of lower interest rate and to be at par with the competing nations. Subvention for lending rates for exporters should also continue at least till March 2010 and subvention should increase from 2% at present to 4%. Availability of finance for textile companies also seems difficult in view of poor industry performance due to adverse operating environment. Banks should focus on future prospects instead of on past and restore normal flow of funds to the industry.

 

Raymond:


We have five expectations from the new Textile Minister. There has to be an equal focus on the domestic markets as well as markets outside India. This would enable the Indian textile sector to get an edge over its global counterparts and with regards to what industry needs from the government; Subsidies should be extended to farmers on MSP (Minimum Support Prices).This would decrease the burden of higher MSP to the industry. The interest of value adding ventures can be catered to by abolishing the incentive of 5 % on cotton export with immediate effect to curtail the price shoot up which is currently beneficial only to traders.


Import duty on cotton yarns as well as on specialty cotton / lycra / spandex yarns should be abolished as the domestic capacity for these specialty yarns is insufficient. The import duties of these special yarns pose a problem to the export of the textiles using these yarns. The TUFS scheme should be further strengthened and the back log should be released. Government should help ease the process of bank credits applicable to the industry. Export Incentives should be on par with other competing countries like China, Vietnam and Bangladesh and at a broader level the policy support can help make the textile industry competitive and broad based by encouraging value addition and giving rise to further employment.


Alok Industries Ltd: Mr Sunil Khandelwal, CFO


The new Union Textile Minister Mr Dayanidhi Maran comes from a state where textile is a major industry and hence he would be well aware of the needs of the industry. He would therefore be a very good representative for the textile industry in the cabinet. We expect the minister to well address most of our concerns of which some of the prominent ones are; early disbursal of interest subsidy under the TUF scheme by allocating a higher amount, continuation of RBI subvention of interest rates at 2 percent for exports which may also be increased to 4 percent, temporary decrease in excise duty on polyester to 4 percent be made permanent, duty draw back rates may be increased across the board to boost exports and duties under the EPCG scheme may be brought down to 3 percent for import of textile plant and machinery.


Gokaldas Exports Ltd: Mr Rajendra Hinduja, Managing Director


The Apparel Sector is a very important sector for any Ministry in view of its high employment potential. Directly and indirectly we employ more than 10 Million workers. To safeguard this employment and to promote further employment, there are 2 suggestions I would like to make. In the long term, the important points are; flexible labour laws, fresh investments, creating textile parks to encourage process houses to grow and presently, in India we have a huge shortage of good processing houses.


In the short term, the stimulus package as announced by the Government of India has not gone a long way in helping the apparel sector. To tide over the present economic crisis and to ensure that we are not losing business to Bangladesh and Vietnam, we need the following on an urgent basis; increase in duty drawback, increase in subvention of interest on exporters loans, income tax incentives like 80 HHC 10B extended by 5 years and exemption from service and fringe benefit tax.


Orient Clothing: Mr Ravi Dhingra, MD


There should be labour reform, so that we can link wages with productivity. Secondly as industry is facing tough time these days, we should look at the neighbouring countries like Sri-Lanka, Bangladesh etc. which have taken strong steps to support the industry, such as cheap electricity, low rate of interest and relaxation in several taxes till the situation stabilizes.

 

Rieter India Pvt Ltd: Mr Michael Enderle, Chairman & Managing Director


The textile machinery industry has struggled for orders in the last two years, especially in 2008. Improvement in yarn prices and demand in the last quarter has raised some hopes for revival. For the industry to show a sustained improvement, the textile minister should create a stimulus to increase the consumption and demand for textiles, particularly technical textiles. Due to the depressed international situation, a push is also needed with better incentives for export of Indian yarn and textiles abroad. There is a need to strengthen the weaving & processing industry for value added exports and enhancing India's global trade in textiles. This sector can improve with availability of machines and technology from global players through JV's.


Measures to improve availability of electricity power in Tamil Nadu would be expected from a minister who hails from the affected state. The textile machinery industry would benefit greatly from better credit availability and more streamlined TUFS disbursement procedures to the user industry. We would also welcome reduced complexities in the taxes and duties environment and improvement of transaction costs with better infrastructure support.