The zero excise duty on cotton textiles at fibre, yarn, fabric and garment stage announced in the Union Budget 2013-14 will help reduce prices of end products. It will also boost garment demand amid weak consumer sentiment, low real wage growth and high inflation. This is expected to promote revenue growth in 2013 and improve operating profit and cash flows of the textile sector.
The synthetic spun yarn is exposed to 12 per cent excise duty at the fiber stage but zero duty from yarn to garment stage.
Continuation of the Technology Upgradation Fund Scheme in the Twelfth Five Year Plan and Rs2,400 crore allotment for technology upgradation is likely to encourage investments power loom modernisation.
The impact will remain credit neutral in 2013 as benefits will occur upon completion in the medium term.
These policy measures will boost cash flows of textile companies in 2013. However, the measures are unlikely to reflect a change in India Ratings' outlook on the textile sector which is negative to stable.