Tiruppur: The owners of and workers in the 1.25-lakh powerloom units in the Tiruppur-Palladam-Somanur-Avinashi belt in Tamil Nadu can heave a sigh of relief as the mills would start production soon.

The units had stopped functioning a fortnight ago protesting against the central government's decision to include them under the central excise value-added tax (Cenvat) bracket. Consequently, not a single unit got itself registered with the excise department.

A meeting chaired by Prime Minister A B Vajpayee and attended by Deputy Prime Minister L K Advani, Finance Minister Jaswant Singh and Bharthiya Janata Party president Venkaiah Naidu discussed the issue on 21 April 2003. A favourable announcement to that effect is expected from Singh during the forthcoming parliamentary debate on the Finance Bill.

The suspension of work in these powerlooms has had its cascading effect on the entire economic chain - yarn units, retailers, employment and finally, but importantly, the national exchequer.

Says R Chinniyan, president, South India Small Spinners Association, and a promoter of Vijayalakshmi Textiles: "Most of the 500 spinning mills in the Coimbatore-Tiruppur region are working at a low capacity and many have shut down their units for oiling the machines."

The grim picture
Yarn units like his are laden with finished stocks, waiting for the go-ahead sign from the powerlooms. Chinniyan says the loss of sales per day for the industry is around Rs 2 lakh per day per mill. "Nearly 75 per cent of our production goes to powerloom units and the balance to hosiery, banian and handloom sectors. The government, both the centre and the state, in turn loses the excise and sales tax revenue."

This apart, many spinning mills have asked their workers to take a stroll - some, however, got a minimum sustenance amount - till the excise issue is settled.

The powerloom sector was taken by surprise when Jaswant Singh announced the applicability of excise to the sector. His predecessor, in the previous year budget, had assured that the powerloom sector would be exempted from the excise net till 2005.

Why are the powerloom units reluctant to come under the Cenvat net? Says S Vijayakumar, partner, Prakash Textiles: "We never said we don't want to get into the excise bracket; give us some more time to study the system."

Most powerloom units are promoted by workers and are run as a family affair on wafer-thin margins. And, as a matter of fact, spinning and sizing mills (units that strengthen and resize the yarn) financially help out such powerloom owners to rough out the strike period.

"Many workers-turned-entrepreneurs are illiterates and it's quite difficult for them to maintain multi-column registers as required by the excise law," says Vijayakumar. "A warm-up time of 18 months would be sufficient for the powerloom units to acclimatise to the excise regime."

The tax dragnet
That aside, the industry's main fear is the harassment at the hands of excise officials and the likely applicability of other economic legislations like the Factories Act.

Questioning the ability of the excise department to oversee 1.25 lakh units in the region (in the entire Tamil Nadu state the figure stands at 5 lakh) when they are not able to monitor a clutch of spinning mills, Kumar provides an alternative. "The government should raise the excise rates on yarn as it is easy for the department to collect tax from 700 spinning units. The yarn units will, necessarily, pass it on to us and we in turn, to our customers."

But the yarn units are not happy with this alternative. Such an action, they think, would increase their costs and given the competition, they will not be able to pass on the entire hike to their customers.

For the same reason, the Tiruppur hosiery units, catering to the Rs 1,000-crore domestic market, are unhappy and their argument against excise duty is also similar. Most of the units have stopped invoicing their products.

Says Mohan P Kandasamy, president, South India Hosiery Manufacturers Association and Federation of Hosiery Manufacturers Association: "A banian comes to its final shape after 14 different processes, most of which are outsourced from single-man units. Hence keeping proper records of the goods movement is a tedious and costly process - even for claiming excise credit."

Adds M Ramasamy, partner, Chitra Knitting: "It is not possible to make banian under one single roof and maintain the current low-cost structure. The excise duty imposition on the knitting and knitwear sector will mark the beginning of the decline of the hosiery knitwear industry, which is already facing threats from countries like China in exports."