labels: textiles, union budget 2005
FM''s super six for textilesnews
05 March 2005

The measures announced in the budget provide ample incentive to the sector to compete with China and the 'little' Asian dragons head-on in the quota-free regime, writes Shubha Madhukar

Promises have traditionally been meant to be broken, at least when politicians make them. But in this budget finance minister P Chidambaram scripted a new act: he kept the promise to nurture the textile sector, made during the previous budget. The new measures indicate his intentions to enable the sector to compete with the dragons of the trade head-on in the quota-free regime.

The gross budgetary allocation is up 16.9 per cent, an investment of Rs30,000 crore is proposed as against the Rs20,000 crore last fiscal and Rs437 crore has been added to the Rs25,000-crore Technology Upgradation Fund (TUF). Besides, these are a basket of duty reductions.

Talking to domain-b, Harminder Sahni, associate director, KSA Technopak, said, "Capital subsidy is an excellent step. Other steps outside the budget, like SEZs and changes in labour laws, in tandem, will benefit the sector." Looks like all the long-standing grudges of the industry have been taken care off in one sweep - except for one: a formal announcement of labour reforms.

In the wake of the quota-free regime, seven key concerns had been voiced by the sector:

  • Technology upgradation
  • Infrastructure
  • High import duties
  • Man-made fibres not being treated on par with cotton fibres
  • Categories reserved for small scale industries
  • Upgradation of skills and
  • Labour reforms

Of these, Chidambaram took care of six in his budget speech. The seventh and most important, labour reforms, went untouched.

Three days before the annual budget, the government had nevertheless announced its intentions of ringing in labour reforms for the export-oriented sector, Left's grudges notwithstanding. It proposes to allow industry the flexibility to adjust its workforce according to export order requirement, to allow 60 hours of work per week instead of the current 48 hours and to withdraw the ban on women working night shifts. After the budget, Chidambaram said in a televised interview that labour reforms being a policy decision were kept out of the budget platform.

Returning to Chidambaram's super six for the textile sector, the Rs437 crore allocation to the Rs25,000-crore technology upgradation fund is a major boost. In the post-quota regime, competition from China, Hong Kong, and other low-cost countries with huge capacities, forces Indian manufacturers to compete on productivity, quality and cost. This requires not just skill but scale and technology as well. The government's TUF extension will benefit spinning companies and enable manufacturers to modernise and upgrade their technology to compete globally.

Earlier, the TUF committee had recommended hiking the existing five per cent interest reimbursement to eight per cent under the scheme. Instead, the government has announced a 10 per cent capital subsidy for the processing industry. A welcome step, it will boost investment in textile processing and benefit the processing industry as a whole.

To survive the competitive onslaught, the industry has to transform its unorganised, small-scale character to become large, organised and capable of high-cost investments in modern, high speed machines. Investment of Rs30,000 crore as against Rs20,000 in 2004-05 will go a long way in moving towards that goal.

Besides, customs duty reduction for textile machinery from 20 per cent to 10 per cent and a 15 per cent cut in import duty on textile products translates to lot of relief and boost. The manufacturing houses, especially the small and medium enterprises can now look ahead to import second hand imported machinery from various US and European countries. Big manufacturers can look ahead to capacity expansion and technology upgradation at much lower costs.

The long-standing duty discrimination between man-made fibres and cotton fibres has also narrowed with this budget. Custom duty on polyester and nylon chips, textile fibres, yarns and intermediaries, fabrics and garments is reduced from 20 per cent to 15 per cent. This duty cut will lead to increase in synthetic fabric imports. Polyester filament yarn (PFY), which had turned uncompetitive vis-à-vis cotton yarn, should see a revival of demand with the reduction of excise duty on polyester filament yarn from 24 per cent to 16 per cent.

This 8 per cent slash in excise duty is expected to bring prices of polyester fabrics down by around 4 per cent and stimulate both domestic consumption and also improve its export share of which over 60 per cent currently comprises cotton textiles. There has been a roll back in prices already. Indo Rama Synthetics brought has down the price of polyester filament yarn by about 8 per cent.

Another positive announcement has been the de-reservation of 30 textile product items including hosiery which is again expected to stimulate investment. All this along with the insurance schemes for weavers and the skills development initiative promise to help the small and medium enterprises.

Chidambaram's proposal to provide Rs14 billion towards four-laning 4000 km of highways confers indirect benefits to the well-being of the sector in the post quota regime. Some investments to decongest and modernise the ports would have been an additional help.

In this, 'all happy' scenario, one cluster, which is not so happy, is the readymade garment (RMG) sector which at best is lukewarm to the package. This is because the concessions announced come on textiles manufacturing and textiles manufacturing machines and not garments, and hence, does not meet the requirement ofthe RMG sector. Speaking to domain-b, Rahul Mehta, managing director of exporting firm Creative Garments said, "As far as the textile industry goes the 10 per cent capital subsidy, reduction of excise on PFY and concession on textiles manufacturing machines is beneficial, but there is nothing in it for the garment sector."

The garment exporters' fraternity suffers the most because of inflexible labour laws. A step forward towards labour reforms can make Chidambaram's nurturing circle complete. It's time for textile minister Shankersinh Vaghela to work towards keeping a promise.

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FM''s super six for textiles