Budget 2015: Scores with GST, disappoints textile industry

The Union Budget for 2015-16 was presented by the finance minister Arun Jaitley on February 28 in Parliament. The Budget is being seen as a major step to boost economy, but critics say it misses out on chalking out the real action plan. While the focus is clearly on motivating the corporate sector which can usher in positivity to the economy, with 30 percent reduction in corporate tax over the next four years. Overall there is nothing to cheer the apparel and textile industry. However, the ecommerce sector that has emerged as a major growth driver is happy with the announcement of a roadmap for speedy implementation of Goods & Services Tax (GST) from April 1, 2016.

“Overall, it is a mixed Budget. Expectations from the government and the FM are sky high. We are hopeful that the government will show fresh thinking, imagination and boldness in delivering policies and programs that gives rocket speed to growth and development to this nation of a billion people," reacted Kishore Biyani, Chairman, Future Group.

Textile sector left high and dry

For players in the textile and apparel industry the Budget has been a disappointment because most of their recommendations have gone unheard. Jaitley announced several long term initiatives to attract investments, a hub for the manufactured goods and services with huge plans for infrastructure development including one lakh km road, five mega power projects each with 4,000 MW among others, reduction of corporate tax for four years, implementing GST with from April 1, 2016 et al.

Reacting to the Budget announcements, Apparel Export Promotion Council (AEPC) Chairman, Virender Uppal said, “Garment export industry was expecting favourable announcements with regard to the inclusion of fabrics to the extent of 2 percent of FOB value under the overall 5 percent entitlement in custom notification 10/2015, announcement on the 3 percent interest subvention for garment exports, deduction in the income tax for undertaking research and development, reducing the threshold investment limit from Rs 25 crores to Rs 1 crore.” Further, Uppal appealed to the FM to reconsider AEPC’s request on behalf of the industry generating Rs 1 lakh crores of exports through SMEs.

Uppal points out that full taxes are not refunded by the government for exports and further increases in excise duty to 12.5 percent and service tax to 14 percent would make the industry further uncompetitive. He urged the government to look into enhancing all industry duty drawback rates immediately after taking into account the new incidence of service tax, excise duty and increase of excise duty on diesel.

Welcoming the continuation of optional excise duty route applicable on branded apparel, move to make ESIS and EPF schemes optional for workers, Rahul Mehta, President, Clothing Manufacturers Association of India (CMAI) said, “Although the details are still to be known, the possibility of an exclusive bill discounting mechanism for MSMEs is a very welcome step, and will remove a major roadblock in the development of the smaller players of this industry. However, this Budget being referred to as the ‘Make in India’ Budget, we believe there could have been some industry specific incentives for the apparel industry.”

On a positive note, former President of Karnataka Hosiery and Garment Association Sajjan Raj Mehta said, “At the time of Budget, rumours of imposition of excise on readymade garments were going around but nothing came up.” Agrees Texport Syndicate India Director Avinash Misar and says, “The reduction of corporate tax, from 30 to 25 percent is a bold move. This clearly indicates that government means business and wishes that investment grows. Such a radical move is very encouraging for growth. It is a big step ahead.”

Chairman of textile working group of Indian Industries Association (IIA) Balram Narula, also the Chairman of Jet Knitwears, criticized the government’s move of increasing service tax to 14 percent and freight charges announced in the railway budget since these moves, according to him would only add to people's woes and lead to a rise in prices of various goods. Reiterating similar sentiments on rise in service tax, Rupani Footwear Director, RC Rupani condemned the budget since he expected the Finmin to enhance excise duty exemption to Rs five crore.

GST to boost ecommerce

Implementation of GST from April 1 2016, has been welcomed by ecommerce players and international retail giants alike. Jaitley has also proposed to work towards creating universal social security system for all Indians, especially the poor. Other measures proposed by the FM include, creation of senior citizen welfare fund, increase in limit in deduction of health insurance premium and an additional Rs 50,000 contribution to pension under 80CCD to be allowed.

Such steps, according to American retail major Walmart, will boost India's domestic consumption and retail growth over a period of time due to social security measures proposed in the Budget. "Provision to provide social security measures for the middle-class and the bottom of the pyramid will help improve consumer confidence and sentiment. Over a period of time, the middle class will be able to live in the present without the worry of the future and this should drive domestic consumption and retail growth," said Walmart India President and CEO, Krish Iyer, in a statement.

He termed Budget 2015-16 as 'reformist and growth oriented" and welcomed the proposed roadmap to reduction in corporate tax from 30 percent to 25 percent over four years as well as removal of exemptions related to taxes which were causing complexity and litigation. Praveen Sinha, Founder and MD, Jabong.com had a positive response as he said, “For a ‘One-India’ approach is the ‘need of the hour’, with a different tax rate in each state for various categories. This will help the industry players to curb the impediments in services like cash on delivery. The e-commerce sector in India is moving at a superlative speed today, hence there is a dire need of a constant overhauling of the policies in the retail sector. This will in turn help create a more hospitable ecosystem for the online players wherein our contribution towards the economy will multiply several folds.”

GST implementation is expected to lead a decision on rollout of an ambitious indirect tax reform expected to raise revenues and boost growth, which has been the prime focus of Narendra Modi-led government's economic agenda. "We are very encouraged by the commitment to implement GST by April 2016 and focus on development of infrastructure. We believe both are key to ease of doing business by enabling and streamlining the movement of goods and services. We believe this will enable us to effectively transform the lives of our customers, both, consumers and sellers,” added Amazon India spokesperson.

Welcoming the GST announcement, Bikky Khosla, Chairman-Ecommerce committee, ASSOCHAM and CEO tradeindia.com, said, “It will reduce inefficiencies for the e-commerce industry, especially the small and medium size players and enable them to grow at a much faster pace. However it is also our request that in the interim till the implementation of GST, a more supportive tax environment is created in the states and no coercive action is undertaken against e-commerce companies for them to become agents for VAT collection."