Union Budget 2016: Premium branded clothes to cost more, industry unhappy

The continued focus on ease of doing business, as highlighted by Finance Minister Arun Jaitley in his Union Budget augurs well for the industry. But a section of the textile industry is already pressing the panic button. In the Union Budget 2016-17, Finance Minister Arun Jaitley has proposed to bring in high-end readymade garments under excise duty net. The Budget proposed to levy 2 per cent excise duty on branded readymade garments and made-up articles of textiles of retail sale price of Rs 1,000 or more. However, this duty will be applicable only for those manufacturers who do not claim input tax credit (ITC) popularly known as central value added tax (Cenvat) paid on various raw materials. Manufacturers who claim ITC, however, will need to pay 12.5 per cent excise duty. Until now, excise duty was “nil” on manufactures without ITC claim and 6-12.5 per cent for those who claimed ITC.

A disastrous move feels industry

Rahul Mehta, President, Clothing Manufacturers’ Association of India (CMAI) opines, the move is disastrous for the textiles industry. At a time when the government is talking about implementation of Goods and Services Tax (GST), what is the need of bringing in a new levy, especially, when the textiles industry is passing through a rough phase, he asked. “It is also crucial to note that the current period was seeing a lot of exporters, hoping to offset their slow down in global markets, making an entry in the domestic sector. Their efforts would again hit a roadblock,” Mehta opines.

By contrast, however, basic customs duty on specified fibers and yarns was proposed to be reduced to 2.5 per cent from the existing 5 per cent. R K Dalmia, Chairman, Texprocil, welcomed the move. Meanwhile, basic customs duty on import of specified fabrics (for manufacture of textile garments for export) of value equivalent to 1per cent of FOB value of exports in the preceding financial year being exempted subject to the specified conditions.

“Prices of readymade garments will go up in the range of 2 to 5 per cent depending upon the retail price of the product,” avers Ajit Lakra, Head Textile, Federation of Industry and Commercial Organisation. We strongly condemn this move of the Finance Minister as it will hurt small and medium size industries which are manufacturing garments for big brands, says Lakra, a Ludhiana-based garment maker said. Echoing similar views, Sandeep Jain, Executive Director, Monte Carlo Fashion also said the levy of excise duty as ‘negative move’ for the garment industry.

New initiatives for job creation

Meanwhile, the Confederation of Indian Textile Industry (CITI) has welcomed the Union Budget, saying it focuses on employment opportunities and skill, which makes textile industry a significant contributor to job provider and supporting skill development jointly with NSDC. In a statement, it said the textile industry welcomes the new initiatives for job creation where the government will absorb 8.33 per cent of EPF amount for a period of the years for incremental workers who are on the rolls of company. Naishadh Parikh, Chairman, CITI said, “Reduction in customs duty from 5 per cent to 2.5 per cent on specified fibers and yarns is a welcome step and should succeed in reduction in the cost of such fibers and yarns for spinners and weavers.”

Kishor Biyani, Chairman Future Group views the Budget purely from the lens of consumption. “To me consumption equals to development and from that point of view this budget is a mixed bag of announcements for me. I believe the government's intention was quite positive but it had to walk on a tightrope, juggling between social and economic reforms at the same time.” Sanjay Kapoor, MD of Genesis Luxury, which has a mix of joint venture and marketing and distribution arrangements with brands such as Burberry, Canali, Jimmy Choo, and Giorgio Armani feels that in a scenario where the consumer sentiment is already low, this could spell lower purchases in India for luxury goods and services.

According to Krish Iyer, President and CEO, Walmart, the government's proposal to create e-market for farmers through 'Unified Agri Marketing platform' is very bold and forward looking and will positively impact country's farmers. “We will continue to strengthen our Direct Farm programme to complement government vision to make a difference to the lives of our millions of farmers.” Responding to the Budget, Animesh Saxena, MD of Neetee Clothing said, the announcement of increase in excise duty on branded clothes is not going to benefit the MSMEs much as people who buy branded clothes would still continue to buy it and not shift to the local garments.