Union Budget disappoints India’s textiles and clothing sector

The Union Budget for the year 2010-11 has received mixed reactions from the Indian textile and clothing industry. Of course, the Union textiles minister Dayanidhi Maran, has hailed the Budget saying the initiatives will lead to economic revival, infrastructural and agricultural development,

inclusive growth and restoring export growth. He is also happy that the interest subvention of 2 per cent on pre-shipment credit for export of handlooms, carpets, small and medium enterprise of textiles sector products has been extended by a year till March 31, 2011.
The FM’s Budget outlay includes a central plan outlay of Rs 4,725 crores. Out of this Rs 2,400 crores has been kept aside for TUFS. The overall allocation for textiles and jute industry is Rs 3,284 crores. The FM has also provided Rs 145 crores for the development of mega clusters in handlooms, handicrafts and powerloom. As for customs duty, ACD of 4 per cent for import of readymade garments for retail sales has been withdrawn.
The current limit of Rs 1 lakh per annum for duty free import of samples has been enhanced to Rs 3 lakh per annum.
However, Govind Shrikhande, CEO, Shoppers Stop says the Budget may have done away with the 4 per cent additional customs duty on the import of readymade garments but this is unlikely to benefit consumers. The reduction on special additional duty is usually 100 per cent set off and has no impact as such on retail prices. Shoppers Stop, imports 5 per cent of its merchandise. Agrees Subhash Chhabra, President of Globus. He feels this reduction would make very little difference to retailers as most of them source their products from the domestic market.
Meanwhile, the Apparel Export Promotion Council chairman Premal Udani says while the FM has maintained expenditure and fiscal discipline he has not provided a short-term or long-term roadmap for the growth of the labor-intensive apparel industry. The general feeling among apparel manufacturers and exports is that the increase in excise duty coupled with the Rs 2 increase in petrol and diesel prices will substantially increase raw material and input costs. Udani feels the industry which is already struggling due to high costs will get further suffocated due to the increase in raw material and input costs. He lamented that the FM had turned down exporters’ plea for exemption of service tax, rather than claiming refunds. Overall, he says, the Budget has failed to give a thrust to the textile and clothing industry which generates the largest employment after agriculture.
Even the Federation of Indian Export Organizations (FIEO) has urged the government to extend the benefit of two per cent interest subvention to garments. “Many sectors are still expecting negative growth in 2009-2010. Few of them may have shown a positive growth but that too on a very low base," says FIEO president A Sakthivel. These sectors are highly employment intensive with very high capital employment ratio. He says the government should continue to provide them interest subvention both with a view to promote export as well as to encourage additional employment in these sectors.  Expressing disappointment for lack of any special provision for the garment sector, president of the Garment Exporters Association (GEA) Rakesh Vaid regretted that the finance minister did not include textiles and clothing industry while extending two per cent interest subvention for exports credits by one year.
Meanwhile, the duty disparity between cotton and polyester yarn remains. The government has increased the excise duty on polyester yarn to 10 per cent from 8 per cent. The difference is not much but for an industry looking to tilt towards cotton, this is indeed a much-needed push.