23 Dec 2016 19:59 IST

Strengthening the textile industry

The Centre’s recent measures could bring some relief to the crisis-ridden sector, writes Bavadharini KS in Insight

Textile products are in demand all through the year, be it raw cotton or yarn or ready-made garments. Countries across the world promote their textile sectors with incentives so that they become competitive in the global market. In India, though, despite the Centre’s many measures, the industry faces several problems.

To protect the traditional handloom segment, India has imposed rigid duties on man-made fibres, resulting in high dependency on cotton by the country’s textile manufacturers. And, with unpredictable weather conditions, cotton prices soar quite often, impacting textile-makers. Further, much of the machinery that textile manufacturers use is obsolete and suitable only for cotton textile production. They cannot be used to produce synthetic fibres. And the frequent power-cuts have made the matters worse. Investors are moving their investments towards better options, worsening the crisis in the textile industry in terms of job loss and closure of mills.

In the global textile market, India stands next to China. But the latter may find it difficult to sustain its status as a result of rising wages and the increasing cost of production. This is good news for India. However, to seize the opportunity, the Centre has to come up with lucrative schemes for Indian textile companies. Here are some measures from the government that may reduce the textile industry’s pains.

Recent initiatives

Surplus incentives under ATUFS : The Technology Upgradation Fund Scheme (TUFS) was launched during the Ninth Plan period to help textile companies leverage technology in their business processes and become more competitive. This was done by providing subsidies to companies that invest in relevant operational technologies. TUFS has enabled the sector’s transition from a restrictive trading environment to a market-driven industry, focussed on global merchandise and value addition.

The scheme offsets the disadvantages of high power and transactional costs and the lack of adequate infrastructure. TUFS is crucial for all the interlinked segments in the textile sector, from ginning of cotton to spinning, weaving, knitting, processing and making up garments.

In the early stages of TUFS, importance was given to the spinning and weaving sectors in terms of reimbursement of interest and provision of capital subsidy, despite strong growth in the sector. During 2015, the Amended TUFS (ATUFS) was introduced to boost exports, promote technical textiles, provide better technology for the handlooms sector and enhance quality in the processing segment.

The ATUFS is largely capital-based and, under the revised scheme, apparel, garments and technical textiles will receive 15 per cent subsidy (previously 10 per cent) on the capital investment over five years, subject to a maximum of ₹30 crore. Sectors such as weaving, spinning and other sub-sectors, will receive 10 per cent subsidy on capital investment, not exceeding ₹20 crore. The Centre expects to attract investments to the tune of ₹1 lakh crore and generate 30 lakh jobs.

To boost the ‘Make in India’ initiative and to make the textile market even more attractive, during 2016, the Centre approved a special package of ₹6,000 crore. Under this package, the ATUFS offers additional incentives, under which the garment sector can receive up to 25 per cent subsidy. But this comes with a condition: only if the companies together generate 1 crore jobs over the next three years, will the subsidies be disbursed.

To encourage cashless transactions, the Ministry of Textiles has introduced iTUFS; companies can file and claim subsidies online through this platform. The ATUFS is expected to attract new investment to the tune of ₹1 lakh crore.

Additional duty drawback : Duty drawback is a rebate claimed on the duty charged on imported goods or excisable goods used in making products meant for exports. In the textile industry, home textiles attract a duty drawback rate of 7.5 per cent and cotton products are given 8 per cent duty drawback, making the industry more competitive internationally. These duty drawback rates for all textile products have been extended for a year by the Centre. Similarly, duty drawback of 4.7 per cent is allowed for export of non-fabric inputs made from imported fabrics in order to increase the exports of high-value apparels.

In the special package introduced for textile industry in 2016, State government levies are also refunded to textile exporting companies, which were earlier allowed rebate only on Central levies. This scheme rebates the State VAT and CENVAT on inputs inclusive of packaging and fuel, and charges on purchase of grid power through the stages of yarn production to finished garments. Companies can claim this rebate only if they have set up an internal complaints committee.

Scheme for Integrated Textile Parks : The Centre has come up with schemes to set up new textile production units with the requisite amenities for smooth exports of textile products. The SITP targets industrial locations to provide world-class infrastructure support.

An ITP scheme is divided into groups, each group addressing a specific need, such as a proper landscape; common infrastructure such as compound walls, roads, water and electricity supply; and telecommunications. Another group focuses on building common facilities, such as laboratory, training centre, warehouse, recreational facilities and factory buildings for production process and plant and machinery. The companies involved are promoters of the ITP and get financial support from the Centre to implement the SITP through a special purpose vehicle made up of representatives overseeing the procedures.

The SITP was launched to provide basic infrastructure and amenities, training centres and a marketing support system for textile companies to ensure their uninterrupted work-flow. In 2016, 18 textile parks were operational out of the 74 approved by the Centre. Some 19 textile parks were sanctioned over the last two years, and 200 production units have been set up in the existing textile parks. The SITP has the potential to facilitate investments up to ₹300 crore.

Outlook

The textile industry is subject to multiple duties or tax, levied by both the Centre and the States. These ultimately reflect on the price of the products, as the claim for rebates takes a long time, leading to slow circulation of money in the industry. Introduction of the Goods and Services Tax (GST) may resolve the problem of taxes, bringing in a uniform tax system. But as the GST rate is likely to be higher than the existing tax rate, textile prices might go up, affecting demand.

However, the industry awaits GST as it may help remove the disparity of taxes. For instance, now, man-made fibres attract 12 per cent excise duty while no excise duty is levied on cotton fibres. Also, as GST is a tax on textile output, against the tax on input, as earlier, it will make the tax system more transparent.