READJUSTING THE COFFERS
Samir Alam explores the impact of the Union Budget on the Indian apparel and textile industry.
The Union Budget for 2017 was announced to an eagerly awaiting nation on February 1, 2017; and while the Budget gave great respite to various areas of the economy—such as the 24 per cent increase in funding of rural, agriculture and allied sectors and lower tax rate for individual taxpayers—it is widely considered to have left the textile industry unsatisfied. In the wake of the setbacks caused by the demonetisation scheme of November 2016, this has proven to be an unpopular outcome. However, with the R6,000 Crore special package having been assigned in mid-2016, the lack of allocations is not unsurprising. For many in the textile industry, there rests some informal assurances that the textile and apparel industry can expect greater Central Government support through other means and the Ministry of Textiles will seek approval for various plans, in the coming year.
WHILE THE INDUSTRY, AS A WHOLE, EXPECTS TO ACHIEVE OVER US$ 350 BILLION IN FOREIGN REVENUE, THE UNION BUDGET, AS A WHOLE, DOESN’T PROVIDE MUCH IN WAY OF SUPPORT.
HOLISTIC INDIRECT INVESTMENT
The largest of these expected rewards is in reference to the Ministry’s attempts to increase funding for plans related to duty drawbacks and refunds, labour skill development programs and various technology upgrades. The Chairman of the Cotton Textiles Export Promotion Council went on to express their disappointment with the Budget, sighting the importance for restoration of interest rate subsidies for cotton, which had not been accepted in the Budget. While the industry as a whole expects to achieve over US$ 350 billion in foreign revenue via the apparel, leather and footwear sectors, the Union Budget, as a whole, doesn’t provide much, in way of support.
Looking at the ancillary and support systems of the economy, there is much to look forward to for the textile and apparel industry. There are definite investments in skills training and logistical solutions by means of improved rail and coastal shipping solutions. These last-mile connectivity areas have required improvement for some time, now and are expected to contribute more proactively to the textile industry’s ambitious goals for the next few years. There is also the matter of continuing the existing tax structure which would include service tax and optional CENVAT for the textile industry until such time that the GST is fully implemented. Since its adoption, these tax processes have greatly improved the sector and their continuation is a welcome gesture.
The largest indirect means of institutional redevelopment for the sector remains the nationwide infrastructure plans announced in the Budget. Since the government has allocated R3,96,000 Crore for this task, the hope is that improved roadways will help improve goods transport. The most significant and highly anticipated resolution over the issue of adopting the Goods and Services Tax is yet to be taken, though, and has been pushed to September 2017. In lieu of the direct avenues of support, however, industry leaders are looking to leverage whatever little benefits can be attained via improved labour skills and improved infrastructure.
The proposed approach to utilise the cluster methodology for contract farming is also expected to assist the cotton farmers, and thereby service the textile industry. At present, we have already witnessed setbacks for farmers these past few years, due to issues of pests, Bt-seeds and fluctuating cotton prices. The result being that in this past year many farmers reduced their cotton growth due to the emergence of new pests and the lacklustre economies of using Bt-seeds provided by multi-nationals. Ironically, the cotton priced rose higher than expected and proved to be a missed opportunity for many. In light of this, the government’s recent approval of three varieties of indigenous Bt-seeds made by the Central Institute for Cotton Research. These
WHILE THE OVERALL ALLOCATION TO THE SECTOR REMAINS FAIRLY FLAT—FROM R6,290 CRORE IN 2016-17 TO R6,230 CRORE IN 2017-18—THERE IS STILL SOME GROWTH.
seeds, and the eleven other varieties expected to be released soon, can prove to be a boon for the cotton farmers as well.
The textile industry is also heartened by the government's plans to allocate funding for new and improved affordable housing projects. These kind of projects have been on the wish-list of the textile industry for some time now, as they help ease labour requirements and provide stability to the industry as a whole. The industry requires up to one lakh houses for core labourers and the profit exemption included in the plans for 60 square metres of housing is crucial to make the business more labour efficient. The labour skill development plans have been budged to the tune of R2,200 Crore which will prove integral to the textile sector. This will be an essential component of the 100-plus skill centers that are planned all across the nation. As an industry that employs nearly 45 million people and is the second largest employer in the nation, the investment in the skills of labour is crucial to the growth and sustainability of the industry.
A key taxation relief this year has been the increased allocation towards remission of state levies. From R400 Crore in 2016-17 to R1,555 Crore in 2017-18, this is increase is expected to result in up to a 1.5 per cent cost saving for various textile exporters. The increased allocation of funds to Mudra Bank was also greatly appreciated by various industry leaders. The funds have gone from being R1,36,000 Crore to R2,44,000, which is expected to spur on newer and greater entrepreneurship for the knitwear segment of the industry. Moreover, considering the fact that a significant proportion of the industry falls within the Small and Medium Enterprise category, the overall reduction in tax rates for SME business’ will have a positive outcome for the industry as a whole.
While the overall allocation to the sector remains fairly flat—from R6,290 Crore in 2016-17 to R6,230 Crore in 2017-18—there is still some growth. The lowered allocation for the Amended Technology Upgradation Fund Scheme (ATUFS) and the cotton procurement scheme is adjusted against the textile package that was released in mid-2016. This reorganised means of allocating funds, in the broader sense, is essential for the industry to remain competitive.