solutions to revive indian textile industry

RECOMMENDING

POSSIBLE SOLUTIONS

TO REVIVE THE INDIAN

TEXTILE INDUSTRY

JULY 24, 2009

Submitted By: KUSHAGRA R. LADHA

PGDM – FINANCE

THAKUR INSTITUTE OF MANAGEMENT STUDIES &

RESEARCH, MUMBAI

S I Y A R A M S I L K M I L L S L I M I T E D B - 5 , T r a d e W o r l d , K a m a l a C i t y , S e n a p a t i B a p a t M a r g , L o w e r P a r e l , M u m b a i - 4 0 0 0 1 3 . W e b s i t e : s i y a r a m . c o m T e l N o . 0 2 2 - 3 0 4 0 0 5 0 F a x N o . 0 2 2 - 3 0 4 0 0 5 9 9

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PROJECT REPORT

ON

RECOMMENDING POSSIBLE SOLUTIONS TO REVIVE THE

INDIAN TEXTILE INDUSTRY

AT

SIYARAM SILK MILLS LIMITED, MUMBAI

Summer Training : 2009

Submitted to: Mr. Shruti Jhawar

Manager – MIS & Treasury Management

Siyaram Silk Mills Limited, Mumbai

Submitted by: Kushagra R. Ladha

Thakur Institute of Management Studies &

Research, Mumbai

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ACKNOWLEDGEMENT

It gives me great pleasure to present before you, this project report, assigned to me as part of

my summer training at Siyaram Silk Mills Limited.

I express my sincere gratitude towards SIYARAM SILK MILLS LIMITED, for giving me an

opportunity to work on this project.

I take this opportunity to thank my respected project guide Mr. Shruti Jhawar, Manager – MIS &

Treasury Management, for giving me an opportunity to undertake this project. His guidance has

been invaluable to me while preparing this report. He provided me with valuable suggestions

and excellent guidance about the Textile industry, which proved very helpful for me to gain

theoretical knowledge as well as a clear understanding of the issues of the Indian Textile

industry.

Last but not the least, I am thankful to all the staff at Siyaram Silk Mills Limited, my friends, all

known and unknown individuals who have given me their constructive advise, suggestions,

encouragement, co-operation and motivation to prepare this report.

- Kushagra Ladha

(Thakur Institute of Management Studies & Research,

Mumbai (PGDM)

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TABLE OF CONTENTS

Sr. No. Contents Page No.

1.

Scope and Approach to the study

5

2. Executive Summary 6

3. About Siyaram Silk Mills Limited (“The Company”) 9

4. Case for the Project Study 11

5. Introduction to the Indian Textile Industry 13

6. The Industry Analysis 14

6.1 Domestic Situation 14

6.2 Export-Import Situation 16

6.2.1 Competing countries have outperformed Indian apparel

exports to major economies

17

6.2.2 Industry’s import dependence has been increasing 19

7. Analysis Of Cost Competitiveness Of Indian Textile And Clothing Industry Vis-À-Vis Competing Countries

20

7.1 Swot Analysis Of The Indian Textile Industry 22

8. Analysis of the Government Interventions in competing countries 24

Key initiatives taken by the:

8.1 Chinese government 24

8.2 Vietnamese government 24

8.3 Turkish government 25

8.4 Bangladeshi government 26

8.5 Sri Lankan government 26

8.6 Indonesian government 26

9. Study of the initiatives taken by the Indian Government 27

10. Analysis Of The Needs Of The Sector And Recommendations 32

10.1 Facilitation Required From The Government 33

10.2 Efforts Required By The Firms In The Industry 47

11. Budget 2009-10 Impact on the Industry 49

12. Conclusion 51

13. Annexure – 1 (SWOT Analysis Of Competing Countries) 52

14. Annexure – 2 (Extract Of An Article Originally Published In Textile Review, March 2009)

56

15. Webliography & Bibliography 57

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1. SCOPE OF WORK & APPROACH TO THE PROJECT STUDY

SCOPE OF WORK

Scope of this project work is to recommend possible fiscal and non-fiscal solutions to revive the

Indian Textile Industry. The Study covers Spinning, Weaving, Knitting, Processing/Finishing,

Made-ups and Clothing segments of Textile and Clothing industry.

APPROACH TO THE STUDY

Based on the scope of work, the approach to this project is in a logical sequence as follows:

1. Conducting an analysis of the reasons for the study i.e. having a case for the project

study

2. Analysis of the Indian Textile Industry and key issues

3. Analysis of cost competitiveness of Indian textile and clothing industry vis-à-vis

competing countries*

4. Analysis of the fiscal Interventions by the Governments of competing countries

5. Initiatives taken by the Indian Government

6. Recommending measures/action plans for government and firms in the industry for the

revival of the Textile industry and its exports taking into account the analysis done in the

previous steps.

*Competing countries means China, Vietnam, Turkey, Bangladesh and Sri Lanka

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2. EXECUTIVE SUMMARY

The Textile & Clothing (T&C) industry contributes 4% to the country’s GDP, 14% to the country’s

industrial production and around 12% to the country’s foreign exchange earnings.

The percentage growth in production of T&C over previous period has sharply declined from

2006 to 2008 and has stagnated. This has led to low capacity utilization leading to inadequate

absorption of fixed costs and consequently low profitability. Low profitability has led to the loss

of most units, erosion of working capital, slowdown in Investments and lakhs of job losses.

The Indian T&C market is composed of 35% exports and 65% domestic sales. US, EU27, Japan

and Canada are the major importers of the Indian T&C products. The exports of the competing

countries like China, Vietnam and Bangladesh to these major economies has risen significantly

as compared to India. The conclusion is that, these exports have risen at the cost of Indian

exports.

India’s increasing dependence on fabric imports points to the urgent need to invest in fabric

and processing capacities.

Investments in the sector, after being subdued for a long period, have picked up since the

phase-out of quotas in 2005 after several policy initiatives were taken by the Government.

There is an urgent need for steps to be taken by both, the Government through policies

initiatives and by the individual firms by improving their operational efficiency.

After an analysis of the cost competitiveness of the Competing countries, it can be concluded

that:

i. India has high labour cost than its competing countries except China. Moreover,

India has lower labour productivity as compared to other countries.

ii. Manufacturing in India suffers from high power cost, non-availabilty and poor

quality of power vis-à-vis its competing countries

iii. Interest rate in India is high as compared to China but is lesser than other competing

countries.

iv. Corporate tax in India is higher as compared to Bangladesh, Turkey and Vietnam.

v. Infrastructural/Transaction procedural costs are very high and also causes undue

time delays at the ports

vi. There are anomalies in the Indian Tax and Duty Structure that needs to be

addressed.

Major impediments to the growth of Indian T&C industry are:

� Lack of cost competitiveness in majority of T&C products as compared to China,

Bangladesh, Vietnam and Sri Lanka

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� Delay in disbursement of TUFS assistance and other assistance

� High working capital interest

� High dependence on cotton products

� Lack of availability of skilled labour

� Stringent labour laws

� High dependence of T&C trade on EU27 and US markets

� Weak textile machinery manufacturing base

Analysis of the Government interventions in the competing countries reveals that they have

taken certain concrete and effective steps to increase the presence of their textile industry in

the world markets. These interventions include export incentives/subsidies, concessional/low-

interest rate loans, investment in technology upgradation, reduction in taxes, setting up textile

parks, allowing foreign investment in the sector, entering into trade agreements for allowing

favorable trading terms, etc.

The Indian Government has also taken certain steps to help the Indian T&C industry to survive.

Some of the prominent steps are:

� In 1999, Technology Upgradation Fund Scheme (TUFS) was launched to facilitate the

modernisation and upgradation of the textiles industry.

� Setting up textile parks under the Scheme for Integrated Textile Parks (SITP).

� The Government also framed "The National Textile Policy 2000". This policy aims at

negating the existing problems and increasing the foreign exchange earnings to the tune

of US$ 50 billion by the year 2010.

However, these efforts have not been effective to the extent expected and the Indian textile

industry is still in the woods. The government of India needs strong and effective steps to be

taken to help revive the Indian Textile Industry.

The various fiscal and non-fiscal recommendations highlighted in the report are based on a

thorough analysis of the sector and its difficulties. Some of them are:

� Supporting captive power generation by exempting liquid fuels from customs and excise

duty

� increasing labour flexibility by extending labour working hours, allowing contract labour

and relaxing the norms of the Industrial Disputes Act

� Allowing state-level and central taxes to set off

� Negotiate better trade terms with major global T&C markets

� Extending full TUFS assistance for setting up Wind turbine generators

� Providing Working capital loans at lesser rates and for longer periods

� Diversification into other textile products apart from cotton products

� Formulating a Comprehensive Fibre Policy

� Setting up a Joint Working Group with representation from Government and T&C industry

� encouraging FDIs/JV projects to create textile machinery manufacturing facilities in India

� Reduction of customs and excise duties on various textile products

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� Interest Subvention for Export Credit

� Corporate Debt Restructuring

� Withdrawal of MSP for Cotton

These recommendations will cumulatively help revive the Indian Textile Industry if

implemented in full spirit.

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3. About Siyaram’s

SIYARAM SILK MILLS LIMITED (“the Company”) promoted by SIYARAM PODDAR GROUP was

incorporated on 29th June, 1978 with a registered office at H-3/2, MIDC, A-Road Tarapur,

Boisar, Thane - 401506, Maharashtra.

Initially, company was engaged in trading activity of suiting and shirting. Over the period of

time, the company has expanded, diversified and integrated its facilities substantially and

presently has facilities for manufacturing and marketing of suiting, shirting, texturising, dyeing

yarn and ready-made garments.

VISION To be a global leader in fashion fabrics and delight the customer by creating products that offer

unmatched superiority.

MISSION i. To Achieve Total Customer Satisfaction

ii. To Remain Globally Competitive by

a. Focussed Attention in Conversion Cost

b. Attaining International Productivity Levels

c. Minimizing Wastage

d. Leveraging Economies of Scale

iii. To continue to invest in technologies to keep ourselves future ready

iv. To continuously invest in Human Resource Development

v. To upgrade and invest aggressively in IT Systems

Siyaram Silk operates through divisions like fabrics, yarn, garments, furnishings, and exports. It

offers textile brands like Siyaram’s, Mistair, J Hampstead, Oxemberg, Miniature and Featherz.

The company operates five weaving plants, two yarn plants, and two readymade garment plant

spread across Maharashtra and Gujarat. It has an installed capacity of 409 looms, 616 stitching

machines, and 4,500 tons of yarn dyeing capacity, of which 1,500 tons were installed in FY07.

Siyaram Silk has also ventured into retail, opening a few shops where all its brands will be under

one roof. Siyaram Silk exports to countries in Europe, the Middle East, Africa, Australia,

America, and Latin America.

In FY07, the company installed 99 looms, which increased fabric-weaving capacity by 5 MMPA.

In FY07, it formed two subsidiaries namely Siyaram Polycote Ltd and Oxemberg Clothing Ltd.

Siyaram Silk Mills is the market leader in the Polyester Viscose (PV) segment, with a reputation

of ushering in the latest fashion trends. It is one of the largest players in the market with a

weaving capacity of over 25 lakh meters every month. Siyaram is one of the pioneers in the

Indian fashion industry and after over 25 years in the industry, it still ranks amongst the top

companies in India.

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Siyaram is involved in the manufacture of synthetic yarns and specialized fabrics like Polynosic

and Tencel. Equipped with the state-of-the-art weaving machines, Siyaram’s ensures that the

fabric produced is flawless.

Siyaram has one of the most modern processing and finishing plants in India. It is equipped with

the latest world-class machinery imported from Europe. Superior quality is the hallmark of

Siyaram's fabrics.

Hand-in-hand goes is the Packaging Infrastructure at its plants. The well-equipped plants are a

hub of activity, performing quality checks at crucial points of packaging, thus, ensuring that the

entire package matches the customers' demands and expectations.

The Siyaram board brings together a dynamic team of professionals who provide direction to

Siyarams' executive management in a dynamic economic and business environment. The board

consists of all active founders, along with external members of the board who are high

achievers in business and society.

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4. CASE FOR THE PROJECT STUDY

I. FINANCIAL PERFORMANCE OF SIYARAM SILK MILLS LTD. OVER PAST 10 YEARS

Below table shows the annualized 10 years figures to depict the profit margins sequeezing (Rs.

Crores)

Particulars Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08

Total

income 295.55 316.46 322.83 332.1 330.15 323.48 344.36 460.22 533.15 598.32

Net Worth 55.19 68.17 86.84 90.15 95.43 99.96 105.56 118.18 132.76 136.37

Borrowings 95.85 93.8 123.11 134.41 119.86 118.01 109.59 117.24 180.51 253.4

PBDITA /

Total

income (%) 10.04 8.82 10.01 8.36 7.41 7.53 8.12 8.14 7.84 6.66

RONW 25.57 24.27 19.66 9.16 8.43 7.52 8.21 14.47 16 6.92

ROCE 13.07 14.02 11.34 5.07 4.79 4.42 4.65 8.84 10.69 3.98

Source : CMIE

Observing the trend in the above table for 10 years, following results are achieved:

a. The total income has doubled from approx. Rs. 300 Crores to 600 Crores over the 10

years period.

b. Borrowings have steeply risen from Rs. 110 Crores to Rs. 254 Crores after 2005, on two

accounts:

i. Abolishment of Quota in 2005

ii. Borrowings for capital expansion under the TUFS assistance

c. However, all the three important ratios i.e. PBDITA/Total income, RONW and ROCE have

fallen drastically showing severely deteriorating profit margins.

II. STEPS TAKEN BY THE COMPANY FOR SURVIVAL AND GROWTH The Company has a strong presence in Polyester Viscose based fabric products and demand

for this is continuously growing. Its presence in value added dyed yarn segment is also

expected to contribute to the topline. The Company to meet challenges ahead, plans to

expand its activities in the field of Readymade Garments, enhance its marketing capabilities

by expanding its marketing channel and targets to double the number of retail outlets, both

Company owned and Franchisee outlets.

The Company has been conducting R&D in specific areas such as product and quality

improvement, development of new designs, products, cost control and energy

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conservation. These R&D activities have resulted into development of new designs and

products.

In 1995, the company tied up with J Hampstead, a foreign brand, to market its fabrics in

India. In 2005, it launched the brand Featherz in the readymade garments segment.

Expansion:

During the year 2007-08, the Company added 42 imported looms of latest technology along

with other preparatory machines and accessories for manufacturing fabrics and in its new

venture of Home Furnishing.

In the Yarn Division, the Company has increased its yarn dyeing capacity by adding

additional yarn dyeing machines along with balancing equipments to manufacture value

added yarn. The company continues to further increase this capacity in the current year.

In the readymade garments division, the company has installed 177 stitching machines to

manufacture readymade garments, viz., shirts and trousers.

In the Retail sector, the Company has opened 85 Retail outlets including Franchisees and

the Company’s own outlets. It looks forward to continue this expansion after looking at the

overall market conditions from time to time.

The above expansion was funded by way of Term Loan from banks under the TUF Scheme

of Government of India and internal accruals of the Company.

On July 16, 2009, the Company has further announced plans to invest Rs 60-80 crore over

the next three years to roll out 200 stores in the country and the Middle-East and to expand

its fabric business in the global market.

The BSE-listed company plans to open 115 outlets of J Hampstead, Oxemberg, Siyaram MSD

and its flagship brand Fabric to Fashion (F2f) by 2012, Siyaram Silk Mills' Vice Chairman and

Managing Director Ramesh Poddar said.

Investment in Information Technology: The Company has made an overall capital

commitment of approx. Rs. 10 Crores to install and implement SAP system within the

organization. The system will considerably improve and upgrade the business practices

followed by the Company so as to cut costs in an efficient manner.

III. CASE FOR STUDY:

Although the Company is taking in-house steps to survive and grow in the domestic &

international market, what are the other solutions that would help improve the overall

profitability of the Textile & Clothing Industry?

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5. INTRODUCTION OF THE INDIAN TEXTILE INDUSTRY

Indian Textile and Clothing (T&C) industry is currently one of the largest and most important

industries in the Indian economy in terms of output, foreign exchange earnings and

employment. The industry contributes 4% to the country’s GDP, 14% to the country’s industrial

production and around 12% to the country’s foreign exchange earnings. During 2007-08, Indian

T&C exports were valued at US $22.4 billion of which Textile exports accounted for US $ 12.7

billion and Garment exports accounted for US $ 9.7 billion.

Indian T&C industry is also the second largest employment generating industry, after

agriculture with direct employment of 33.17 million1 people (as of March 2006). In addition,

the industry generates significant employment through forward and backward linkages; the

large number of skilled and unskilled activities in the industry makes it extremely important

from the perspective of inclusive growth.

Ministry of Textiles has targeted a growth of 16% per annum for the Indian T&C industry to

reach US $ 115 billion by the end of Eleventh Five Year Plan. It also wants to secure a 7% share

in global T&C trade by the end of the Eleventh Five Year Plan. Provided the targeted growth is

achieved, Indian T&C industry has potential to employ 45 million people by 2012. Further, the

export earnings from this industry are estimated to increase to US $ 55 billion by 2012.

However, during the period April – December, 2008 T&C exports have missed the expected

growth targets on account of economic slowdown in major T&C export markets. As a result,

production of T&C has also declined during the same period as against the estimated levels

under the Eleventh Plan.

Under these circumstances, the T&C industry is unlikely to achieve the envisioned targets

unless the industry makes a strategic shift in the coming year.

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6. THE INDUSTRY ANALYSIS

6.1 DOMESTIC SITUATION

Source: CITI estimates from CSO data

It can be observed from the last column of the above table that the percentage growth in

production of T&C over previous period has sharply declined from 2006 to 2008 and has

stagnated. This has led to low capacity utilization leading to inadequate absorption of fixed

costs and consequently low profitability. Low profitability has led to the loss of most units,

erosion of working capital, slowdown in Investments and lakhs of job losses.

Mr. Manoj Kumar Tibrewal, M.D of the vertically integrated textile company, Gangotri Textiles

Ltd, has quoted that, “Job losses are in lakhs in the textile and clothing sector due to decline in

production. This has been attributed to the slowdown in domestic demand and a decline in

exports. If this condition prevails the situation will further worsen and the job losses will hit a

historic high”.

Below is the table illustrating the growing net losses of the 176 T&C companies that are listed

on the BSE: NET PROFIT (RS. CRORE)

YEAR Q1 Q2 Q3

2006-07 517 932 701

2007-08 422 503 321

2008-09 -37 -104 -649 Source: CITI estimates from BSE listed 176 T&C Companies

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As can be seen from the above table, the net losses of these companies have risen sharply in

the year 2008-09 owing to the global economic slowdown on the demand of textile and

clothing.

NUMBER OF MILLS REGISTERED WITH THE BOARD OF INDUSTRIAL & FINANCIAL RECONSTRUCTION (BIFR)

Cases of Mills Registered with Board of Industrial & Financial Reconstruction (BIFR) statement as on 31/01/2009

Sr. No. State All Textile Cases

1 Andhra Pradesh 53

2 Assam 5

3 Bihar 2

4 Chandigarh 1

5 Dadra Nagar Haveli 5

6 Daman & Diu 1

7 Delhi 45

8 Goa 1

9 Gujarat 122

10 Haryana 26

11 Himachal Pradesh 1

12 Jharkhand 1

13 Karnataka 43

14 Kerala 14

15 Madhya Pradesh 31

16 Maharashtra 167

17 Orissa 6

18 Pondicherry 1

19 Punjab 38

20 Rajasthan 45

21 Tamilnadu 176

22 Uttar Pradesh 40

23 Uttranchal 5

24 West Bengal 38

Total 867

Source : Ministry Of Textile, Office of the Textile Commissioner, Mumbai

In total, as on 31/1/2009, there are 867 companies who have registered themselves with BIFR.

As can be seen from the above table, the problem of the textile industry is all pervasive with

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companies from 24 Indian states having registered with the BIFR. And to top it all, Maharashtra

state registered the second largest number of BIFR cases after Tamil Nadu.

Reason wise break up of closed mills as on 30.04.2009

Sr. No Reason of Closure No of Mills Reason wise % of

total

1 Financial difficulties 231 56.62

2 Lock out 14 3.43

3 Other reason 116 28.43

4 Strike / Labour

trouble 47 11.52

T o t a l 408 100.00

Source : Office of the Textile Commissioner, Mumbai Updated on 19.06.2009

Further, it can be seen that out of a total of 408 mills closed, the reason quoted for closure of

231 mills was financial difficulties and another 47 were closed due to labour trouble. Thus,

there is an urgent need for steps to be taken by both, the Government through policies

initiatives and by the individual firms by improving their operational efficiency.

Over the last few years, Indian T&C industry had witnessed debt-funded capacity expansion,

primarily driven by interest compensation under TUFS Scheme of loans at concessional interest

rates.

6.2 EXPORT-IMPORT SITUATION

Indian T&C market is estimated at Rs. 2.55 Trillion (2007-08) with exports accounting for 35% of

the total market value. The industry has significant dependence on exports with EU27 being the

largest export market, accounting for 33% of the total T&C exports by value in 2007-08. US is

the second largest export market for Indian T&C products with a share of 21% by value of total

T&C exports in 2007-08. Other important export markets are UAE (6%), China (5%), Bangladesh

(3%) and Japan (1%).

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The recent economic slowdown has significantly impacted the major export markets of Indian

T&C industry i.e. EU27, US and Canada thus, negatively impacting the Indian T&C industry.

As can be seen from the above table, there has been a sharp decline in the exports of textile &

clothing to major economies like US & EU27 during the Jan – Oct 2008 period.

6.2.1 Competing countries have outperformed Indian apparel exports to major economies

1. United States

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1. EU27

2. Japan

It can be observed from the above tables, that although the total imports of the US, EU27 and

Japan has declined sharply, the exports of the competing countries like China, Vietnam and

Bangladesh to these major economies has risen significantly as compared to India. The

conclusion is that, these exports have risen at the cost of Indian exports.

All this has severely affected the financial performance of Indian T&C industry.

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6.2.2 Industry’s import dependence has been increasing

� Fabric imports (in value terms)

comprised around 33% of all imports in

FY 2006, an increase from 14% in FY

2002.

� Rise in garment production (especially

exports) has resulted in increased fabric

imports to meet buyer specifications.

� Woven cotton & Man-made fabrics and

knitted fabric comprise around 60% of

the fabric imports

� Silk and Woolen fabric comprise

another 25%

� Rising fabric imports owing to,

fragmentation in domestic weaving and

processing facilities and use of outdated

technologies, thereby impacting their

ability to meet the delivery schedules

and quality specifications set by the

garmenting units

Therefore, increasing import

dependence points to the urgent need

to invest in fabric and processing

capacities.

Source : DGCI&S, Office of the textile Commissioner

Investments in the sector, after being subdued for a long period, have picked up since the

phase-out of quotas in 2005 after several policy initiatives were taken, chief among them being

de-reservation of knitting from SSI list, introduction of credit linked capital subsidy scheme and

excise duty rationalization.

� Key segments such as weaving and processing have lagged behind in attracting investments.

� Investments under TUFS have had a positive impact on productivity as is evident from rising

production without significant addition in working capacity.

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7. ANALYSIS OF COST COMPETITIVENESS OF INDIAN TEXTILE

AND CLOTHING INDUSTRY VIS-À-VIS COMPETING

COUNTRIES

The Key drivers of Cost Competitiveness has been identified and enlisted below:

Labour Cost India has higher labour cost as compared to Bangladesh, Vietnam and Sri Lanka.

Moreover, India has lower labour productivity as compared to other countries.

Source: Werner International.com

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Power Cost and Availability of Power

Power cost in India is the highest amongst the low cost countries.

Further, manufacturing in India suffers from both non-availability of power and poor quality of

power.

Owing to power shortage in major Textile producing states, captive power generation is the

only alternative to sustain production.

Liquid Fuels such as furnace oil and diesel used for captive power generation attract 10% basic

customs duty and 14% excise duty; with current fuel prices, captive power is more than twice as

expensive as grid power.

Interest rate in India is high as compared to China but is lesser than other competing countries.

Corporate tax in India is higher as compared to Bangladesh, Turkey and Vietnam.

Infrastructure/Transaction Costs � Documents preparation and Customs clearance take around 10-12 days for Indian

companies. Single-window clearance is requirement both for reduction in cost and

delivery lead times. � EXIM procedural costs in India are high as compared to other competing countries

which further affects the competitive position.

� Port handling charges for Indian companies are almost twice than that for Chinese

companies.

� Indian custom procedures require comparatively higher number of documents which

further adds to the time and costs of EXIM procedures.

� Inland transportation costs for Indian companies are more than three times than that

for Chinese companies. Excellent connectivity by road, rail air and ports is the need of

the day.

� Inadequate road and rail infrastructure coupled with barriers to inter-state transport of

goods add up avoidable costs for the Indian companies.

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� On account of high geographical spread, Indian T&C industry involves significant inter-

state movement of raw material and finished goods; high inland transportation further

affects the competitive position of the T&C industry.

Anomalies in the Tax and Duty Structure � VAT and CST are not adjustable: If a manufacturer while purchasing raw-materials has

paid VAT and while selling collects CST, he cannot avail a credit.

� Exporter does not get credit for VAT/CST paid during raw material purchase: When a

manufacturer exports all his goods he does not get any credit for the VAT or CST paid at

the raw material purchase stage.

� Customs paid while purchase and Excise collected while sale are not adjustable: If a

manufacturer imports raw material and pays customs duty on it, he is unable to adjust it

against the excise that he collects while selling. � VAT on fabric is Nil: A fabric manufacturer pays VAT while buying the raw material but

cannot collect the same while selling his product.

� Anomaly in duty drawback rates: Duty drawback rates are not as high as effective

duties as a result T&C exporters pay excessive duties.

Finally, a SWOT Analysis of the Indian Textile Industry is presented as below.

7.1 SWOT ANALYSIS OF THE INDIAN TEXTILE INDUSTRY#

STRENGTHS � Strong domestic textile presence across the entire value chain.

� Abundant availability of raw material, both cotton and man-made.

� Increasing modernization of Indian T&C manufacturing sector facilitated by the TUF

Scheme.

WEAKNESSES

� High dependence of T&C trade on EU27 and US.

� Large number of small scale units in the garment industry on account of reservation

under SSI till recently thus, lacking benefits of economies of scale.

� Weaving, garmenting and processing sectors of the industry are still not fully

modernized.

� High dependence of Indian T&C industry on Cotton as against the world T&C industry

which is dominated by man-made fibre. This difference is expected to further increase

with the increase in the excise duty of man-made fibre from 4% to 8% announced in

Budget 2009-10.

� Lack of trained manpower.

� Restrictive labour laws as compared to other competing countries.

� High cost of labour as compared to Bangladesh, Sri Lanka and Vietnam, coupled with

low labour productivity.

� High power cost and lack of availability of power.

� High finance cost as compared to China.

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� High transaction costs as compared to other competing countries.

� Lack of any free trade agreements with the major T&C global markets resulting in high

import tariffs as compared to Bangladesh, Sri Lanka and Turkey.

� Lack of proximity to key global markets.

OPPORTUNITIES

� Favourable demographics in the domestic market; increasing young population coupled

with rising income levels in the domestic market is likely to act as a key growth factor for

the Indian textile Indutry.

� Increasing production costs in China resulting in China becoming non-competitive.

� Free Trade Agreement (FTA) with EU (under negotiation) which not only aims to

eliminate tariffs and quotas, but also non-tariff barriers to trade. This FTA is expected to

be implemented by end of 2009.

THREATS

� Removal of US and EU quotas on imports from China from December 31, 2008.

� Emerging low cost garment manufacturers i.e. Bangladesh, Vietnam and Sri Lanka.

� Trade defense measures been taken by certain major export markets of India.

#Refer Annexure - 1 for SWOT Analysis of Competing Countries

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8. ANALYSIS OF THE GOVERNMENT INTERVENTIONS IN COMPETING COUNTRIES

8.1 Key initiatives taken by the Chinese government

Tax Credits and Rebates � Chinese government has raised the export rebate rate for textiles and apparels thrice,

from 11% at the beginning of 2008, to 15% by February 2009.

� The government further raised the export rebate to 16% in May 2009, the highest

level in 10 years.

� 1% increase in export rebate is estimated to distribute 7.6 billion Yuan (US $ 1.11

billion) to exporting companies.

Reduction in lending rates � Government is supporting T&C industry by helping them in getting low-interest loans

from the state-owned banks.

Textile plan for revamping T&C industry, which focuses on

� Developing new markets like Russia, Brazil, India and Africa as well as domestic market

with focus on rural markets.

� Investing in updated technology and developing brands

� Saving energy

� Providing financial support to SMEs in terms of credit guarantees

8.2 Key initiatives taken by the Vietnamese government

Reduction in taxes � Vietnamese government has announced plans to halve the value-added tax on cotton

imports from 10% to 5%, and to lengthen the expiration time of VAT payment with

regard to the imported equipments and out-sourcing contracts.

Export subsidies � Vietnamese government has agreed to provide support to the country’s T&C industry

at a ratio of forty Vietnamese dong per one dollar in exports value i.e. exports valued

at US $ 1 million would be given a support of VND 40 million from the government. In

other words, exports value of US$1 million would be given support of VND 40 million

from the government. This aimed to help existing enterprises retain their operations.

� Vietnam T&C industry achieved an export turnover of US $ 9.1 billion in 2008; this

equates to around US $ 21 million in export subsidies.

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Reduction in lending rates � Vietnamese government has assigned the State Bank of Vietnam to grant low-interest

loans to the tune of USD$ 15 million to Vietnam Textile Corporation (VTC) in order to

import cotton.

Other developments for the Vietnamese garment industry include:

Uniqlo to buy more Vietnamese garment � The Association of Garment Textile Embroidery and Knitting (AGTEK) of Ho Chi Minh

City reported that Uniqlo under Fast Retailing in Japan planned to visit Vietnam and

work with 50 good garment makers in Ho Chi Minh City in recent months in a bid to

seek for more suppliers.

� The visit aimed to exploit the Vietnam-Japan Economic Partnership Agreement that

has generated various favorable conditions for Vietnamese textile and garment

exports to Japan.

� According to the AGTEK, Japanese traders are shifting partially their orders to Vietnam

from China due to the presence of preferential taxation in importing the textile and

garment from Vietnam.

JASTA seeking co-operation with Vitas

� This February, a delegation of the Japan Association of Specialists in Textiles and

Apparel (JASTA) visited Hanoi and worked with the Vietnam Textile and Apparel

Association (Vitas) for the discussion of a joint agreement in developing the Vietnam-

Japan Economic Partnership Agreement (VJEPA).

� The VJEPA, effective beginning 2009, is favorable to Vietnamese textile and garment

exporters when exporting to Japan, especially the zero export tax on textile and

garment products from Vietnam to Japan.

� Japan is the third largest exporting market of Vietnam-made textile and garment

products, worth about US$800 million in 2008, after the US and EU.

� At the meeting, president of Vitas, Le Quoc An, proposed the Japanese textile and

garment enterprises to develop the textile and garment materials in Vietnam. His

proposal included two major propositions: (i) JASTA will support its Japanese

enterprises to invest into textile factories in Vietnam, especially the products of fibre,

yarn, fabric and other materials; (ii) the Japanese trading companies will bring more

materials to Hanoi and Ho Chi Minh City.

� The Vietnamese side also requested Japanese partners to consider supporting the

Vietnamese industry in the areas of human resources and fashion design.

8.3 Key interventions made by Turkish government

Reduction in lending rates � Government has reduced lending rates by 3.75% over the period of October to

December 2008.

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Protection for domestic yarn industry � Government has taken anti-dumping sanctions to protect the spun and filament yarn

manufactures from Asian competition.

8.4 Key interventions made by Bangladeshi government

Incentives for the development of backward linkages � 15% cash subsidy of the fabric cost is given to exporters who source fabric locally.

� Incentives are extended to "deemed exporters" supplying indigenous raw materials to

export-oriented industries.

8.5 Key interventions made by Sri Lankan government

Export incentive program based on maintaining revenue and employment � Sri Lanka's government is giving a 5% incentive payment in domestic currency to

exporters who show 5% increase in export proceeds remitted to the country over the

same quarter last year. Such exports are required to have prescribed minimum

domestic value addition. The incentive payment made will be tax-free.

Depreciation of Rupee � In order to limit the slowdown in export sales, the Central Bank accepted a

depreciation of the rupee which fell about 7% in 2008 against the dollar.

8.6 Key interventions made by Indonesian government

Government allocates funding for restructuring program � The Industry Ministry in Indonesia opened the registration for textile machinery

restructuring program period 2009 by allocating IDR240 billion. Based on the ministry

observation, at least 100 companies would be interested to join the program.

� Anshari Bukhari, General Director of various industry, textile and machinery (ILMTA) at

the Industry Ministry said that the priority of the program is for companies whose

existing machines are over 20 years old and they have plans to purchase new

machines in the period between July 1, 2008 and November 2009.

"Given the global economic crisis, this is the right momentum for long-term

investment," he said.

� The mechanism of the program in two schemes is similar to those in previous years.

The first scheme (with a funding of Rp213 billion) assists large-scale textile enterprises

in the form of paying 10% of the total purchase of new machines. The rest of the

funding amounted Rp27 billion in the second scheme will subsidise the interest loan of

the industry's small and mid-size enterprises (SMEs). If locally made equipment is

purchased, the government will subsidise 15% from the total purchasing, no more

than Rp5 billion for each company.

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9. STUDY OF THE INITIATIVES TAKEN BY THE INDIAN GOVERNMENT

In an effort to make Indian textile companies more competitive in the world textile market, the

government has introduced a number of progressive steps.

• 100 per cent FDI allowed through the automatic route.

• De-reservation of readymade garments, hosiery and knitwear from the small-scale

industries sector in end-2009.

• Technology Mission on Cotton was launched in February 2000 to make quality raw

material available at competitive prices.

• Technology Upgradation Fund Scheme (TUFS) was launched to facilitate the

modernisation and upgradation of the textiles industry in 1999. It has been given further

extension till March 2010 with an increase in fund allocation from Rs. 1090 Crores in the

previous year to Rs. 3140 Crores in the current year’s budget. A total of 18773

applications involving a project cost of US$ 24.91 billion have been sanctioned under

TUFS upto March 31, 2008.

• 40 textile parks are being set up under the Scheme for Integrated Textile Parks (SITP)

which will attract an investment of US$ 4.38 billion.

• The Government also framed "The National Textile Policy 2000". This policy aims at

negating the existing problems and increasing the foreign exchange earnings to the tune

of US$ 50 billion by the year 2010. It includes rational road-maps for the development

and promotion of all the sectors involved directly or indirectly with the textile industry

of India. Further, the policy also envisages bringing the unorganized decentralized textile

sector (which accounts for 76% of textile production) at par with the organized mill

sector. Furthermore, the policy also aims at introducing modern and efficient

manufacturing machineries and techniques in the Indian textile sector.

“The National Textile Policy” is discussed in detail below: The National Textile Policy was formulated keeping in mind the following objectives:

Development of the textile sector in India in order to nurture and maintain its position in the

global arena as the leading manufacturer and exporter of clothing.

Maintenance of a leading position in the domestic market by doing away with import

penetration.

Injecting competitive spirit by the liberalisation of stringent controls.

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Encouraging Foreign Direct Investment as well as research and development in this sector.

Stressing on the diversification of production and its upgradation taking into consideration

the environmental concerns.

Development of a firm multi-fibre base along with the skill of the weavers and the craftsmen.

Such goals are set to meet the following targets:

The size of textile and apparel exports must reach a level of US $50 billion by the year 2010.

The Technology Upgradation Fund Scheme should be implemented in a strict manner.

The garments industry should be removed from the list of the small scale industry sector.

The handloom industry should be boosted and encouraged to enter into foreign ventures so

as to compete globally.

The National Textile Policy has also formulated rules pertaining to certain specific sectors. Some

of the most important items in the agenda happens to be the availability and productivity along

with the quality of the raw materials. Special care is also taken to curb the fluctuating price of

raw materials. Steps have also been taken to raise silk to the international standard.

Preamble

To comprehend the purpose of textile industry that is to provide one the most basic needs of

the people and promote its sustained growth to improve the quality of life.

To acknowledge textile industry as a self-reliant industry, from producing raw materials to

delivery of finished products; and its major contribution to the economy of the country.

To understand its immense potentiality for creating employment opportunities in significant

sectors like agriculture, industry, organized sector, decentralized sector, urban areas and rural

areas, specifically for women and deprived.

To recognize the Textile Policy of 1985, which boosted the annual growth rate of cloth

production by 7.13%, export of textile by 13.32% and per capita availability of fabrics by 3.6%.

To analyze the issues and problems of textile industry and the guidelines provided by the

expert committee set up for this specific purpose

To give a different specification to the objectives and thrust areas of textile industry

To produce good quality cloth for fulfilling the demands of the people with reasonable prices

and

To maintain a competitive global market

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Thrust areas

Government of India is trying to promote textile industry by giving emphasis on several areas of

textile, which are as below:

Innovative marketing strategies

Diversification of product

Enhancement of textile oriented technology

Quality awareness

Intensifying raw materials

Growth of productivity

Increase in exports

Financing arrangements

Creating employment opportunities

Human Resource Development

Efforts

Government of India has set some targets to intensify and promote textile industry. To

materialize these targets, efforts are being made, which are as follows:

Textile and apparel exports will reach the US $ 50 billion mark by 2010

All manufacturing segments of textile industry will come under TUFS ( Technology

Upgradation Fund Scheme)

Increase the quality and productivity of cotton. The target is to increase 50% productivity and

maintain the quality to international standards

Establish the Technology Mission on jute with an objective to increase cotton productivity of

the country

Encourage private organization to provide financial support for the textile industry

Promote private sectors for establishing a world class textile industry

Encourage handloom industry for producing value added items

Encourage private sectors to set up a world class textile industry comprising various textile

processing units in different parts of India

Regenerate functions of the TRA (Textile Research Associations) to stress on research works

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Government policy on cotton and man-made fibre

One of the principal targets of the government policy is to enhance the quality and production

of cotton and man-made fibre. Ministry of Agriculture, Ministry of Textiles, cotton growing

states are primarily responsible for implementing this target. However, increasing the excise

duty from 4% to 8% on man-made fibre (as done in Budget 2009-10) will only help in rising

prices, fall in demand and ultimately, production.

Other thrust areas

Information Technology

Information technology plays a significant role behind the development of textile industry in

India. IT (Information Technology) can promote to establish a sound commercial network for

the textile industry to prosper.

Human Resource Development

Effective utilization of human resource can strengthen this textile industry to a large extent.

Government of India has adopted some effective policies to properly utilize the manpower of

the country in favor of the textile industry.

Financing arrangement

Government of India is also trying to encourage talented Indian designers and technologists to

work for Indian textile industry and accordingly government is setting up venture capital fund in

collaboration with financial establishments.

Apart from the above, Government has also initiated legislative Acts

Some of the major acts relating to textile industry include:

Central Silk Board Act, 1948

The Textiles Committee Act, 1963

The Handlooms Act, 1985

Cotton Control Order, 1986

The Textile Undertakings Act, 1995 Government of India is trying to provide all the relevant

facilities for the textile industry to utilize it's full potential and achieve the target.

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The Indian Government has further taken some measures to support the industry in the current economic slowdown. They are as follows: 1. Modernisation of Technology

� Technology Upgradation Fund Scheme has been extended till March 2010.

� With Rs. 57,878 crore of disbursement as on December, 2008, TUFS has facilitated

technological upgradation and expansion in the T&C industry.

� Additional funds of Rs.2050 crores have been sanctioned for TUFS in the current budget.

2. Raw material for Spinning Industry � Import duty on cotton fibre has been reduced to zero.

3. Sales Tax � Central Sales Tax has been reduced from 3% to 2%.

4. Excise Duty � CENVAT applicable to non-petroleum products has been reduced by 4%.

� CENVAT on cotton textiles and textile articles has been reduced from 4% to zero as a

measure to stimulate the economy in the context of global economic slowdown.

5. Export Incentives � 2% duty credit scrip under Market-Linked Focus Product Scheme for garment exports

(both knitted and woven) to the U.S and EU27 from 1.4.2009 to 30.9.2009. The scrip,

which is a cash substitute, can be used by exporters to pay for duties on imported

inputs.

� Relaxations in the Duty Entitlement Pass book scheme (DEPB) without waiting for

realization of export proceeds.

� Extension of export obligation period against advance authorisation.

� Reinstating interest subvention of 2% for export credit and extending it till March 2010.

6. Service tax � Service tax on foreign agents’ commission will be refunded upto 10% of FOB value of

exports instead of 2% allowed earlier.

� Refund of Service Tax on output services will be available to units availing duty

drawback also.

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10. ANALYSIS OF THE NEEDS OF THE SECTOR AND RECOMMENDATIONS

A primary (first hand) survey was conducted by ICRA Management Consulting Services Limited

to study the impact of Economic Slowdown on Indian Textile & Clothing Industry. Findings from

the survey are as follows:

� ‘Less price realisation’ was ranked as the most severe issue faced in both domestic market

and the identified global markets.

� ‘Payment delay’ was ranked as the second most severe issue faced in the domestic

markets followed by ‘Shift of order to competing countries’ and ‘Cancellation of orders’.

� In case of global markets ‘Shift of orders to competing countries because of price’ was

ranked as the second most severe issue followed by ‘Order postponement’.

� Majority of the domestic manufacturers ranked ‘Lack of power’ as the most severe

business constraint.

� ‘Shortage of skilled labour’ and ‘working capital issues’ was ranked as the second most

severe business constraints by the industry.

� ‘High interest rates’ and ‘delay in refund’ were also mentioned as the key business

constraints impacting the industry.

Analysis reveals that the Indian T&C industry is facing issues at two broad levels:

� Current issues, arising because of recent economic slowdown

• Decline in demand from global markets

o Lack of cost competitiveness in majority of T&C products as compared to China,


o High dependence of T&C trade on EU27 and US markets

• Liquidity crisis

o Delay in disbursement of TUFS assistance and other assistance

o High working capital interest

� Issues, affecting long term growth of industry

• Significant dependence on Cotton products

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• Lack of skilled labour

The major impediments to the growth of Indian T&C industry are:

� Lack of cost competitiveness in majority of T&C products as compared to China,


� Delay in disbursement of TUFS assistance and other assistance

� High working capital interest

� High dependence on cotton products

� Lack of availability of skilled labour

� Stringent labour laws


Strategic interventions are required by both the Government and the industry to ensure growth

of the Indian T&C industry.

10.1 FACILITATION REQUIRED FROM THE GOVERNMENT

We discuss each of the major impediments in detail and recommend solutions to minimize /

eradicate them:

� Cost competitiveness

The major factors that have caused cost disadvantage in T&C industry are:

• High power cost

• High labour cost

• Anomalies in taxes and duties

• High transaction cost

• High import tariffs by global markets

Government should take steps to reduce the cost disadvantage of T&C manufacturers which is

created on account of unfavorable government policies.

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Captive power generation should be supported in the regions suffering from acute power shortage

Power cost in India is on an average around 40% higher than that in the analysed competing

countries. Moreover, the Indian T&C industry suffers from shortage of power for instance Tamil

Nadu which accounts for around 40% of India’s spinning activity and over 25% of total T&C

activities has a declared power cut of 40%. Long term steps are being taken by the government

to reduce the power shortage however, the industry needs a support during this crisis period.

Many T&C mills have their own captive power generation to meet their power requirement

because of non-availability of quality and adequate power. However, as per industry feedback,

captive power is two to three times costlier as compared to grid power. Liquid Fuels such as

furnace oil and diesel used for captive power generation attract 10% basic customs duty and

14% excise duty; this coupled with high fuel prices makes the captive power costly.

Government should support captive power generation in the regions of acute power shortage

by allowing exemption of customs and excise duty paid for the liquid fuels that are used for

captive power generation.

Government should increase labour flexibility especially for the labour intensive sectors of T&C industry

Indian Garment and Made-ups industry suffers from labour cost disadvantage as compared to

the key competitors i.e. Bangladesh, Vietnam and Sri Lanka. To make this industry competitive,

measures should be taken by the Government to increase labour flexibility by:

Extending labour working hours

Allowing Contract labour

Government should consider routing the National Rural Employment Guarantee

Programme (NREGA) through the T&C industry; in this regard, the industry can

commit employment guarantee on the lines of the NREGA.

Relaxing the norms of Industrial Disputes Act, 1947 with regards the number of

workers.

Anomalies in taxes and duties should be streamlined

Taxes and duties charged by the State Governments and local bodies are not refunded to the

T&C manufacturers and exporters. Moreover, the duty drawback rates fixed by the Ministry of

Finance are not sufficient to neutralize the incidence of all the duties paid by the exporters. In

addition, there is delay in disbursal of duty drawback claims to the level of 40 – 60 days which

affects the cash flow of the companies. Government should take the following steps to

overcome this anomaly:

Refund State level taxes and duties

Till systematic corrections in the taxation policy are implemented, central government

should devise a mechanism to refund the state level taxes and duties to the T&C

exporters, the incidence of which is on an average 4%* of the ex-factory price.

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*Government levies an additional customs duty of 4% on imported goods to countervail the

sales tax, value added tax, local taxes and other charges leviable on sale or purchase or

transportation of like goods in India. Similarly a refund of 4%, equivalent to the incidence of

state level taxes and duties should be provided to the T&C exporters to bring them at par with

the global players.

Revise duty drawback rates and expedite the drawback claim disbursal

Government should revise duty drawback rates to completely neutralize the incidence

of all duties paid.

The disbursal of duty drawback claims should be expedited.

Other interventions required from the government

Negotiate better trade terms with major global T&C markets

Indian T&C trade faces comparative disadvantage on account of free market access available to

Bangladesh, Sri Lanka and Turkey. Ministry of Commerce should negotiate better trade terms

with the global T&C markets including Japan.

Streamline EXIM procedures to reduce the transaction costs

Indian EXIM processes involve more documentary procedures as compared to that in analysed

competing countries which results in comparatively higher transaction costs. Documentary

procedures at the ports should be simplified to reduce the transaction costs incurred by the

exporters. Efforts should be made to increase port capacity and to improve rail/road

connectivity to ports.

� TUFS assistance

Government should take immediate steps to clear the backlog of TUFS as well as to revise the TUFS procedures for future applications

Delay in disbursement of TUFS assistance results in significant additional cost. Moreover, for

future loans under TUFS the mills should be permitted to pay interest net of interest

compensation to the banks; Government should arrange to remit the interest compensation

amounts directly to banks concerned. Presently, the stand is that, first the companies shall pay

the interest amount in full and the Government will subsequently reimburse the TUFS

assistance. This has led to huge backlogs in reimbursements which has affected the liquidity of

the borrowing companies. Also, it would be beneficial to extend the TUFS scheme until 2012 as

it has shown effective results since its introduction.

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� Working capital

Government should take measures to overcome the working capital related problems of the industry

T&C manufacturers pay working capital interest at the rate of 11 – 13%. Working capital

requirement of the Cotton textile industry has increased on account of hike in cotton prices.

Government should make provision to provide working capital loan for cotton on terms

applicable for agriculture by reducing interest rate for working capital loan to 7%. Moreover,

considering the liquidity related problems of the T&C industry, the margin money for working

capital loan for cotton should be reduced to 10% (from the current 25%) and the duration of

such loan should be extended to 9 months.

� Dependence on Cotton fibre

Unlike World T&C industry, Indian T&C industry is cotton dominated with Cotton fibre

accounting for 62% of total fibre consumption (2007) and cotton T&C accounting for

substantially higher share of the total T&C exports of India. Measures should be taken by the

Government to promote the domestic consumption of manmade fibres.

Comprehensive Fibre Policy

A Comprehensive Fibre Policy should be formulated in order to

Reduce the dependence of Indian T&C industry on Cotton, which is an agricultural product

Ensure availability of raw material (especially cotton and polyester) to the domestic T&C

industry at competitive prices.

Till a fibre policy is formulated, Government should support the industry to reduce its

dependence on cotton by the following measures:

Abolish import duty on manmade fibres and their intermediates

Manmade fibres attract a 5% import duty as against cotton fibre on which the import duty has

been recently reduced to zero. Moreover, polyester fibre intermediates attract a basic import

duty of 5%. Import duty on polyester (and its intermediates), which is an important raw

material for the T&C industry, affects its usage. Government should abolish the import duty on

polyester fibre and its intermediates; this will aid reduction of polyester prices thereby

increasing its share in total fibre consumption.

Policy framework should promote export of value added products rather than fibres

Indian T&C industry should strive to export value added products since, this would result in

more employment generation in the country. Government should consider withdrawing the

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export incentive for various fibres especially when the domestic industry is suffering from high

raw material prices.

In addition to above, the following measures are required to ensure sustained growth of Indian

T&C industry:

Joint Working Group with representation from Government and T&C industry, should be formulated to periodically review the performance of T&C industry

Joint Working Group (JWG) comprising of members from the Ministry of Textiles, the Ministry

of Finance, the Ministry of Commerce and members from T&C industry associations, should be

formulated to periodically review the performance of T&C industry. The Working Group should

periodically review the dynamics of the T&C export markets and examine the factors affecting

the competitiveness of the T&C industry. The findings of the Working Group should support the

Government to make necessary policy interventions in order to ensure long term growth of the

industry.

Fabric and Garment sectors of the industry should improve cost competitiveness by upgrading technology and achieving economies of scale

Weaving, Processing and Garment sectors of the industry are fragmented thus, lacking

economies of scale. Moreover, of the total TUFS disbursement up to December 2008, weaving

industry accounted for only 7.7% and Garment industry accounted for only 5% as against 34%

of Spinning industry. This indicates that the sectors have not undergone significant technology

up-gradation. Fabric industry and Garment industry should undertake technology up gradation

as well as achieve economies of scale to become cost competitive. The government may assist

large-scale textile enterprises by paying 10% of the total purchase cost of technologically new

advanced machines.

Garment industry should explore new markets to reduce trade dependence on EU27 and US

Indian garment exports have significant dependence on EU27 and US; EU27 accounts for 47%

share of India’s total garment export value whereas US accounts for 29%. Though India’s trade

dependence on EU27 and US is in line with the World garment trade, Indian garment exports to

the other leading garment importers are comparatively less.

Japan which is the third largest garment importer with a share of 6.7% in world clothing imports

in 2007, accounts for only 1.1% of India’s total garment export value. Similarly, Russia which is

the fifth largest garment importer with a share of 4.1% in world clothing imports in 2007,

accounts for only 0.6% of India's total garment export value. Efforts should be made by the

industry to diversify the garment export market by developing business in these markets to

reduce its trade dependence on the EU27 and US.

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� Industry associations should ensure the availability of skilled labour for the industry

Non-availability of trained labour is one of the primary business constraints mentioned by the

industry. The initial cost of training is high which acts as a deterrent to in-house training

initiatives by the industry because of high chances of loosing the trained man power.

Associations should establish Skill Development centres to ensure availability of skilled labour

to the industry. The Skill Development centres should run certified training courses focusing on

the specific skills required by the industry. Registration of skilled workers should be done at the

Skill Development centres to maintain a databank of skilled labour. Apart from this, starting

new courses like Textile Manufacturing and Textile Technology at ITIs and Engineering Institutes

will help gain technical knowledge.

� Stringent Labour laws India ranks highest on the ‘Difficulty of Firing index’ amongst the key competing countries.

India also ranks high on the ‘Rigidity of Employment index’ amongst the key competing

countries.

This indicates the high rigidity in labour laws in the country.

T&C industry comes under the purview of Contract Labour Act, 1970 which prohibits contract labour for the work that is perennial in nature

Contract Labour Act, 1970 prohibits contract labour for the work that is perennial in nature,

incidental to and necessary for the work of the factory and is being done in most concerns

through regular workmen.

The Act applies to every establishment in which 20 or more workmen are employed or were

employed on any day on the preceding 12 months as contract labour. Though,it does not apply

to establishments where the work performed is of intermittent or seasonal nature, such an

establishment will be covered by the Act if the work performed is more than 120 days and 60

days in a year respectively.

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T&C industry comes under the purview of Contract Labour Act. T&C industry, especially the

Export Oriented Units have to deal with highly uncertain market dynamics and thus, need the

flexibility of contract labour to face stiff competition from other countries. The recent economic

turmoil has made the industry more vulnerable. Competing countries like China and Bangladesh

do not have such restrictions on Contract labour in Textiles.

The Factories Act, 1948 poses restrictions on the maximum working hours which further affects the competitiveness of industry

The act stipulates that no adult worker shall be required or allowed to work in a factory for

more than forty-eight hours in any week. Also, women workers are not to be employed in night

shifts on account of safety issues.

The restrictive working hours are detrimental to the T&C industry as it restricts the ability of the

units to meet the peak season demand. The problem is compounded on account of restrictions

on contract labour.

Indian Labour laws introduce unfair discrimination against large companies

Indian Labour laws introduce unfair discrimination amongst large companies and the smaller

ones and thus, are partly responsible for lack of economies of scale and poor competitiveness

of Indian T&C industry.

Units employing over 100 people currently fall under the purview of the Industrial Disputes Act,

1947 (IDA, 1947). The Act stipulates that employers must obtain necessary regulatory approvals

for lay-offs. As a result, Indian manufacturers often setup several plants instead of a single large

one.

Increasing labour flexibility is the only solution.

* With the condition that T&C units provide employment to contract labourers for a fixed tenure

(say 150 days) as well as provide protection of rights of these labourers in terms of health,

safety, welfare, social security, etc.

^ If labour flexibility is permitted, T&C industry will be able to provide a longer employment

period and higher wage rate as compared to that promised under NREGA.

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As discussed earlier, while discussing the export-import situation, that although the total

imports of the US, EU27 and Japan has declined sharply, the exports of the competing countries

like China, Vietnam and Bangladesh to these major economies has risen significantly as

compared to India. The conclusion is that, these exports have risen at the cost of Indian

exports. It is needed that the Indian T&C industry finds new markets for its products and

reduces the high dependence on EU27 and the US markets.

� TUFS need to made co-terminus with the XIth plan � Industry depends heavily on expensive imported machinery (over 70% of the demand)

and incentive under TUFS is essential to offset the cost.

� Declining availability of second hand machines is putting up investment requirement for

an equivalent capacity, thereby making it difficult for small entrepreneurs to scale up.

� Fragmentation of fabric, processing, garmenting and made-ups industry – need to provide

incentive to small entrepreneurs to scale-up and integrate.

� The industry has witnessed an increase in production despite modest rise in capacities,

thereby indicating rising modernization and growing productivity.

� In order that such improvements continue, TUFS need to be made co-terminus with the

XIth plan.

� Further, following are the areas that requires support from the Government, in collaboration with the industry, in order to facilitate capital investment and enable the sector to become globally competitive –

o Strengthening the domestic textile machinery manufacturing base

Need to bring textile machinery sector under the Ministry of Textiles to enable focus and

alignment with objectives of the textile industry.

India imports over 70% of its machinery requirement, as domestic capacity and

technology is inadequate to meet industry’s requirement. Poor historical returns in the

sector have resulted in the machinery industry lagging in R&D spend and capacity

expansion.

Given the massive investment needs of the industry, and also in the absence of textile

machinery base, it is essential to encourage FDIs/JV projects to create machinery

manufacturing facilities in India like in China. As part of these efforts, special emphasis

should be laid on garment machinery industry, which is virtually non-existent in the

country.

Developing a vibrant textile machinery manufacturing base in India is critical as

indigenously manufactured goods would help lower the capital cost for textile & clothing

manufacturers, shorten lead times for equipment delivery, lower the cost of repairs &

maintenance through indigenization and help develop products that meet the

requirements of Indian companies. These companies could also serve as manufacturing

hubs to cater to their global requirements, especially in South and South east Asia,

resulting in foreign exchange for the country.

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o Continuation of the Scheme for Integrated Textile Park (SITP) beyond 25 parks SITP scheme needs to be extended in its present format to cover parks beyond the stated

25 and made co-terminus with the XIth plan to enable units to benefit from common

infrastructure facilities.

In order to boost investments in these parks, as well as to enable units in these parks to

become competitive, labour law flexibility should be introduced on a priority basis.

o Attracting FDI into the sector

Ministry of Textiles need to engage in selective textiles diplomacy in order to secure

investments – promote FDI (textile industry has poor FDI profile), convince overseas

companies / buyers to forge alliances with Indian companies, invest in fresh capacities and

consortium formation.

THERE ARE OTHER FISCAL & NON-FISCAL ISSUES THAT REQUIRES ATTENTION: I. FISCAL DUTIES (a) Excise Duty and Service Tax (i) Man-made Fibres Present Position: Excise duty on manmade fibre and yarn has been increased from 4% to 8% in

the Budget 2009-10.

Recommendation: Excise duty on all man-made fibres may be abolished.

Justification: Among major textile producing countries, man-made fibre based textile products

have the lowest share in our industry. Uncompetitive fibre prices in the domestic market are

the primary reason for this. Manmade fibres and textiles attract an effective excise duty of

4.12% as compared to zero excise duty on cotton. Moreover, polyester intermediate MEG

attracts a higher excise duty (8.24%) as compared to polyester resulting in accumulation of

CENVAT credit.

Removal of duties would encourage increased utilisation of man-made fibres and this will help

in correcting the mismatch in the pattern of fibre consumption between the domestic and

global textile industries.

(ii) Accumulated Cenvat Credit Present Position: Cenvat credit continues to accumulate with T&C units.

Recommendation: Refund all accumulated cenvat credit of T&C units. Rule 5 of the Cenvat

Credit rules has to be amended suitably in order to facilitate refund of accumulated cenvat

credit in T&C units.

Justification: Since most of the textile and clothing units are in the optional route for excise

duty, cenvat credit accumulated by them cannot be utilized. In the case of cotton textile

products, excise duty has now been reduced to zero and for man-made fibre products to 4%.

Huge cenvat credits were accumulating with manufacturers of man-made fibre products even

earlier, since fibres had mandatory duty. With reduction in excise duty for textile products, the

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possibility of using such credit for payment of excise duty has reduced further for man-made

fibre products and the problem has also spread to producers of cotton textiles. Accumulated

cenvat credit for some of the units in the textiles industry runs into crores, eroding their

working capital substantially.

(iii) Textile Machinery, Components and Spares Present Position: 4-8% excise duty on machinery and 8% on all components and spares.

Recommendation: Reduce duty to 4% for all textile machinery, components and spares.

Justification: We have a nascent textile machinery industry which is currently in a position to

cater to only 30% of the machinery requirements of our textile industry. For garments, there

are practically no domestic machinery supplies. For machines which are currently at 4% duty,

there is an inverted duty structure, since their components and spares attract 8% duty.

Stipulating a rate of 4% across the board for machines, components and spares will remove this

anomaly and assist in the growth of the machinery industry.

(v) Terminal Excise Duty Present position: Excise duty is collected when domestic machines are sold against EPCG

licenses and subsequently refunded when funds are received from Government.

Recommendation: Excise duty on machinery procured from the domestic market against EPCG

licenses may be exempted.

Justification: The present procedure only results in avoidable delay.

(vi) Service Tax Present Position: Service Tax on many of the pre production services is taken into account

while calculating drawback rates. Many post production services have been notified for refund

of service tax to exporters.

Recommendation: Exempt T&C industry from all service taxes

Justification: Services being taken into account for drawback calculations and services notified

for refund do not cover all the services. In the case of refund, even service taxes on the notified

services are not always getting refunded because of procedural complications. There is delay in

reimbursements even where refunds are available. Exemption is viable, feasible and therefore

desirable.

(b) Customs Duty (i) Man-made Fibres Present Position: Basic customs duty of 5% charged.

Recommendation: Abolish customs duty on all man-made fibres.

Justification: Prices of man-made fibres in India are higher than global prices, since domestic

producers sell mostly at import parity prices. Abolition of customs duty would make imports

more viable and will encourage domestic producers to reduce prices and thus make man-made

fibre based textile products more competitive in global markets. This will help in establishing a

larger base for man-made fibre textiles and clothing industry in the country. Charging customs

duty on man-made fibres is an anomaly, when cotton is allowed for import at zero duty.

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(iii) Textile Machinery Present Position: Basic Customs Duties ranging from 5% to 10% are applicable.

Recommendation: Abolish customs duty on all machinery for textiles and clothing, except for

spindles.

Justification: Currently domestic textile machinery industry is able to supply machinery of

contemporary technology only in the case of spindles. Until domestic industry is able to

produce machinery of acceptable quality at affordable prices, customs duty on other textile

machinery needs to be abolished in order to ensure proper supply of technology to the textile

industry.

(iv) Special Additional duty (SAD) Present Position: A special additional duty of 4 percent is charged on fibres and many other

products, towards state duties levied on similar domestic products.

Recommendation: Exempt fibres and all inputs for T&C industry from SAD.

Justification: Though SAD is cenvatable, this facility is practically not available to T&C units,

since they are in the exemption route for excise duty.

(c) Corporate Tax (i) Minimum Alternate Tax Present Position: 15% of book profit is charged, even if company has not made any taxable

profits.

Recommendation: Provide exemption for T&C industry.

Justification: Most T&C units are now making losses or negligible profits and therefore will not

be able to use MAT credit entitlement.

(ii) Dividend Distribution Tax Present Position: 16.995% is charged (15% tax + 10% SC+3% EC)

Recommendation: Exempt T&C Industry

Justification: With global recession and slowdown in domestic economy, financial position of

T&C units is extremely weak and dividend distribution tax would further erode the financial

position of the units.

(iii) Surcharge Present Position: 10% for all Corporate Taxes

Recommendation: Exempt T&C industry

Justification: In the present financial position of T&C units, this exemption will help their efforts

for survival.

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II. BANKING (i) Rescheduling of Term Loans Present Position: Rescheduling being allowed at discretion of banks on case-to-case basis

mostly for less than one year, even when allowed.

Recommendation: (a) Rescheduling of loans may be allowed for all T&C units by permitting deferment of

repayment of principal amounts for 2 years on the condition that interest will continued to be

paid during this period. RBI can issue necessary directions in this regard.

(b) Under TUFS, extension of repayment period may be permitted beyond the currently

stipulated 10 year period, in order to accommodate the rescheduling.

Justification: Banks are overcautious in case-to-case examination of proposals for rescheduling.

Unless a mandatory directive is given, rescheduling will only happen in very few cases and for

very short periods. In the absence of rescheduling, most term loans in the T&C industry would

turn into NPAs, creating serious problems both for the industry and for the banking sector.

(ii) Interest Subvention for Export Credit Present Position: 2% subvention available upto 31st March 2010 (extended from Sep 30, 2009

to Mar 31, 2009 in the Budget 2009-10).

Recommendation: 4% subvention to be allowed until March 2010.

Justification: Interest rates in India are higher than those in most competing countries. 4%

subvention had been announced in 2007 for the period upto March 31, 2009. This was

withdrawn from 1st October 2008. Subsequently 2% subvention was reintroduced in the

stimulus package for the period upto 31st March 2009 and later extended to 30th September

2009. The entire 4% interest subvention needs to be reinstated w.e.f. 1st October 2008 and

continued upto 31st March 2010 in order to arrest the current decline in exports in the context

of the global economic slowdown.

(iii) Working Capital for Cotton Present Position: 3-6 Months

Recommendation: 9 Months

Justification: The over 40% increase in MSPs introduced for the current cotton year has pushed

up domestic cotton prices and deceleration in profitability has seriously affected the ability of

Indian mills to buy cotton. In this context, these facilities are necessary for mills for purchasing

and stocking of cotton. This will ensure prompt cotton purchase and higher consumption and

will, therefore, be helpful to farmers also.

(iv) Corporate Debt Restructuring Present Position: The benefit of reduction in PLR is not fully passed on by banks to the units

seeking CDR. Other benefits are also denied in most cases.

Recommendation: The CDR Cell should take a liberal approach to the proposals submitted to

them after assessing the technological feasibility report of the unit. They should give

concessions based on the sustainable debt of the individual units and take a pragmatic

approach with regard to interest rates and infusion of funds by promoters.

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Justification: RBI guidelines require promoters to contribute 15% of the sacrifice made by the

banks; but banks are pressurizing the promoters to bring in 20-30% of sacrifice amount as

promoters’ contribution. Banks are also insisting on pledging of 30% of the share capital by the

promoters. These measures adopted by the banks are extremely harsh and practically negate

the benefits of CDR.

(v) Delayed Government Dues Present Position: Accumulated Cenvat credit and delays in payment of TUFS assistance, refund

of TED, rebate of excise on exports etc. are eating into the scarce working capital of T&C units.

Recommendation: Banks may be asked to consider all delayed dues from government as

receivables for assessment of working capital for T&C units.

Justification: There is no uncertainty in payments due from government. The problem is only of

delay. Treating such delayed payments as receivables will improve the working capital position

of the units and reduce the adverse impact of the delays to some extent.

III. OTHERS (i) Export Incentives for Cotton Present Position: 5% incentive under Vishesh Krishi and Gram Udyog Yojana (VKGUY) effective

from 1st April 2008 to 30th June 2009.

Recommendation: Withdraw the incentive w.e.f. from 1st April 2008.

Justification: Cotton is a primary raw material for the textile value chain. Stock-to-use ratio for

cotton in India is less than half of global standards which means that we have no exportable

surplus. In this situation, there is no justification for incentivising exports. Export incentive has

pushed up cotton prices in the domestic market making our cotton textiles even more

uncompetitive in global markets. It also transfers the benefits of the progress made by our

cotton sector to the textile industries of our competitors.

(iii) Wind Turbine Generators Present Position: Allowed only within 25% limit stipulated for other expenses under TUFS.

Recommendation: Permit without restriction

Justification: Power shortage is a major problem in most textiles producing States. In States

where wind energy is available, this can be an effective alternative. This needs to be

encouraged by extending TUFS assistance to wind energy generators used by T&C industry,

without restrictions.

(iv) Hank Yarn Obligation Present Position: 40% of yarn production to be packed on hanks by all spinning mills, except in

the case of hosiery yarn and export production.

Recommendation: Abolish Hank Yarn Obligation

Justification: With drastic reduction in handloom fabric production, there is a decline in

demand. Hank yarn obligation forces mills to produce excess hank yarn, without any guarantee

that they will be able to sell it. Mills will pack yarn on hanks to cater to available demand, for

commercial reasons. Forcing mills to produce hank yarn beyond the available demand does not

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help anybody and harms spinners seriously. Reduction of Hank Yarn Obligation from 50% to

40% a few years back has had no negative impact on the market. So will be the case if the

obligation is abolished.

(v) MSP for Cotton Present Position: More than 40% increase in MSP for cotton year 2008-09 has pushed the

cotton economy to a crisis.

Recommendation: Withdraw MSP for Cotton or dispose of procured cotton promptly at

international prices.

Justification: Unlike food items, cotton is an industrial raw material. In recent years, market

prices have been providing sufficient remuneration to cotton farmers. Unreasonable increase in

MSPs has created problems for everybody in the cotton economy including cotton farmers who

have not been able to sell even half of the cotton at the declared MSPs. MSPs have resulted in

our cotton textile products being out-priced in global markets in a situation where international

markets are already in turmoil. If it is considered necessary to provide subsidies to cotton

farmers, this should be from Government funds. Cross subsidy through the textile industry will

be against the interest of the economy as a whole.

(vi) Drawback Rates Present Position: Reduced substantially in September 2008.

Recommendation: Restore pre reduction rates. Take fuel duties into account for calculation of

Draw Back rates.

Justification: Drawback rates and DEPB rates were reduced together in September 2008. As

part of the stimulus package, DEPB rates were completely restored. For the same reason,

drawback rates should also be restored in full. Restoration of DEPB Rates was not based on

examination of any fresh cost data; restoration of drawback rates should also be on similar

lines. Current drawback rates and other export incentives for textile exports are substantially

lower when compared with what is available in our major competing countries and this is

affecting our export performance significantly. Fuel duties and infrastructural disabilities also

need to be taken into account while determining Draw Back rates. In the T&C industry, most

exporters use Draw Back rather than DEPB.

(vii) State Level Duties Present Position: Not refunded to exporters either by Central Government or by State

Governments.

Recommendation: May be refunded by Central Government

Justification: CST, electricity duty, mandi tax, entry tax and other local as well as state level

duties and taxes amount to 4-6% of FOB value of export in various textiles producing States. All

taxes are admittedly refundable to exporters. Until GST is established, it is not practicable for

State Governments to refund these taxes and duties because of the involvement of multiple

States in textile value chain. Therefore, the only feasible alternative is that the Central

Government should refund these and then reduce the amounts from the allocation to State

Governments from the central pool, if necessary.

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10.2 EFFORTS REQUIRED BY THE FIRMS IN THE INDUSTRY

Implementing revival plans would call for strong organization-wide capabilities. It will also be a

function of structural issues impacting competitiveness in individual product segments.

Source: CITI Vision Statement report 2007-2012

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Focus on increasing competitiveness:

� Control over supply chain – working closing with suppliers and customers to reduce the

working capital cycle to release funds for capital investment.

� Working closely with customers to understand their needs, reduce inventories and design

innovation.

� Offering innovative product designs to customers before they first ask for it.

� Investment in Information Technology – Develop a database of designs and to store case

histories of each order (design supplied, raw material supplier for manufacturing that

product, price at which raw material supplied, consumption norms, duty rates, time taken

for goods to reach buyer-gate, average realization on sales, cost of mfg. the order, etc.)

Benefits:

� Strong in-house knowledge database to ensure quick order turn-around, next time

when a similar order is obtained.

� Helps develop competencies in catering to needs of other buyers.

� Data points such as “Cost to Supply” and “Unit realization” would also help the

manufacturer to identify critical areas where costs may be reduced and productivity

improved. This would be important from the perspective of keeping up with falling unit

realizations in quota-free era and maintaining / increasing profit margins.

� Obtaining Certifications – Okotex 100/1000, SA 8000, ISO 9000/14000 to overcome market

barriers.

� Buyers to focus on ‘Companies’ rather than ‘Countries’. Hence, scaling and integrating

operations is important.

� Increasing share of branded exports from the country and thereby individually help

promote a “Made in India” brand to connote quality and global best practices.

The agenda for the industry firms should be to drive competiveness and customer acceptance

through focus on strengthening supply chains, developing innovative designs, compliance with

certification requirements, brand promotion and acquiring scale.

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11. BUDGET 2009-10 IMPACT ON THE INDUSTRY Comments on the Impact of Budget 2009-10 on the Sector

COMMENT 1:

“Continuity, stability and prosperity, with inclusive growth and equitable development” is the

assumed mandate with which the Finance Minister has presented the budget for 2009-10, in

order to keep-up the expectations of rising young India.

From textile industry perspective, the request of the Ministry of Textiles of reviving the textile

industry with initiatives of short term (such as rationalisation of fiscal duty structure), medium

term (such as increasing momentum of Technology Upgradation Fund Scheme (TUFS), Scheme

for Integrated Textile Parks) and long term (such as macro initiatives of improvement on

infrastructure, labour and so on) seems to be partly addressed in the Budget proposals of 2009-

10.

The industry request of rationalisation of the fiscal structure is partly addressed for the cotton

textiles sector, wherein optional duty payment at the 4 percent ad valorem is being restored.

This restoration would enable manufacturers to avail and utilize CENVAT credit. In addition, the

tax holiday benefit for Export Oriented Units (EOUs) is extended to one more year upto March

31, 2011. However, the other demands of the industry such as exemption from levy of Service

tax, Customs duty under Section 3 (5) of Customs Tariff Act, tax-holiday on exports are not

addressed.

From medium term and long term perspective, the budget proposals in favour of the industry

includes; proposals to set up two more mega handloom clusters, one each in Tamil Nadu and

West Bengal, and one more powerloom mega cluster in Rajasthan, in addition to the two mega

handloom clusters at Varanasi and Sibsagar and two mega powerloom clusters at Erode and

Bhiwandi approved in the last budget. In addition, a major highlight of the proposals is a

substantial hike in the allocation for the TUFS for the sector. Due to inadequate allocations in

the past, there had been a backlog of more than one year in the disbursement of assistance

under the scheme.

Further, the procedural relaxation for exporter of goods, exempting Goods Transport Agents

and Commission Agents from the ambit of Service tax and dispensing with Pre-audit

requirements for claiming refund of Service tax on specified list of services is one of the

reformatory steps and needs to be welcomed. However, on a long term, the request of the

industry to lay down a plan for implementation of a comprehensive Goods and Service tax

(GST) that would eliminate multiple taxes and simplify the procedures, seems lacking initiative

and the same would require immediate attention and action of the FM.

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In addition to the above, the following are some of the other budget proposals impacting textile

sector:

Increase in the rate of excise duty from 4% to 8% on manmade fiber and yarn;

Restoration of the optional levy excise duty of 8 % ad valorem beyond the fiber/ yarn stage;

Increase in the rate of optional excise duty from 4% to 8 % on textile items manufactured from

natural fibers other than cotton such as silk, wool, and so on.

Increase in the excise duty rate of some important textile intermediates from 4% to 8%.

Reduction in the basic customs duty from 15% to 10% on waste of wool and waste of cotton.

To sum-up, though the budget has some positive for textile sector, but it appears that the

majority of proposals are short term initiatives of rationalisation of fiscal structure, however

with lack of reforms in the tax administration and policy initiatives, whether these proposals

could contribute to the mandate of ‘continuity, stability and prosperity’ of textile sector in

global market is doubtful.

Source: http://www.moneycontrol.com/india/news/budget-sector-comment/budget-

impacttextile-sector-ey/405331

By: M Harisudhan is a senior tax professional with Ernst & Young, India.

COMMENT 2:

New Delhi, 6th

July, 2009 – Reacting to the Central Budget presented in Parliament by Finance

Minister, Shri Pranab Mukherjee on 6th July 2009, Shri R.K. Dalmia, Chairman, CITI has

welcomed the substantial increase in allocation for Technology Upgradation Fund Scheme. The

allocation has been increased from Rs.1090 crore last year to Rs.3140 crore this year. Because

of inadequate budget allocation, there has been a backlog of more than one year in

disbursements of TUFS assistance. Shri Dalmia stated that increase in budget provision would

be able to remedy this situation substantially.

Reintroduction of 4% optional excise duty for cotton textile products is also a welcome step

since this would allow textile companies to use cenvat credit on capital goods, dyes and

chemicals, packing materials etc.

Shri Dalmia also welcomed extension of 2% interest subvention on export credit from

September 2009 to March 2010 but added that the industry was expecting the subvention to

be restored to the original rate of 4% which has not been done. Abolition of fringe benefit tax

and commodity transaction tax are also welcome features of the Budget, Shri Dalmia added.

Referring to the negative proposals in the Budget, Shri Dalmia pointed out that mandatory

excise duty on man-made fibres, filaments and their raw materials has been increased from 4%

to 8% which would make fibres even more uncompetitive than they already are. Increase of

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MAT from 10% to 15% on book profit will also have a negative impact, though very few

companies in the textile sector are making profits right now. On service tax, certain services

have been exempted and in the other services, the procedure for reimbursement has been

simplified by introducing self-certification and certification by Chartered Accountants. Shri

Dalmia hoped that this would take one irritant out for the exporters.

While increased allocation for integrated textile parks and announcement of two mega parks

for handlooms and powerlooms are welcome, the benefit of these measures would take a

while to materialize.

Shri R.K. Dalmia stated that nothing has been done in the Budget to address the important

issues of power cost and working capital cost that the textile and clothing industry is facing.

Shri Dalmia stated that the Budget was a missed opportunity for Government to pull the export

oriented and labour intensive T&C industry out of its current crisis. The proposals are a mixed

bag of certain positive steps and certain negative steps and these do not have the potential to

bring the industry back to the path of growth in production as well as exports.

Source : http://www.citiindia.com/budget.asp

CONCLUSION The Indian Textile Industry has shown sagging performance over a long period. Its performance

is deteriorating by the day. Although Government has taken various policy initiatives to revive

the industry, they have not been effective to the extent expected. There are certain core issues

that require urgent attention of the government. These issues include difficulties such as power

shortages, infrastructural bottlenecks, stringent labour laws, high fiscal duties/taxes, etc.

The recommendations highlighted in the report are based on a thorough analysis of the sector

and its difficulties. These will cumulatively help revive the Indian Textile Industry if

implemented in full spirit.

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ANNEXURE – 1

SWOT ANALYSIS OF COMPETING COUNTRIES 1. TURKEY

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2. BANGLADESH

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3. CHINA

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4. VIETNAM

5. SRI LANKA

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ANNEXURE - 2

EXTRACT OF AN ARTICLE ORIGINALLY PUBLISHED IN TEXTILE REVIEW, MARCH 2009

Three Immediate Priorities for the Indian Textile Industry

Why is Indian textile industry lagging behind China? Why is the Indian garment/fashion industry

lagging behind Italy? We all have clear answers to these questions. They are: scale and quality.

Indian textile industry and for that matter the Indian manufacturing industry has to chase the

Chinese and Italian industry to achieve output and quality. Whereas, by properly utilizing the

available resources and engaging in collaborations with the Indian R&D sectors, incremental

innovations can be quickly achieved in the Indian textile industry. These small innovations may

help the Indian textile sector to catch-up with the Chinese and Italian industry. Here it is useful

to refer to a column in the widely read USA based Atlantic Monthly. James Fallows of the

Atlantic Monthly in one of his famous reports from China, "China Makes the World Takes, July

2007," admires the manufacturing power of China and attributes it to its abundant manpower

resource. Basically, the economy of scale in the manufacture of commodity products has given

China this competitive edge. So the situation which was rosier years back in China is changing,

when its competitive advantage i.e., low cost abundant labor is getting somewhat eroded due

growing labor power in other low wage countries. Today, 20 million migrant workers are jobless

in China who are returning back to their villages due to slump in export and loss of jobs. At the

same time, high labor wage countries which are known to produce designer products such as

Italy are struggling to keep their factories open. What is the best solution in this situation?

Those countries that offer a balance of good quality products at competitive prices will have

better opportunity. Also if emerging markets like India which could not only develop its industry

base to cater to export markets but also to serve its growing middle class domestic market will

be the winners in near long term.

To reach this milestone, the Indian textile industry should stand on three legs which are:

1. enhancement of its scale, which is horizontal and logical diversification;

2. improvement in the quality of its products

3. innovation. The future for the Indian textiles sector rests in these legs.

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WEBLIOGRAPHY:

� www.siyaram.com

� www.texmin.nic.in (Ministry of Textiles)

� http://business.mapsofindia.com/india-industry/textile.html

� CMIE (Data Bank)

� http://www.citiindia.com/budget.asp (Confederation of Indian Textile Industry)

� http://www.moneycontrol.com/india/news/budget-sector-comment/budget-

impacttextile-sector-ey/405331 � www.worldbank.org.in (World Bank)

� www.wernerinternational.com (Management Consultants To The World Textile, Apparel &

Fashion Industry) � www.cea.nic.in (Central Electricity Authority of India)

� http://textile.2456.com/eng/epub/n_details.asp?epubiid=4&id=4041

� http://www.citiindia.com/textiles_schemes.asp

� http://www.ibef.org/industry/textiles.aspx (Indian Brand Equity Foundation)

� http://www.txcindia.com/html/tufssub.htm

� www.economywatch.com/business-and.../textile-industry.html

BIBLIOGRAPHY: � Annual Report Of Siyaram Silk Mills Limited 2007-08

� Textile review, March 2009 Issue � CITI Vision Statement Report 2007-2012

� Compendium of Textile Statistics 2006, Office of Textile Commissioner

� Journal For Asia On Textile & Apparel (June 2009 Issue)

� ICRA Report, June 2009 on “Study on Impact of Economic slowdown on Indian Textile

and Clothing Industry”