Textile Sector: Expects Extension Of TUF

Textile has been the one Sector which was always seen as an employment generating sector. Considering the Same factors the industry has always asked benefit from the government that will help them grow and generate more employment. However despite the help and sops being announced by the government, the sector has mostly remained in the dire states in the past two years. Various factors like poor global macro economic environment has lead to lower demand from the US and European markets. Being an export oriented industry Textile has also suffered a blow. Add to that rising raw material prices the scenario worsened further. Even the competition from the neighboring countries like Pakistan and Bangladesh added to the woes. So all in all the scenario has not been good for the Textile sector. Impact of the same can be clearly seen from the fact that for the December 2011 quarter the bottomline of the sector as a whole declined significantly. Rather the profit making industry in December 2010 has been reduced to losses in December 2011.

Like always, owing to poor state of industry at current levels the Industry has good long wish list. Before we understand that, let’s see how the previous budget worked out for the textile sector.

What happened in 2011?

While the textile sector had many expectations from the Union Budget in 2011, it actually turned to be a negative one. This can be also seen from the fact that majority of the Textile counters have underperformed since the preceding budget. A mandatory excise duty of 10 per cent being levied on branded readymade garments (RMG) and textile mad-up was seen as a major negative factor. The reason being, it was under cenvat credit, yarn and fabric manufacturers had to pay increased excise duty of 5 per cent vis-à-vis an optional and concessional 4 per cent duty paid earlier. This actually resulted in margins pressure on the RMG manufacturers who were already struggling with unprecedented rise in input cost.

Few positives were there like higher budgetary allocation under Technology Up-gradation Scheme (TUFS) to Rs 2980 crore from Rs 2270 crore in the earlier budget.

Further The Finance Minister had proposed to provide Rs.3000 crore to NABARD, which will benefit about 300,000 handloom weavers. The reduction of Customs Duty on Raw Silk to 5 per cent from30 per cent was an added advantage.

Expectation from Union Budget 2012

• The Budget 2011-12 maintained the rate of excise duty on Polyester fibers and yarns and its raw material Purified Terephthelic Acid (PTA) and Mono Ethylene Glycol (MEG) to 10 per cant. Industry has requested that this matter be re-visited and the duties on fibers along with their raw materials be brought down to 4 per cent as before.
• Parity in excise duty between Cotton and Polyester. The Excise on cotton is 4 per cent while that of 10 per cent in Case of Polyester.
• Excise and customs duties on plant and machinery for captive power projects by Textile units up to 100 MW should be abolished.
• The Industry is expecting following structure for Customs duty.
  
  a) Polyester Value Chain

On the excise duty front, industry echo’s the Views that “Looking to growing consumption of Polyester and to increase the Per Capita Consumption of Polyester, it is desirable to have reduction in excise duty on all polyester fibres. However considering the roll out of GST, the duties on products at about 10 per cent (Polyester etc) may be increased to 12 per cent.

        b) Nylon Value Chain

What to expect?
We feel, though the expectations of the Textile sector are high, Government may keep the dry. With the deficit already rising there will not be much being announced on the excise duty front. Hence we do not expect any parity being brought in excise duty on polyester with cotton. There might be some positives if the GST comes up. The TUFS Scheme may be extended to other products. Here a leading textile player says “Looking to the rising Cotton prices, the demand for Polyester is likely to go up. Hence the TUFs scheme should consider extending its scope to include Continuous Polymerization / POY / FDY to encourage investment”.

As regards the other steps, the Government has recently banned the Cotton exports. This may be good for the Textile Industry; however the farmers are not happy after the bumper harvest and lower prices in the domestic markets. Further the Textile Industry has raw material inventory being carried at higher prices. So this is not going to help.

All in all we are not expecting any benefits for the Textile industry and expect the Sector to be a underperformer.

Performance of Textile Companies Since Last Budget