Debt-ridden textile industry finds no support strings from Pranab

Written by Neha Pal | Neha Pal | New Delhi | Updated: Mar 20 2012, 07:13am hrs
The textile industry, which has been grappling with losses for the second consecutive year, has got little succour from the Budget. The Technology Upgradation Fund Scheme hasnt been extended to the 12th Five Year Plan, dashing the hopes of the industry. The restructuring of loans for the debt-ridden sector has also not been announced.

While the Confederation of Indian Textile Industry (Citi) had requested for removal or reduction of the excise duty on man-made fibres, the duty has gone up from 10% to 12%. Citi chairman SV Arumugam said that though the increase is part of increase in the standard rate itself, it would make India's MMF-based textile industry less competitive. Arumugam said that abolition of the custom duties on automated shuttle-less looms and its parts is a welcome move since the weaving industry needs urgent modernisation. The concessional rate of 5% custom duty applicable to several other machines have been retained for new machines but increased to 7.5% for second-hand machines.

Even though Citis request for removing excise duty on branded garments and made-ups has not been incorporated in the Budget, the effective rate of excise duty for these products has been reduced from 4.5% to 3.6% of the sale price, which is seen as a welcome move.

Vardhman Group of Companies chairman SP Oswal told FE: This is the second consecutive year that is not looking favourable for the textile sector and if the situation remains like this, then the government will have to allow restructuring of loans for the industry to make available cheaper funds.

The number of companies defaulting in payments has gone up and are in talks with banks for restructuring their loans. Textile companies are in talks with State Bank of India CGM VG Kannan, Exim Bank CMD TCA Ranganathan and IDBI Bank chairman RM Malla for restructuring of loans, a Citi press note said.

In the case of service tax, the rate hike from 10 to 12% in itself would have an adverse impact on the industry. In addition, several services that were exempted would now become taxable as negative list consists only of 17 services.

Even though the domestic demand is stable, the global demand is sliding. About 40% of textile products manufactured in India are exported. Total production of cotton yarn between April 2011 to January 2012 has witnessed a fall by 13-14% as a result of cost-escalation due to high power costs, interest rates and wages.

The number of companies defaulting in making payments to banks has gone up and the Budget 2012-13 has not come up with any concrete acceptance for restructuring of loans, said Spentex Industries MD Mukund Choudhary. He added that efforts for reviving the markets for textile products have to start with encouraging higher consumption of fibres, for which the working capital position of textile units has to improve substantially in terms of availability and cost.