Rationalise duty structure to pep up synthetic textiles

Updated: Feb 18 2002, 05:30am hrs
The textile industry, occupying a special niche in the Indian economy, is in urgent need of progressive measures to enable it to capitalise its right place in the economy. Synthetics constitute close to 40 per cent of the Indian textile industry. Significantly, the textile sector is a noteworthy contributor to the Indian economy 4 per cent of GDP, 35 per cent to gross export earnings and 14 per cent to industrial production. The textile sector employs close to 35 million workforce.

Despite its creditable role, the polyester industry has grown by just 2.5 per cent during 2000-2002. Even the cumulative negative effect of the policies governing the synthetic textile sector has significantly diluted the growth of the industry. We urged the finance minister to offer this industry the right climate through fiscal and non-fiscal initiatives.

There is absence of a customs duty differential between the raw material PTA/MEG and the finished product, polyester fibre/yarn. This is peculiar only to the synthetic fibre industry. The 20 per cent duty on both results in an inverted duty structure of 3.8 per cent (23.8-20 per cent) between the raw material (PTA/MEG) and polyester. Thus, a downward duty revision is necessary.

Polyester filament yarn attracts a high basic duty of 32 per cent which along with an additional duty of 15 per cent makes for an effective duty of 36.8 per cent effectively higher than the duty on even luxury cars. This needs to be rationalised to, at least, a basic level of 16 per cent. In the case of polyester staple fibre (PSF), the prevailing basic duty of 16 per cent needs a correction at par with cotton, which attracts an 8 per cent basic duty.

Another anomaly is the unfair excise treatment of polyester blending with cotton. While, even a 1 per cent polyester blend attracts an effective excise duty of 36.8 per cent, viscose blended with cotton is treated as cotton for the purpose of excise and gets charged only 9.2 per cent. This imbalance calls for an immediate correction.

Primarily because of this and the exemption regime, such as the 50 per cent hank yarn obligation, which penalises the organised sector and protects the unorganised one, the industry has witnessed the closure and take over of quite a few synthetic textile organisations. This is a result of a yawning gap between the composite mills, which are heavily taxed, and the small units in the unorganised sector which thrive on exemptions and evasions. The resulting paradox is a scenario where organised yarn producers, which account for 39 per cent of the value-added in textiles, yield 55 per cent revenue to the government while apparel units, which are designed to add maximum value, yield about 13 per cent of the revenue. A pragmatic structure, which taxes all stages of value addition processes and products starting from cotton ginning and ending with garments, is therefore an urgent need.

These imbalances have encouraged cheap imports from China and other Asian countries. Hence, there is a urgent need to set right the various inequities in the policies .

(The writer is Managing Director, Indo Rama Synthetics India Ltd)