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INDIA: Quicker Textile Reforms May Create 65 Mln. Employment Opportunities
June, 04th 2008

Domestic textile industry, which currently is braving various odds, could achieve US$ 55 billion of investments, create job opportunities for 65.4 million workforce and its CAGR could go up at 22% by 2010 provided reforms are initiated into it at quicker speed, according to findings of The Associated Chambers of Commerce  and Industry of India (ASSOCHAM).

In a Study brought out by ASSOCHAM on `Indian Textile : Weaving a Global Spin, it has been stated that with continuing bottlenecks in place, the projected investment for 2010 could fall at US$ 16 billion from projected US$ 55 billion and job prospects stay for a meager lot of 19 million workforce as against projections for 65.4 million.

The predictions for CAGR of 22% by 2010 would slip at 6% until vigorous efforts are made for reform introduction to the textile sector, says the ASSOCHAM President,  Mr. Venugopal N. Dhoot while releasing the findings of the Study.  The industry attracted investment of Rs.33,000 crore during fiscal 2006-07, up by 51% from Rs.21850 crore in the previous year.  The total size of the textile sector is $ 47 billion with domestic market at $ 30 billion and export market at $ 17 billion.

Mr. Dhoot says that hardening of rupee has already effected the competence of textile sector as its margins have lowered and international competition has become stiffer.  The textile sector would lose its glare for good provided reforms are further delayed.

The ASSOCHAM Chief said that excise duty imposed on finished man-made fabric is 8% while that on its raw material is 16%.  The duty paid on the inputs are credited under the Cenvat system of taxation and inverted duty structure leads to the problem of accumulation of credit.

The Government, therefore should align the duty rates so that textile manufacturers can utilise the unused funds.  Custom duty of 7.5% charged on import of PTA (Purified Terephthalic Acid) should be scrapped as there is no import element involved in it and additional 4% customs duty levied on textiles and clothing should be refunded to exporters.

The study recommends changes in existing schemes such as TUFS suggesting that the amount sanctioned under it fall short of re-imbursement liability of the government.  Hence, its allocation should be increased.  Spinning and composite mills have been the prime beneficiaries of the sector.  The benefits of the scheme should be extended to processing and garment sector as these are the highest value added products in textile manufacturing chains and earn minimum foreign exchange.

The Ministry of Textile should also ensure timely completion of Textile Park projects made under STIP and also it should further open up the sector by reducing customs duty on import of textile machinery and equipment to zero level in next 4-5 years.

The Study also points out that their exists a large number of schemes meant for various segment of textile industry.  The schemes need to be relooked at and brought under single umbrella so as to minimise procedural and bureautical hurdles and realise the actual benefits.

The non-performing schemes should be scrapped and adequate budgetary provisions be made for the schemes that have done well.  The industry suffers infrastructure constraints which add to transportation and transaction cost and render this industry and its logistics fragile which make it non-competitive.

The Chamber has also recommended easing of interest rates on export credits, premier for export insurance, speeding up the clearance of excise duty and central sales tax reimbursement so that these measures act as cushion and help exporters to realise higher export proceeds.

The textile industry is in the dire need of fresh investment in capacity expansion, modern technology and machine installation. The sector attracts lowest level of foreign direct investments in spite of the fact that 100% FDI is allowed in it under automatic route.  The global manufacturers and private equity funds should be encouraged to invest in partnership with the small scale manufacturers to boost investment in the sector.

Another constraints is on the form of labour reforms. The industry is governed by stringent labour laws which hamper its competitiveness and delays induction in reforms of it.

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