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Will Budget 2009 weave in demands?
July, 06th 2009

Indian textile industry has inherited, for various reasons, features such as fragmented set up, absence of economies of scales, geographically-dispersed operations and so on, which lead not only to cost inefficiencies but also to tax inefficiencies at different levels due to the cascading of taxes, bemoans M. Harisudhan, a senior tax professional with Ernst & Young.

The textile industry has been in turmoil with the slowing export demand, increasing competition, appreciating rupee, firm trends in raw material prices, overcapacity in certain segments and so on, he adds, during a recent pre-Budget email interaction with Business Line.

To top it, there have been reports of wide-scale job losses in the sector with the closure of a number of export-oriented units. With a litany of woes, the industry is hoping for a helping hand from the Budget.

The recently-launched 100-day agenda of the Textile Ministry has heightened the expectations, notes Harisudhan. Expanding beyond conventional markets of the US and the UK and looking for opportunities in other prospective markets such as Japan and the eastern countries, increasing the scope of the popular Technology Upgradation Fund Scheme (TUFS), and establishing integrated textile parks (ITP) in order to provide world-class infrastructure to the industry for setting up textile units all these would need a supportive Budget, he observes.

Excerpts from the interview.

On making exports competitive.

The industry, being a net foreign exchange gainer for the country, looks for some special incentives for exports. The need of the hour, as pointed out by the Ministry, is to evolve short, medium and long term steps to improve the textile export competitiveness in the global market.

A 100 per cent tax exemption on the export earnings for a temporary period of time, a reduction in interest rates on pre- and post-shipment credit, a robust export incentive scheme, which should be capable of providing encouragement to neutralise every form of tax costs embedded in the export products, and also reducing the procedural hassles in obtaining these incentives will make the export industry competent to face the competition from countries such as China.

On the need for rationalisation.

As a short-term step, the industry expects rationalisation of fiscal structure, exemption from the levy of service tax, rationalisation of the inverted duty structure on raw materials/ intermediates of synthetic fibres and yarns, exemption from the levy of Special Additional Customs duty under Section 3 (5) of Customs Tariff Act on raw materials, and exemption/ concessional rate of excise/ customs duty on importation of textile machineries and equipments.

The industry requires mechanisms to recoup accumulated CENVAT credit (because of inverted duty structure). Another key area that requires attention is exemption from levy of Special Additional duty of 4 per cent due to the inability of the units which opt for zero-duty regime.

The industry also expects rationalisation of the excise duty rates for instance excise duty rates of the man-made fibre manufacturers to be aligned with that of cotton manufacturers. These can provide the much-needed impetus to the industry serving both the domestic and the international markets.

On the implementation of programmes and schemes.

On a medium-term, the industry expects an increase in the momentum of the implementation of TUFS, Scheme for Integrated Textile Parks (SITP), and the Technology Mission on Cotton (TMC) in the Eleventh Five-Year Plan period.

Further, on a long-term, the industry expects macro initiatives such as improvement in the infrastructure, labour law reforms, and the creation of new business orientation in line with the global trends.

On newer markets.

The industry expects special incentives for exploring newer markets such as Gulf Cooperation Countries (GCC), namely Bahrain, Kuwait, Oman, Saudi Arabia, Qatar, the UAE, and Africa, Latin America, Russia and Oceania.

Expansion of Focus Market Scheme to all countries where export performance is 5 per cent or less of total volume of exports, and expansion of Focus Product Scheme to the export of silk/ woollen garments would help the industry in exploring newer opportunities.


The industry is eagerly awaiting the implementation of a comprehensive Goods and Service Tax (GST), which is expected to eliminate the multiple taxes, and rationalise transaction taxes with simpler procedures for recouping input taxes on exports.

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