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Textile industry: Get weaving!

Santanu Sanyal

THE Indian textile industry is one of largest in the world, contributing significantly to the growth of the national economy in terms of production, revenue, exports and employment.

The importance of the industry can be gauged from the fact that it accounts for 14 per cent of India's total industrial production, forms four per cent of GDP, contributes 35 per cent to the country's export earnings with less than two per cent share in the total import bill, generates Rs 5,000 crore (nine per cent) of revenue for the central excise, and provides direct and indirect employment to nearly 100 million people, including jute and cotton growers, mill workers, artisans, weavers, and apparel m anufacturers.

The industry's inherent strengths are diversified production and a strong raw material base, very low import intensity, vast pool of skilled and unskilled personnel, flexible production systems and large and expanding domestic market.

Yet, it will be rash to claim that everything is hunky-dory with the industry. With the changing global trading environment, the industry is faced with intense competition, both in domestic and international markets.

At the same time, the traditional strengths of the industry are getting diluted by several factors such as technological obsolescence, structural anomalies, low labour productivity, unfavourable fiscal policies, outdated regulations, and high cost of pow er.

To be able to respond quickly and effectively to the changing global environment, the Indian textile industry needs a cohesive policy framework from the Union Government.

But the Union Government has already initiated some measures, addressing the textile industry's needs. Industry sources point out the National Textile Policy 2000 and the measures announced in the Union Budget 2001-02 are positive steps.

The composite mills segment is happy with the Union Budget proposal, equalising the excise duty on finished fabrics as applicable to both composite mills and independent decentralised processing houses, which are not in the small-scale sector. They welco me the reintroduction of ad valorem duty on independent processors on stenter chambers in place of stenter-based duty. The composite mills segment only hopes that the Union Finance Minister will not buckle under the pressure being mounted on him by the n umerically stronger independent processors to roll-back the Budget decision.

The pre-Budget duty structure, according to the composite mills sector, had benefited the independent processors more than the composite mills. The sector, however, felt such a discrimination was unwarranted. There was no rationale behind a system that f orced the composite mills to pay a higher rate of duty vis-a-vis the independent processors. After all, the independent processing houses are in no way disadvantageously placed compared to the composite mills. The independent processors have got looms an d finishing machines, which are as good as those of the composite mills. More important, their wage costs are lower than the composite mills. Also, their contribution to exports are negligible. It is the composite mills which contribute maximum to the co untry's exports.

In fact, there have never been any differential duty rates between the two sectors. The differential was introduced only three years ago and the Union Finance Minister has, therefore, done the right thing by ending the discrimination.

Moreover, the long-term development plan for the textile industry, according to the industry sources, should include several measures such as dismantling of the regulatory framework, relaxation of the provisions of Textile (Development and Regulation) Or der, 1993, abolition of hank yarn obligation, repeal of handloom reservation order, structural changes for financing the modernisation of the textile industry for fuller utilisation of Textile Upgradation Fund Scheme, exploring the possibility of a unifo rm Customs union with SAARC countries and extension of the National Renewal Fund to the textile sector.

The fiscal issues, too, require attention of the Government. For example, the duty on branded garments should be withdrawn till the concept of VAT is accepted in total and without exception. The industry, in fact, strongly favours complete transition to Cenvat for textile products and the excise duty on all textile items should not exceed eight per cent.

Among other measures, there should be removal of all excise duty concessions and exemptions which are leading to cross subsidisations and fiscal distortions; fixation of all industry rates on exports of all blends of textiles as this will minimise the lo ss of duties on drawbacks; reduction of import duty on apparel grade wool to five per cent; and free import and export of raw cotton. The duty exemptions given to exporters under the Duty Exemption Scheme should also be extended to future orders, say ind ustry sources.

Pic.: Though the composite mills segment is happy with some post-Budget measures, what the textile industry needs is a cohesive policy framework from the Government.

Picture by Bijoy Ghosh