The Indian textiles and clothin (T&C) sector is currently facing a situation akin to the one that prevailed during the global meltdown nearly nine years ago, that is 2008-09. Then, the government came out with a “stimulus” package to enable the T&C and other industrial sectors to withstand the impact of economic slowdown. Now, the T&C sector’s woes have been compounded by the government’s recent move on demonetisation of Rs. 500 and Rs. 1,000 currencies notes to stamp down on black money. Added to that is the non-toofavourable global market. The situation calls for urgent measures including some incentives, for which a strong case has been made out by textile associations.
Banks have not passed on the benefit of a cut in interest rates to the T&C segment, post-demonetisation. Loans continue to be charged at 12-14 per cent against about 7 per cent levied during the global meltdown period. Interest rates started moving up after that. The rates need to be pared down by three per cent on all term loans and working capital loans across the value chain to ensure the industry’s financial viability.
The Associations also have sought a oneyear moratorium for repayment of all loans, new and old and interest to improve cash flow and to avoid the industry falling into non-productive assets (NPAs) category. The Reserve Bank of India (RBI) has already indicated that the textile industry is one of the financially stressed sectors in the country. It is to be noted that roughly 80 per cent of textiles and clothing units are micro, small and mini units, with most of them do not have a balance-sheet. The capacity utilisation of these units, especially the powerloom segment, has dropped up to 50 per cent. The powerlooms have been managing business with informal borrowing (Friends relatives and private lenders). They also prefer to buy yarn against cash to avoid VAT and also sell the fabric without a bill. These kinds of businesses have come to a grinding halt, affecting the yarn and fabric markets.
The Associations, in their representation, to the Union Textiles Minister, further says that most formers prefer to sell cotton only against cash as they owe debts to private lenders and settle loans against cash.
Some of the formers owe debts to banks. They fear that banks would adjust the amount for repayment of loans and interest if they receive payments through banks. This had led to cotton prices rising by Rs. 2,000 a candy as cotton arrivals was almost nil between November 9 to 15 last year and has now reached around 50 to 60 per cent of normal arrivals.
To ensure that the current levels of production are not adversely affected, there is a need to give a fillip to cotton yarn exports by providing a 2 per cent subsidy under the Merchandise Exports from India (MEIS) scheme and 3 per cent subsidy under the Incremental Export Scheme (IES). For some reasons, best known to the government these benefits have been denied to cotton yarn alone, while less labour – intensive sectors like foundry, forging etc. continue to receive them. In making this proposal, reference has been pointedly made to huge inventories of yarn and cutback in their sales, forcing producers to direct the excess production in the global market.
As per RBI data, the profit margin accruing to the T&C sector has been around 3 to 6 per cent and this has been continuing for several decades now. On the other hand, the service sector has been made eligible for a profit margin of as high as 15-16 per cent, which cannot create large scale jobs as provided by the T&C industry. The latter is set to generate an additional 105 mn jobs by 2020-25.
It may also be necessary to provide an additional 3 per cent duty drawback on exports, looking at the global economic slowdown, under the stimulus package proposed by the associations. Currently, the duty drawback rate varies – 2.5 per cent for intermediate products and 3 per cent for finished ones. The move assumes added importance as T&C sector is projected to grow and reach 350 bn by 2020-25 as envisaged in the government’s Vision Document. Currently, the industry’s growth is begged at $110 bn.
At present, State levies on apparel exports are refunded. Fabrics are exempted from VAT, but the weavers are not in a position to take the input credit of 5 per cent of VAT paid on yarn. State levies on exports of fabrics and made-ups may be put on par with garments to remain competitive in the global market.
It is to be noted that most migrant workers engaged in the textile sector do not have a savings bank account due to cumbersome procedures, including KVC details. This discourages them from opening SBACs. Proper direction may be given to banks to enable these workers to open accounts by showing a valid ID proof.
A majority of textile workers do not prefer PF and ESI facilities because they work for a shorter duration. Moreover, the micro small and mini enterprises (MSME) category textile mills that manage their business with informal borrowings do not extend these facilities to their workers. Hence, PF and ESI may be made optional.
The Associations have also pleaded for a reduction of VAT on cotton, cotton waste and cotton cone yarn from 5 per cent to 2 per cent and removal of one per cent Market Committee fee on cotton and cotton waste and enable weavers and knitters to use domestic yarn and produce value-added products.
Pending a final decision, there may be four GST rates – 5 per cent, 12 per cent 18 per cent and 28 per cent. The Associations wants the lowest 5 per cent rate for textiles, being major consumer items. At the same time, no exemption may be given to any segment of the textile industry, be it handloom or powerloom. Besides, banks may be directed to grant a one-year moratorium to cotton growers on repayment of loans and interest with a promise not to adjust the sales proceeds, of kapas against their dues.
