The Frayed Fabric

This isn’t a budget an embattled textile industry was seeking. It’s been a crucial time during the global slump. All major Asian countries except India have shored up their export shares during this period. The industry says there’s at least a 10% price differential between India and its Asian rivals. It was therefore looking for labour reforms. It was looking for favourable rates of credit for working capital. It was, in short, looking for big bang announcements that will make it competitive in the global market. In stead, it has had to settle down for some policy tweaking.

The best news for the industry had to be found in the fine print. The subsidy element under the Technology Upgradation Fund Scheme (which is to be paid to companies) has been tripled to Rs 3,140 crore. "This will clear the backlog up to June 2009," says DK Nair, Secretary General of the Confederation of Indian Textile Industry. Of course, it will also provide some much-needed working capital for industry.

Among the other announcements, one is a sop extension while another is an anomaly corrected. The scheme to provide financial support of 2% on pre-shipment credit has been extended by six months up to March 31, 2010. "It’s beneficial," says P Nataraj, MD, KPR Mill, "but to a very small extent." The industry had actually lobbied for 4%.

The industry had also sought a refund of the Cenvat credit it has accumulated over the years. It couldn’t use those credits to pay excise duties anymore, as they were earlier brought down to zero (on cotton textiles). The government, instead, increased duties to 4%. Not just that. It increased duties on man-made fibre to 8%. Nair reckons man-made fibre suppliers can easily pass on the hike to the textile industry. Suppliers include Reliance Industries and Grasim.

"In India, utilisation of polyester is lowest (a third of the total textiles used)," says Nair. "It’s considered a rich man’s fibre. Actually, it’s not true." The budget has done nothing to set the ratio right. Nair’s organisation had sought parity in excise duties.

There is not going to be any immediate impact in the setting up of handloom and powerloom clusters. That’s something for the future. Also, the increase in minimum alternate tax to 15% will further eat into the margins of the bleeding textile companies.

The big news for corporates, the abolition of the Fringe Benefits Tax, may not even create a flutter in textiles. "It’s hardly a big thing in our industry," says Nataraj. The Managing Director of the Rs 747 crore company says he will probably save Rs 25 lakh in all.

Textile Minister Dayanidhi Maran had suggested the industry to look at overseas markets other than the US and Europe. The industry had in turn sought a $1 billion market development fund. There is no indication of it and without such a fund newer markets will be hard to crack.

Still, the hopeful feel all isn’t lost. What the Budget couldn’t, the Exim policy can. That’s the hope. The industry is expecting an increase in the duty drawback and duty entitlement passbook scheme rates.