The Union Budget 2011-12, which has proven a mixed bag for varied sectors, has certainly left the textile industry fuming.
Reactions from different textile organisations suggest the sector is unanimous in protesting against the Budget for converting the optional excise levy into a mandatory levy for branded garment manufacturers. To protest against the decision, most of the textile associations across the country are planning to go on a one-day strike to seek government attention over the issue.
Till now ready-made garments and textile made-ups were under an optional excise duty regime and manufacturers were required to pay duty only if he wishes to avail of the Central value-added tax (Cenvat) credit.
However the finance minister in his Budget, as part of base expansion, has proposed to convert the optional levy into a mandatory levy at a unified rate of 10 per cent. The levy would however, apply only to branded garments or made-ups.
The additional excise duty levied on branded garments is likely to be pushed to the customers, which could lead to price appreciation in branded garments.
The Clothing Manufacturers Association of India (CMAI) President Rahul Mehta lamented, “The step was totally uncalled for, especially during this stage when the country was looking ahead to move under the goods and services tax (GST) regime, one year from now”. He maintained, the textile industry has been put under unnecessary hassle because of this step. “The Finance Minister in his budget speech has imposed one per cent excise duty on 130 items which were exempted earlier, while for garments the excise duty straightaway has been imposed at 10 per cent which was uncalled for.”
At a time when the government was showing concern over inflation, this step, according to textile associations, would prove inflationary.
Members of various textile associations in Ludhiana joining under single platform have urged the finance minister to reconsider his decision. With most of the popular brands sourcing their garments from small and medium enterprises as their authorised vendors, the impact would definitely be on small and medium scale enterprises.
Ludhiana Knitters Association President Ajit Lakra maintained, the imposition of duty would have a cascading and negative impact on the garment industry, as the value chain of all the processes is not complete under the Excise Net and as such excise duties paid in various intermediate inputs are not taxable under Cenvat. “This would further decrease the profitability of the industry thus making it unviable and possibly sick, leading to large scale unemployment. The decision could further encourage the sale of imported Chinese garments in the Indian market.
Lakra maintained, imposition of excise duty on this industry during the year 2003 also proved an utter failure and eventually it was withdrawn after a year by the then Finance Minister.
He added, the association would express solidarity with other textile associations for going on nationwide strike (likely to be called by this weekend).
MSME Garment Manufacturers Association of Ludhiana (MGMAL) President S K Jain said, at times when the prices of yarn have moved two-fold and wages are also heading upwards, levying of excise duty would not augur well for the small and medium units.
Northern India Textile Mills Association (NITMA) President Ashish Bagrodia said, even as the Cenvat credit was available for the textile companies, since most of the inputs in the garment sector are without Cenvat, the step would not offer any solace.
Representatives from the textile units also maintained implementation of the decision would further lead to fragmentation in the already fragmented sector.