VAT relief in Punjab, Haryana to help revive yarn units
States move to help industry as it was cheaper to buy yarn from other states
 "VAT relief in Punjab, Haryana to help revive yarn units")
Buying of cheaper cotton yarn by fabric and garmenting units (located in Ludhiana and Gurgaon) in these states from other parts of India had hit local units. Due to high value added tax (VAT), buying yarn from spinners in the state was costlier than bringing it from elsewhere.
The Punjab government (legislative assembly elections here are due in early 2017) has said the VAT rate on cotton spinning will be 3.63 per cent, from the earlier 6.05 per cent. Punjab has 165 spinning mills with 4.25 million active spindles, and consumes 650,000-700,000 bales (a bale is 170 kg) annually.
Haryana has decided on zero VAT for cotton spinning; it is currently five per cent. The state has an estimated 250,000 spindles, consuming only a part of the 2.5 million bales annual output. The government is offering incentives to enhance the consumption of cotton.
DCM Textiles, SEL Manufacturing and HP Cotton Textiles Limited are the three large units in cotton spinning in Haryana.
The decision of the state government will provide protection to the Punjab based spinning units against the cheap imports from other states which have lower cost of production.
"Punjab is a major consumer of cotton yarn in north and due to higher tariffs on local manufacturing entities an estimated Rs 9,000 cr worth of yarn is being imported annually from other states. The new tax structure will be a bulwark against dumping from other states to Punjab", told Kamal Oswal, the Vice Chairman and Managing Director of Nahar Industrial Enterprises Limited.
Most of the spinning mills have been underutilising their capacities for the past few years as there were no takers for the yarn produced at a higher price.
The incentives offered by the emerging industrial hubs in states like Madhya Pradesh and Gujarat had curtailed the market of Punjab spinning sector in the past few years.
Manish Awasthy of Sportking Group told that the VAT reduction will enable a level playing field for the Punjab based players.
The manufacturers also hope to get higher net investment margins with lower VAT as their VAT outgo will decrease. Rajiv Garg, the Managing Director of Garg Acrylics is sanguine as his 3.5 lakh spindles in Punjab would become more competitive profitable with the VAT correction in the state.
Having units in both the states of Punjab and Haryana, Neeraj Saluja, Managing Director of SEL Manufacturing Company Limited says that this will boost sales and profits of the manufacturers catering to domestic market.
The exporters will also get the benefit as they will have higher working capital at their disposal, said Rakesh Goel, CEO of DCM Textiles Hisar. Adding that the time consumed in getting VAT refund will be saved, Goel said that a zero rated VAT would allow the units with twin advantage of tax waiver and input tax credit.