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D&B Budget Impact Analysis: Textiles sector

Overall Impact: Positive

• Many of the wishes of the industry have been satisfied in the current budget. The reduction in customs duty on raw material and specified machineries for the textile sector will provide some relief to the ailing industry, besides preparing them for post QR regime.

• Budgetary provision under the Technology Upgradation Fund Scheme (TUFS) has been raised from Rs 500 mn to Rs 2,000 mn.

• The budgetary allocation to Ministry of Textiles has been enhanced from Rs 4.57 bn in 2000-01 to Rs 6.5 bn in FY 2001-02 and provision for Cotton Technology Mission is increased from Rs 150 mn to Rs 250 mn.

• The FM expects that at least 50,000 new shuttleless looms will be installed and 25,0000 plain looms will be modernized to automatic looms by year 2004 through funding from the TUFS. Accelerated depreciation at the rate of 50% on plants and machinery purchased under the TUFS has been allowed. This will help the ailing textile machinery manufacturers come out of red. However, basic customs duty on specified textile machines (including shuttle-less looms) has been reduced from 15% to 5%. This may be a cause of concern for domestic machinery manufacturers.

• The FM has set aside Rs 100 mn for 2001-02 to set up integrated Apparel Parks. However, the current exemption of excise on garments sold under the registered trade name has been abolished and an excise duty of 16% of MRP has been imposed on such garments.

• Capacity based compounded levy on independent textile processors has been withdrawn. They shall now have to pay duty (Cenvat +AED) of 16% ad valorem. The independent processors will be allowed to take credit of the duty paid on inputs on a deemed basis at 25% on cotton fabrics and 45% on other fabrics. For composite mills the rate of deemed credit is 20% on cotton fabrics and 40% on other fabrics.

• This reversal of ad valorem duty has come as a shot-in-the-arm to the small and medium processors that were plagued by the reduced activity in the sector. Benefiting most form this move are the independent cotton processors who have been complaining of high per meter excise rate due to the slow processing nature of the industry.

• Excise duty exemption availed by SSI units has been withdrawn in case of cotton yarn and ball/roller bearings. Thus excise duty exemption up to Rs 10 mn will not be applicable to these units.

• Customs duty on DMT, PTA, MEG and Caprolactum has been reduced from 25% to 20%. This is the WTO bound rate for synthetic fibers and yarns. Customs duty on polyester chips and nylon chips for the manufacture of fibers and yarns has been reduced from 35% to 25% and on silk waste, cotton waste and flax fibre from 35%/25% to 15%.

Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001

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