Union Budget 2021-22: Textile Industry Welcomes Budgetary Initiatives, Import Duty on Cotton May Hurt Competitiveness

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India's Finance Minister Ms. Nirmala Sitharaman on Union Budget day
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The latest economic survey indicates that the textile and apparel industry contributed 2 per cent of the overall GDP and 11 per cent of total manufacturing GVA in FY20 and provided direct and indirect employment of about 10.5 crore people. Thus, the sector finds special attention and covered undervarious financial package and policy support offered by the Government to the Indian industry to overcome the impact of the lockdowns. The latest is the Product Linked Investment (PLI) Scheme for man-made and technical textiles sector, which has been hailed by the industry. The Union Budget 2021-22 was thus expected to have only a few tweaks. Prime Minister Narendra Modi expressed confidence that the Union Budget 2021-22 has been part of the packages announced by Finance Minister Nirmala Sitharaman over the past 10 months. The continued support of manufacturing with the PLI Scheme should further strengthen the AtmaNirbhar Bharat Mission to help the country integrate more strongly with the global supply chain.

In her budget speech, the finance minister acknowledged the existence of duty inversion in various sectors, which would be tackled gradually in the upcoming financial year. Thus, the MMF sector can hope for a more level playing field in the coming months (rather than years).

HIGHLIGHTS OF UNION BUDGET 2021-22

Clean air, renewable energy
To tackle the burgeoning problem of air pollution, the FM has proposed toprovide an amount of Rs 2,217 crore for 42 urban centres with a million-pluspopulation in this budget.

To give a further boost to the non-conventional energy sector, an additional capital infusion of Rs 1000 crore to Solar Energy Corporation of India, and Rs 1500 crore to Indian Renewable Energy Development Agency, has been proposed. Textile and apparel industry being in forefront of exploring renewable energy, would be benefitted from the scheme apart from other sectors.

MITRA Scheme to promote textile export potential
In the budget, the FM has finally given the official stamp of approval to the scheme of Mega Investment Textiles Parks (MITRA). This scheme will aim to create world class infrastructure with plug and playfacilities to enable creation of global champions in exports. Under the scheme, sevenmega textile parks willbe established over three years.

Roads, highways, railwayinfrastructure for efficient logistics
During the lockdown, the geotextile companies in India were running at above capacity. These companies will continue to grow at a robust pace, as the government continues to focus on creating road infrastructure across the country. Under the BharatmalaPariyojana project, 13000 km length of roads has already been awarded, of which 3800 kms have been constructed. By March 2022, the government will award another 8500 kms and complete an additional 11000 kms of national highway corridors.

The FM has afforded the highest ever allocation to the Ministry of Road Transport and Highways – Rs 1,18,101 crore, of which Rs 1,08,230 crore is for capital expenditure. Good road and rail connectivity and network will help bring down logistics costs for industries.

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Indian Railways have prepared a National Rail Plan for India – 2030.The Plan is to create a ‘future ready’ Railway system by 2030. “Bringing down the logistic costs for our industry is at the core of ourstrategy to enable ‘Make in India’. It is expected that Western DedicatedFreight Corridor (DFC) and Eastern DFC will be commissioned by June 2022,” the FM announced.

Strengthening small companies, start-ups, innovators
The FMhas proposed to revise the definition under the Companies Act, 2013for Small Companies by increasing their thresholds for paid-up capital from“not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from“not exceeding Rs 2 Crore” to “not exceeding Rs 20 Crore”. This will benefit more than two lakh companies in easing their compliance requirements.

As a further measure which directly benefits start-ups and innovators, the FM has proposed to incentivise the incorporation of One Person Companies (OPCs) by allowing it to grow without any restrictions onpaid-up capital, turnover and their conversion into any other typeof company at any time, reducing the residency limit for an Indian citizen toset up an OPC from 182 days to 120 days and also allow Non-ResidentIndians (NRIs) to incorporate OPCs in India.

Incentives for start-ups
In order toincentivise start-ups in the country, the FM has proposed extending the eligibility for claiming tax holiday for start-ups by one more year – till 31st March2022.

Agri infrastructure
The FM has enhanced the allocation to the Rural InfrastructureDevelopment Fund from Rs 30,000 crore to Rs 40,000 crore. The Micro Irrigation Fund, with a corpus of Rs 5,000 crore has beencreated under NABARD. The FM has proposed to double it by augmenting it by another Rs 5,000 crore. These, alongwith other agricultural reforms, could boost India’s cotton production.

Migrant workers
The lockdown highlighted the plight of migrant workers across the country. The FM, in this budget, has proposed to launch a portal that will collectrelevant information on gig, building, and construction-workers amongothers. This will help formulate health, housing, skill, insurance, credit, andfood schemes for migrant workers.

“We will conclude a process that began 20 years ago, with theimplementation of the fourlabour codes. For the first time globally, socialsecurity benefits will extend to gig and platform workers. Minimum wageswill apply to all categories of workers, and they will all be covered by theEmployees State Insurance Corporation. Women will be allowed to work inall categories and also in the nightshifts with adequate protection. At thesame time, compliance burden on employers will be reduced with singleregistration and licensing, and online returns,” she said.

Affordable rental housing for migrant workers
“We are committed to promote supply of Affordable Rental Housingfor migrant workers. For this, I propose to allow tax exemption for notifiedAffordable Rental Housing Projects,” the FM announced.

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Custom duty rationalisation
Since last year, the government has eliminated 80 outdated customs duty exemptions. This year, the government plans to review more than 400 old exemptions. “We will conduct this through extensive consultations, and from 1st October2021, we will put in place a revised customs duty structure, free ofdistortions. I also propose that any new customs duty exemptionhenceforth will have validity up to the 31st March following two years from the date of its issue,” FM Sitharaman announced.

Duty rationalisation in textile sector
Speaking specifically of the textile sector, she said there is need to rationalise duties on raw material inputs to manmade textiles. “We are now bringing nylon chain onpar with polyester and other man-made fibres. We are uniformly reducing the BCD rates on caprolactam, nylon chips and nylon fibres and yarn to 5%.” India is a net importer of these products as domestic capacity is lesser than demand.

“We have also calibrated customs duty rates on chemicals to encouragedomestic value addition and to remove inversions. Apart from other items,we are reducing customs duty on Naptha to 2.5% to correct inversion.”

However, the budget has proposed imposition of customs duty of 7.5% on Methyl Diphenyl Isocyanate (MDI) for the manufacture of spandex yarn. This will increase the cost of locally manufactured Spandex yarn by Indorama Industries Limited and Hyosung India Pvt Ltd.

“To benefit farmers, we are raising customs duty on cotton from nil to 10% and on raw silk and silk yarn from 10% to 15%,” she announced. Cotton and cotton waste shall now onwards attract a basic custom duty of 5% and 10% respectively. Also, Cotton shall have additional burden of Agriculture Infrastructure and Development Cess at the rate of 5% which would increase the levy up to 10%. India despite being world’s largest cotton producer, imports superior quality cotton from USA and Egypt as well as from Australia, African countries, and Brazil. The levy of duty would contribute to higher domestic cotton price and may adversely affect competitiveness of cotton textile and apparel exports. On the other hand, import of cotton by Indian spinners is expected to decline following the measure. As per USDA data, India imported 2.3 million bales (of 480 lb) cotton in 2019-20 and about 1 million bales in 2020-21 season so far.

The FM also announced rationalising exemption on import of duty-free items as an incentive to exporters of apparel, leather, and handicrafts. “Almost all these items are made domestically by our MSMEs. We are therefore withdrawing exemption on imports of some such products.”

Custom Duty on Carpets and other textile floor coverings (including Turf), Tuft under the heading of 5703 has been changed to 25% or Rs. 55-70 per sq. meter whichever is higher. This will provide protection to domestic carpet and floor covering manufacturers.

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Similarly, Custom Duty under the heading of 5802 on Terry Towel and similar terry fabrics (other than narrow fabrics under heading 5806 and 5703) has been revised to 25% or Rs. 60 per sq. meter whichever is higher.

Also, Custom duty on Men’s and Women’s Overcoat, Windcheaters and similar articles under heading 6201 and 6202 (Other than Heading 6203) has been changed to 25% or Rs. 182-385 per piece depending on specific subheadings. These protections will boost the demand of local manufactured goods.

The Finance Minister further stated that the government will comprehensively review the rate structure to give a boost to capital equipment manufacturing within the country. 

Union Budget 2021 – 22: Quick Look

  • Total Budget Expenditure: Rs. 34,83,236 crores
  • Fiscal Deficit: Rs. 15,06,812 or 6.8%
  • Revenue Deficit: Rs. 11,40,576 or 5.1% 

Textile Ministry: Budget Allocation for 2021-22
Total budget allocation to the Textile Ministry has been increased to Rs. 3631.64 crores for the year 2021-22 as against last year’s revised allocation of Rs. 3300 crores. Budgetary allocation for AUTFS, Powerloom, Silk and Jute textile sectors increased while handloom and handicraft sector were allocated sizable amount of the fund. Below is the Budget allocation for major heads of the Textile Ministry:

Revised Budget 2020-21Budget 2021-22

In Rs Crores or Rs 10 Million

Total Budget Allocation 33003631.64
Amended TUFS545700
Procurement of Cotton by CCI under Price Support Scheme865136
Handloom Development Programme344.87495.32
National Handloom Development Programme165220
Yarn Supply Scheme70155
Handloom Mega Cluster Development910
Other Schemes100.87110.32
Handicraft Development Programme 275.90357.50
Development of Woollen Textiles1016.5
Development of Silk Textiles650876
Development of Jute Industries71.53153.01
Powerloom Promotion Scheme6074.28
PowerTex India5050
Powerloom Mega Cluster1024.28
Textile Infrastructure Development142204
Integrated Processing Development Scheme4075
Scheme for Integrated Textile Parks (SITP)6080
Assistance to textiles Committee3945
R&D, Skilling and Capacity Building201.16357
National Technical Textiles Mission100
Integrated Scheme for Skill Development80100
R & D Textiles1010
National Institute of Fashion Technology (NIFT)80100
North East Textiles Promotion Scheme42.4075

Note: Only fund allocation to major heads are shown

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