Budgetary Sops Likely To Spur Demand In The Textile Sector

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The apex textile industry body Confederation of Indian Textile Industry (CITI) has recently said that the micro economic stress levels are moderating for the industry, the macro economic indicators continue to be the not-so- favourable zone and experts believe this may have adverse impact on the industry. In this backdrop, the textile industry is eagerly looking forward to the forthcoming budget which, in its view, may go an extra mile in terms of doling out sops and incentives, this being the last budget from the NDA government in its current tenure.

“As this is the election year,we look forward to the budget announcements expecting the government to take some strong and directional measures to indicate its reform agenda and present its vision for the next five years. While the government is expected to focus on hand-holding the implementation of the major initiatives  taken so far, we expect some populist measures to be announced by the government. Rural and agriculture development, infrastructure, land and labour laws and overall job creation is likely to get more focus in the current budget, ” says the recent  Dun & Bradstreet (D&B) Economy Forecast report.

“Around five years ago, when the government started its journey we expected,” says the D&B report, “a new dynamism around economic policy-making. Since then, the government charted out a strong reform agenda and announced quite a few big-ticket projects during its tenure. The initiatives have been bold, target-oriented and deserve an applause,but much ground remains to be covered given that the list has been long and  ambitious and expectations were high.”

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The outcome of all these measures was anticipated to gear up the investment demand and strengthen the consumption base to propel the growth trajectory. This is yet to materialise. The rural economy has not witnessed considerable progress. Further, economic growth seems to be slowing down. The rising protectionism accompanied by a probable slowing down of global growth on the external front places risks to domestic growth. A strong push to the economy is thus needed. The Union Budget 2019-20 will be framed in the backdrop of the above events.

The rural and farm sector will be one of the focus areas for the government as it approaches the election and experts believe that will spur demand for consumer items like textiles in a big way.  The D&B report states that there have been deliberations over introducing the Universal Basic Income (UBI) Scheme over the past few years. “However, given the fiscal constraints we expect the government to selectively implement this scheme. The Union Budget might announce a direct income transfer for low income group/weaker sections this year.Doubling the farmer’s income has been a bold target. We expect the government to lay out measures in this budget to outline how this would be achieved in the next few years,” adds the report.

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The MSME sector where the textile industry is a major component, is likely to draw substantial attention. In view of the current slowdown in MSME credit, the Union Budget, says the report, is expected to increase target for lending under MUDRA Yojana and increase the budget allocation for the same. The budget is expected to propose some measures to revive and rehabilitate the sick MSME units. There is a need to develop a single window at district/zonal level for all the MSMEs. A single window which supports MSMEs for linkage with government schemes, linking small entrepreneurs with different marketing platforms, GST regulations, loan approval & disbursement and rehabilitation of sick units can act as a driver of growth for this sector. We expect the government to announce some initiatives in this regard. We also expect the government to exempt MSMEs from capital gains tax where the sales from the property is used for investment in the firm.

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Meanwhile, the D&B economy forecast report has estimated growth to moderate during H2 FY19 compared to H1 FY19 and the slowdown is likely to continue during FY2020. Several factors that were expected to accelerate the pace of economic activity for India during FY19 did not materialise. For example, global headwinds put India’s balance of payments under pressure during the first half of FY19. Rupee had depreciated strongly.

Also data for new investments showed that it has been continuously moderating since March2016. Rural demand failed to recover and overall demand remained muted in spite of waning of the impact of demonetisation, stability returning post-GST and Seventh Pay Commission Awards. Uneven distribution of monsoon also impacted the crops and income of farmers and thereby rural demand. Further, high debt burden led to farmer’s protests and demand for loan waivers across the country.

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