Finance Minister Arun Jaitley presented his third Union Budget which aimed at farmers and rural population welfare, infrastructure building, healthcare, skilling & employment, financial sector reforms & discipline and importantly improving ease of doing business. The budget focused specifically on agriculture sector which has faced consecutive droughts in last two years. Another significant thrust area of the budget was to increase spending on infrastructure sector. The government aimed at stimulating growth through public spending and stabilise the growth rate at a grim global backdrop. The minister reiterated that the economy to grow at 7.6% in the current fiscal.
Custom Duty Reduction
Basic Custom Duty Reduced to 2.5% for textile raw materials used in Technical textiles. The goods included under this facility are Nylon 66 filament yarn, Polyester anti static filament yarn, Aramid flame retardant fibre , Para-aramid fibre, Nylon staple fibre, Nylon anti static staple fibre, Modacrylic fibre and Flame retardant viscose rayon yarn. This measure will help bring down the input cost for several technical textiles manufacturers in the country.
Also, basic customs duty on import of below specified fabrics reduced to zero provided these articles are imported to manufacture garments for export. Also, the string attached to this facility that the total value of goods imported shall not exceed one per cent of the Free on Board (FOB) value of textile garments exported during the preceding financial year. The products included to this facility are cotton and elastane printed fabrics, cotton and metallic yarn dyed blended fabrics, cotton and spandex and metallic blended fabrics, cotton and silk lining fabric, 100% linen chambray woven/dyed fabric, 100% ramie dyed /blended printed yarn dyed fabric, nylon and spandex lining fabrics, 100% polyester velvet dyed fabric, cotton / nylon / embroidery crochet lace lining fabric from the chapters 50, 52, 54, 55 or any other chapter.
Budget Allocation To Ministry of Textiles Increased
The ministry has received Rs. 4594.82 crores for the upcoming financial year to support its various schemes covering theentire textile industry. In 2015-16, the budget allocation for the ministry was Rs. 4326.44 crores. The flagship ATUF scheme has been allocated Rs. 1480 crores for FY 2016-17 compared to Rs. 1510.79 crores in the FY 2015-16. Apart from ATUFS, all central funded schemes for textile sector have received required allocation of funds.
Consumption Of Textiles And Apparel To Grow
The Government’s focus on the farmer and rural sector is expected to boost the economic health of rural India which in return will improve consumption of textiles and apparels. Significantly large expenditure by the government in the rural and agricultural sector will stimulate demand. Domestic textile market size is anticipated to grow significantly, driven by increased consumption from rural and semi urban areas inthe next 2-3 years.
The Union Budget 2016-17 has received a mixed response from the industry. At a time when India’s textile and apparel exports are down, a few incentives would have brought some cheer to the exporting community. But the domestic apparel industry is unhappy with the inclusion of garments under the excise net. While textile machinery and accessories have been identified as core sectors under Make In India campaign there has not been any measures for this sector either. Says N D Mhatre, Director General (Technical), ITAMMA, “Today, 45% of textile machine accessories requirement is met by domestic producers, and 55% through imports. The government has been pushing for indigenous production through ‘Make in India’campaign to bring down imports. Some funds have been made available, through TADF, for transfer of technology which will encourage applied research. However, we wanted some more support in terms of setting up of common facility centres, which will execute the basic research.”
RMG Sector Under The Excise Net
The FM has proposed to change the excise duty on branded readymade garments and made up articles of textiles with a retail sale price of Rs 1,000 and above from ‘nil without input tax credit or 6%/12.5% with input tax credit’ to ‘2% without input tax credit or 12.5% with input tax credit’.
This leaves some ambiguity. A domestic manufacturer will supply the garments to a retailer, who then decides the retail sale price. The industry is awaiting more clarity on this. Speaking about the budget, Rahul Mehta, President, CMAI, said, “It is unfortunate that the government has brought the RMG sector under the excise net. Introduction of duty on finished products, while sustaining the exemption for upstream products, was an experiment implemented a few years back by the previous government and withdrawn subsequently when the disastrous consequences were understood. Repeating the experiment is the last thing that the industry needed, especially when the entire textiles and clothing industry in the country is already going through a crisis due to demand recession both in the domestic and export markets. “
He pointed out that the very task of collecting this duty from the highly dispersed and mostly tiny units in the garment sector would be a formidable one for the government. He added that the revenue for government from this decision will be negligible, whereas the problems that it would create for the industry will be huge.
He requested the Finance Minister to withdraw this duty and continue the optional duty regime that applies currently, until GST is introduced. The Indian Texpreneurs’ Federation has welcomed the budget, which continues on the path of structural reforms. “The budget addresses three areas – rural, agriculture, infrastructure, all of which are important. The various rural schemes of the government will boost rural demand and will be good for the textile industry. We had asked for a reduction in excise duty on MMF that has not happened. Skills India is an excellent scheme for the textile industry and I am happy to see it has been strengthened. Recapitalisation of banking sector is another welcome move. The only hitch for the industry looks to be the inclusion of RMG under the excise net,” said Prabhu Damodaran, Secretary General, ITF.
How Cotton Could Benefit
The government aims to double farm income by 2020, making farming a more lucrative activity. This should address the problem of high suicide rates among farmers, especially cotton farmers. The proposed schemes for organic farming should give a boost to organic farming of cotton too, creating much value for the chain. Moreover, to improve farm productivity, the government has identified irrigation projects as focus area, further giving a boost to the cotton and agricultural economy.
Infrastructure Development – An Opportunity For Geotech Manufacturers
The government proposes to fast track construction of roads, national and state highways. “Our goal is to advance the completion target of the programme from 2021 to 2019 and connect the remaining 65,000 eligible habitations by constructing 2.23 lakh kms of roads,” the FM announced. The total investment in the road sector, including PMGSY allocation, would be Rs 97,000 crore during 2016-17.
The government has started a series of measures for modernising the ports and increasing their efficiency. The government is now planning to develop new greenfield ports both in the eastern and western coasts of the country. The work on the National Waterways is also being expedited.
In the power sector, government is drawing up a comprehensive plan, spanning over thenext 15 to 20 years, to augment the investment in nuclear power generation. Budgetary allocation up to Rs 3,000 crore per annum, together with public sector investments, will be leveraged to facilitate the required investment for this purpose.
Since its launch, the National Skill Development Mission has imparted training to 76 lakh youth, who found employment in various sectors, including textiles and clothing. The FM, in his budget speech announced, “We want to bring entrepreneurship to the doorsteps of youth through Pradhan Mantri Kaushal Vikas Yojana (PMKVY). We have decided to set up 1500 Multi Skill Training Institutes across the country. I am setting aside an amount of Rs 1,700 crore for these initiatives.”
Presumptive taxation scheme under section 44AD of the Income Tax Act is available for small and medium enterprises i.e non-corporate businesses with turnover or gross receipts not exceeding Rs 1 crore. This frees them from the burden of maintaining detailed books of account and getting audit done. The FM has increased the turnover limit under this scheme to Rs 2 crore, allowing a large number of assesses in the MSME category.
Corporate Tax Reduction
Since the last budget, the government had mooted reduction of rate of Corporate Tax from 30% to 25% over a period of three years, accompanied by rationalisation and removal of various tax exemptions and incentives like:
(a) The accelerated depreciation provided under IT Act will be limited to maximum 40% from 1st April 2017.
(b) The benefit of deductions for Research would be limited to 150% from 1st April 2017 and 100% from 1st April 2020.
(c) The benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31st March 2020.
(d) The weighted deduction under section 35CCD for skill development will continue up to 1st April 2020.
Also, new manufacturing companies incorporated on or after 1st April 2016 will be given an option to be taxed at 25% + surcharge and cess,provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation. Further, companies with turnover not exceeding Rs 5 crore (in FY 2014-15), will attract a corporate tax of 29% plus surcharge and cess.