The Hindu Business Line : Dereservation to corporatise knitting sector

DERESERVING the hosiery sector from small-scale industries allowed in the 2005-06 Budget proposal, though already in the air for quite some time, has finally brought the official `sanction' to a sector which is thirsting to be corporatised by the entry by the big/mid-cap companies.

Thanks to the burgeoning knitwear exports which in volumes/overall percentage term has in recent years edged out woven garments in the country's export basket, several major textile houses and big garment labels have moved into knitwear merchandising through product outsourcing or franchisee deals. These companies will now be candidates for expediting their direct investment proposals in knitwear.

Several mid-cap companies, already well entrenched in textiles intermediary exports, have been showing interest in knitwear, too. They have been vigorously pursuing the path of vertical integration of their production line/capacity creation by ploughing back their earnings.

That the Government would give in eventually to the demand from a section of the textile industry to dereserve knitwear from the SSI category became clear when the Centre's fiscal duty revamp for the textiles included the knitwear sector too.

The `unbroken' Cenvat chain that was extended in 2003-04 Budget to cover the knitwear sector was later aborted along with the Government's decision to do away with the Cenvat duty on the powerloom weaving industry.

But, incidentally, the move to remove the mandatory Cenvat duty and allowing the optional excise duty for the entire cotton textile industries, including the hosiery, has proved a blessing in disguise for the Government to pursue dereserving of hosiery as it has almost silenced the section within the knitwear industry that had been critical about de-reservation on the grounds of excise duty implications.

The dereservation of the hosiery and the Budget proposal to grant a higher capital subsidy of 10 per cent for textile processing modernisation under the TUFS (Technology Upgradation Fund Scheme) are expected to boost the knitwear industry's upgradation and capacity expansion drive in the coming months. These two critical moves were awaited by the big players to make an entry into the knitwear sector.

The two proposals with their deep implications on investments would provide a cutting edge not as much to knitwear exports but to the Rs 5,000-crore strong domestic market for knitted garments and innerwears. This segment is poised for further growth, given the consumers' desire for better quality fabric/garment processing and fashion wear.

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