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A touch more than a stitch in time

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A new spin
Duty structure rationalised
Lower input costs
Higher allocation to TUFS

CONTINUING WITH the policy thread.
CONTINUING WITH the policy thread.

Shanthi Venkataraman

After giving a strong thrust to the cotton textile industry in the previous two years, the Budget has tried to correct some of the anomalies in the man-made textile industry.

The major beneficiaries of the measures include, Grasim, Century Enka, Aditya Birla Nuvo, Rajasthan Spinning, Indo Rama Synthetics, Mahavir Spinning and Vardhman Acrylic.

The cotton textile industry has, so far, been relatively more competitive, thanks to a favourable excise regime that has prevailed over the past two years.

The duty structure in the man-made textile industry has, however, been inverted, with the excise duty on raw materials being higher than that on the final product. The industry's problems were compounded in the last two years by the rise in raw material prices, such as, of PTA (purified terephthalic acid), DMT (DiMethyl Terephthalate) and MEG (Monoethylene Glycol), used in the manufacture of polyester chips and related products.

In this context, the Budget's attempt to rationalise the excise duty structure across man-made fibres polyester, viscose, nylon and acrylic is a positive. The excise duty has been cut by half to eight per cent.

A simultaneous cut in the Customs duty from 15 per cent to 10 per cent on all man-made fibres and yarns and in raw materials PTA, DMT, MEG, Caprolactum (raw material for nylon) will also provide access to inputs at lower prices.

The cut in the import duty of DMT would be negative for Bombay Dyeing, which derives more than half of its revenues from the raw material.

Aside from players in the synthetics industry, garment manufacturers also stand to gain with a cut in the

ad valorem

component of Customs duty on fabrics and garments from 15 per cent to 12.5 per cent. Large garment manufacturers, such as Gokaldas Exports, import most of their fabrics. The cut in the Customs duty of specified textile machinery from 15 per cent to 10 per cent is a continuation of last year's measure.

Given the significant constraint in the supply of machinery in the domestic market, this would prompt more imports.

The industry's one disappointment with the Budget could be the silence on the issue of extension of the successful Technology Upgradation Fund Scheme (TUFS) to 2010, which was on the top of the industry wish list.

TUFS, which provides a 5 per cent interest subsidy on loans for the upgradation and modernisation of machinery, is to operate until April 2007. An additional Rs 100 crore has been allocated to the fund for the year.

The period between April and December 2005 saw the highest number of loan applications.

The trend is likely to continue over the next year, as companies now have a very limited time window to take advantage of the interest subsidy.

(This article was published in the Business Line print edition dated March 1, 2006)
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