SIMA at the 58th Annual General Meeting of the Association

It would be a great pleasure in welcoming all of you for the 58th Annual General Meeting of the Association.

At the outset, we thank the NDA government led by the dynamic Hon’ble Prime Minister Shri Narendra Modiji for continuously giving a prime importance to our industry and entrusting the responsibility of managing the industry in the hands of a very young and vibrant leader Smt Smriti Zubin Irani, the Hon’ble Union Minister for Textiles who initiated several unique policy interventions within a period of one year.

Certain major policy interventions include bringing all the cotton textile products and job work relating to all textile manufacturing activities under 5% GST rate, the lowest slab, without any break in the tax structure of the value chain for the first time; Textiles India 2017, a maiden and mega international textile event; Powertex India, a unique scheme for the power loom sector; including the made-up segment under the special garment export package of Rs.6,006 crores, clearing the long pending TUF subsidies; engaging NABCONS for study of all the long pending committed liability and left out cases under MTUFS and RTUFS, and revamping the commercial cotton trading policies of Cotton Corporation of India to bring stability in cotton prices, etc.  I am glad to inform you that our Association closely worked with the Government in all aforesaid policy interventions.

We thank the Hon’ble Union Finance Minister, Mr Arun Jaitley for the growth oriented Union Budget 2017-18 wherein, for the first time, the Union Railway Budget was merged with the Union Budget besides merging the planned and non-planned expenditure of different Ministries. We thank former Hon’ble Minister of State for Commerce and Industry, Smt Nirmala Sitharaman for various export related policy interventions.  We also thank all the Hon’ble Chief Ministers and the State Governments of Southern States for their continued support and various policy initiatives.

Economy

The recent Economic Survey has reported that India would remain as the fastest growing major economy in the world and projected the real GDP growth in 2017-18 in the range of 6.75 to 7.5%. Though the world’s export and import in 2016 was lower by 3.06% and 2.65% than previous year, the country’s exports as well as imports have improved by 5.3 and 0.9% in 2016 and the country’s trade deficit has narrowed down to 108 billion USD from previous year deficit of 119 billion USD. However, amidst various challenges, the country’s textiles and clothing exports covered under HS Codes 50 to 63 in 2016-17 has dropped marginally by 0.2% to 36,639 million USD from previous year’s export of 36,727 million USD. At the same time, import of these items has increased by 3.1% to USD 6,047 million from previous year’s import of 5,865 million USD.

 

 

Major policy interventions

Out of various policy initiatives, demonetisation of high value currencies (Rs.1,000 and Rs.500 notes) and implementation of GST had a big impact on the whole economy and the performance of the industries.  Textiles and clothing being low profit margin, highly fragmented and predominantly unorganised industry had a very big impact. 

Though the demonetisation move was a bold initiative brought to curb black money, prevent corruption and funding of terrorist activities, the limit set on cash withdrawals, shortage of cash, digital payment, etc., caused lot of hardships like payment of worker wages, procurement of cotton from the farmers etc.  The banks did not have adequate facilities and man power to manage the sudden change.   The textile traders in the decentralised sectors who had been all along doing the business with private or self-finance on cash basis and without proper accounts were the worst affected.

By the time, the industry could revive from the recession caused due to demonetisation, the long awaited GST was implemented on 1st July 2017.  There was a strong move to classify all the textile goods under 12% GST slab.  Considering the optional route given to textiles and clothing industry since 2004, exemptions given for hank yarn, fabric and other textile products from the State VAT and the net revenue gained by the Government, we demanded to classify all textile products and job work under 5% GST slab which was duly recommended by our Ministry. I thank all the State Governments especially the Southern States and all the textile associations across the nation who supported us to make joint representations and lead joint delegations in this regard. We could succeed in getting the cotton textiles and all textile job work classified under 5% GST which was a very big relief to the predominantly cotton based Indian textile industry in the current scenario. 

But, the man-made fibres, filaments, spun yarns and filament sewing threads have been classified under 18% GST slab while the fabric has been classified under 5% GST slab with an additional condition of not allowing refund of accumulated ITCs at fabric stage.  This increases the cost and causes inflation.  It is essential to relax the condition and allow refund of accumulated ITCs at any stage of textile manufacturing process especially at processed fabric stage.  It is also essential to reduce the GST on MMF and its blended yarn including filament sewing threads from 18% to 12%.

Yet another revolutionary reform that is on the anvil is labour reform.  We thank former Hon’ble Minister of Labour, Mr.Bandaru Dattatreya, for bundling forty four labour enactments into four major codes viz., wages, industrial relations, working condition and social security & welfare. The moment, the wage code was introduced in the Lok Sabha on 10th August 2017, all the manufacturing sectors became panic due to the hype created by the media regarding minimum wages (mentioning the universal minimum wage as Rs.18,000/month). 

There is no need for such a panic as the Government is contemplating to follow scientific methods to determine the common minimum wages for the nation.  Lot of changes have been brought under EPF and ESI Acts.  In the case of bonus, apart from basic and dearness allowance, any allowance paid beyond 50% of basic and DA has to be taken into account for bonus calculation.  In a nutshell, the wage cost is bound to increase steeply in the coming years and therefore I suggest all the member mills to avail the services of SIMA Industrial Engineering Division and HRD and adopt scientific systems to reduce the labour cost.          

We highly appreciate and thank Shri Nitin Jayram Gadkari, Hon’ble Union Minister for Road Transport, Highways and Shipping for considering our proposal and providing transhipment facility with 30 days free period and another 60 days at a discounted rate ware housing facility port for imported cotton to begin with at Tuticorin Port and later in few other ports.  This will result in least transit time and bring parity in international and domestic cotton price.  This facility also makes the imported cotton accessible to even SME category mills and also enable the international cotton traders to divert the surplus cotton to any other country. This is yet another land mark achievement by the Association as such facility has been provided for the first time in India.  I compliment the Logistics Committee of the Association especially
Mr J Thulasidharan, Mr B Sri Hari, Mr P Chinnasamy, Mr A Ilavarasu and SIMA Secretariat for the achievement.

At our initiative, Hon’ble Union Minister for Textiles has revamped the commercial cotton trading policies of Cotton Corporation of India.  CCI has been given free hand to source cotton during peak season whenever the price goes below the international price, maintain buffer stock and sell them only to the actual users; the volume based benefit has been dispensed with to benefit the MSME category spinning mills.  This initiative has helped the farmers to fetch good price during the peak season.  There was stability in the cotton price throughout the cotton season 2016-17.  CCI would maintain the inventory in the major clusters based on the intents raised by the mills. The Association also has signed an MoU with the Cotton Corporation of India during the “Textiles India 2017” to enable the members to have special privilege.  I advise the spinning mills to make use of the facility of CCI and also transhipment storage of imported cotton to bring stability in cotton price throughout the year and achieve a sustained growth rate.

Based on the suggestion given by the Association, the Cotton Advisory Board has prepared a draft report for doubling farmer’s income by adopting global best practices under the Chairmanship of Dr S Kranthi, Former Director, CICR. We were closely associated for the preparation of the report. We would soon see the Technology Mission on Cotton II in a revised format with four mini missions for technology development, technology transfer, clean cotton and branding Indian cotton textiles.

Industry performance

On the industry’s performance, while spinning capacity in the country has been increasing steadily due to the attractive incentives given by various State Governments, there was negligible increase in cotton yarn production owing to festered domestic and export demands resulting in surplus spinning capacity.  The spinning mills continue to face a long drawn recession; several hundreds of spinning mills are likely to become NPAs and sick and many of them already closed; majority of the spinning mills have reduced their capacity utilisation considerably to reduce the losses.

The cotton yarn export is stagnated at around 100 mn kgs per month as against the average monthly export of around 120 mn kgs per month achieved during 2013-14.  The cotton yarn production during the last three years is stagnated at around 4,000 mn kgs inspite of adding over 3.5 million spindles and several thousands of rotors.  Unfortunately, the Centre has singled out cotton yarn exports from MEIS and IES benefits that would have helped to boost the yarn exports and made the spinning mills financially viable apart from generating additional forex earnings, creating jobs for several lakhs benefiting the farmers, etc.  I urge the centre to include cotton yarn under the MEIS and IES benefits immediately to overcome the surplus spinning capacity problem.  This is very essential to increase the domestic demand for cotton as the cotton production is likely to exceed 38 million bales in the next cotton season and farmers might face the problem of MSP operations and losses.

Raw materials

During the cotton season 2016-17, though the cotton availability was comfortable, cotton prices, both in the international and domestic markets increased by 12.50% and 22.01% respectively when compared to the previous season.  The Indian cotton was exported at around Rs.93 per kg during the season while the mills imported cotton at around Rs.123 per kg during the off-season.  During the cotton season 2016-17, the revamped CCI commercial cotton trading policy initiative taken by the Hon’ble Union Textile Minister  brought stability in cotton prices. 

Certain polyester producers have initiated antidumping duty on the polyester staple fibre imported from China and other countries aggravating the problems for the synthetic sector which already suffer due to cheaper imports of fabrics that likely to increase several fold with the significant reduction of duties in the Post GST regime.  The Association has filed objections and also  sought legal remedy.

State Policies

Most of the States in the country are in the race to announce lucrative textile polices to attract investments and eyeing on Tamil Nadu entrepreneurs.  But Tamil Nadu, the forerunner to bring a textile policy in 1998 has been mulling the new policy for more than 15 years.   Recently, the Hon’ble Minister for Handloom and Textiles Thiru O S Manian convened the stakeholders’ meeting at our Association to get the inputs for drafting the new policy and we hope, the same would be announced soon.  The revision of Central policy is also under active consideration for several years; the existing policy was announced in 2000.  I urge both the Central and State Governments to focus on textile processing, the weakest link in the value chain to achieve the envisaged growth rate. 

Recently, Government of Telangana has announced its new Textile Policy with very attractive incentives like 25% capital subsidy for conventional textiles, 35% capital subsidy for technical textiles, 20% capital subsidy for the existing units for modernisation and expansion, 8% interest subsidy, Rs.1 to 2 per unit power subsidy, plug-play facility for textile effluent treatment in the State owned parks and several other incentives.  I suggest the investors to make investments in the value added segments and avoid making investments in spinning atleast for few years since the sector already suffers with surplus capacity.  Mills may contact the Association for any guidance and support for making investments in the States of Telangana and Andhra Pradesh as we are closely associated in framing the policies in these States. 

 

Address by Mr.M.Senthilkumar, Chairman,

SIMA at the 58th Annual General Meeting of the Association

held at 5.30 pm on Saturday, the September 9, 2017

at “Ruby”, Hotel Le Meridien, Avinashi Road, Coimbatore 

 

 

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