COTTON TEXTILES : Positively Knitted

Budget provisions

• Excise duty on ready made garments and made-ups reduced from 16% to 12%
• Excise duty on Industrial fabrics will continue at 16%
• Excise duty exempted for automatic shutleless looms and on a few processing machinery, specified silk reeling, weaving and twisting machinery. Customs duty on such machinery is proposed to be reduced from 25% to 10%.
• The number of processes for which excise duty is exempt has been reduced from 12 in case of cotton fabrics to three process namely, Uring, Hydro-extraction and Calendering. Earlier, Hand processing units of independent processors had been exempted from excise duty even if power is used on 12 specific processes in the case of cotton fabrics.

Reactions

Adesh Gupta, President and Chief Financial Officer, Indian Rayon said,

"The budget would have a mixed impact on the AV Birla group company. While the cut in the excise duty would bring about savings, reduction in subsidy on kerosene would affect the carbon blac division. The company, with sales of readymade garments to the tune of Rs 350 crore would see an improvement of about 1.9 per cent to the company's bottomline.

"The reduction in the customs duty would have to be passed on to the customers as the sector is going through an absolutely bad phase."

Gautam Singhania, CMD, Raymond said,

"While the textile industry seems to have mopped up some benefits, I expected more from the budget to the readymade segment. The reduction in the customs duty is a step in the right direction."

D.D.Rathi, Chief Financial Officer, Grasim Industries said,

"The production cost of garments would reduce considerably, resulting in an improvement in the bottomline of the companies.

"The decision to grant concessions on textile machinery is also a positive step. The companies who want to modernise their plants and make new investments would benefit to a large extent.

"Overall, the government's objective for the textile sector has been good."

Status of the Industry
Exports of cotton textiles during the year 2000-2001 have reached US $ 3482.40 million according to data complied by the DGCIS as compared to US $ 3096.98 million in the previous year marking an increase of 12.45%.

But, in the seven months ended Oct’01, the export of cotton textiles (including handlooms) fell sharply by 10.65% to US$1.83 billion as against US$2.04 billion worth of cotton textiles exported in the same period of the previous year.

The decline in demand from for fabrics, made-ups and ready-made garments in US has adversely affected the industry’s exports.

Industry impact
The reduction in excise duty on ready-made garments and made-ups from 16% to 12% will improve the margins of the industry. Alternatively, as the industry passes on such benefits partially / fully to customers, the incremental demand is likely to be significant.

The exemption of Excise duty for automatic shutleless looms and on a few processing machinery, specified silk reeling, weaving and twisting machinery will benefit the industry in its drive towards modernisation. Also, the reduction in customs duty on these machines from 25% to 10% is also likely to benefit the industry.

The cost of modernisation / expansion will come down on account of reduction in excise / customs duty on above machines, accelerated depreciation by 15% for green field additions and expansions by 25% or more and the concessional interest through technology upgradation fund.

The overall impact of the changes proposed in the direct taxes and indirect taxes will be positive for the industry.

Company impact
Ready made garment manufacturers like Indian Rayon, Arvind Mills are likely to benefit by way of increased margins.

Companies to Watch
Indian Rayon, Arvind Mills

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