The announcements in the Union Budget for micro, small and medium enterprises (MSMEs) and employment-heavy industries like leatherand textiles would benefit the state which leads in textile, SME and leather sectors. The host of sops announced for new employees in export-oriented sectors in the budget would make them competitive, industry representatives say.
The leather industry is the biggest beneficiary in recent times, with not only the budgetary benefits but also the Rs 2,600 crore special package announced in December. The state contributes more than 35% of the total exports and has leather clusters in Ambur and Vaniyambadi in Vellore.
Reduction in the minimum employment period from 240 days to 150 days and the additional 30% income tax deduction for leather and footwear sector for new employees would encourage more employment, industry sources say. “The extension of 25% reduced corporate tax to MSME units having turnover of up to Rs 250 crore will benefit the leather and footwear industry as 90% of the industry is concentrated in the MSME segment,” said Aqeel Panaruna, vice-chairman, Council for Leather Exports.
“Enhancement of customs duty on footwear from 10% to 20% will enhance competitiveness of domestic footwear industry and will promote Make in India programme,” he said. The budget has also made provisions for modernisation of 200 units, upgrade of existing campuses and placement-linked skill development training to 1.44 lakh unemployed people.
For small and medium-sized businesses with Rs 50 crore to Rs 250 crore turnover, the finance minister announced a reduction in income tax from 30% to 25% . “The 5% saving that I make can be used for innovation. Having our own reserve is now an advantage for funding R&D,” said S Sampath, CEO, Velmurugan Heavy Engineering Industries, Trichy. Tamil Nadu has 6.89 lakh registered SMEs contributing to over 15% of the total units in the country.
For the textile industry, the benefits would help battle competition with sops narrowing the difference in wages with competing nations, officials said. Wages, which account for about 12% to 15% of the production costs in garment making, are about 25% cheaper in Bangladesh, a key competitor for the country in textile exports.
“These initiatives will help the sector to become competitive and face challenges from Bangladesh, Sri Lanka, and Vietnam,” said A Sakthivel, regional chairman, Federation of Indian Export Organisations, southern region. “Extending 12% EPF employer’s contribution for the first three years and also fixed term employment would encourage job creation in the textile industry,” said P Nataraj, chairman, Southern India Mills’ Association. “About 80% of textile units would benefit from the new corporate tax rate,” he said.
Garment units in Tirupur were given incentives that included the Centre bearing employer’s contribution to the employee provident fund for new workers who are earning less than Rs 15,000 per month during the first three years and an increase in overtime from three hours to eight hours per week in June 2016.