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The government is going to set up a specialised jute textile mill at a cost of Tk 519 crore although public sector textile and jute mills are counting losses every year.
The proposal for setting up the factory named Sheikh Hasina Specialised Jute and Textile Mill may be placed at a meeting of the Executive Committee of the National Economic Council (Ecnec) today.
The mill is planned to be set up in Jamalpur district’s Madarganj upazila by 2020.
The planning ministry proposal said the mill would earn additional foreign currency producing exportable low-priced garments, including denim trousers, jackets and shirts, using a mix of jute and cotton.
One of the three prerequisites of availing trade preference to the US through the Generalised System of Preferences is use of mixed cotton and environment-friendly manufacturing facilities.
A planning ministry official said Prime Minister Sheikh Hasina during a visit to the textiles and jute ministry in 2014 had directed making Bangladesh Jute Mills Corporation (BJMC) profitable by producing multi-pronged jute products. Data shows that the BJMC mills and factories suffered losses of Tk 385 crore to Tk 724 crore in the last six years.
According to a finance ministry provisional estimate, the BJMC loss was Tk 489 crore in the just concluded fiscal year and Tk 481 crore in the previous year.
The BJMC started its journey after the country’s independence with 82 jute mills. Now only 26 remain. Every year the government gives Tk 500 crore to Tk 1,000 crore in subsidies to the BJMC from the budget. Bangladesh Textile Mills Corporation (BTMC) has also been counting losses for years. In the just concluded fiscal year, it suffered a loss of Tk 17 crore.
Sources at the BTMC said they have invited various countries, including India, Japan and Turkey, to invest in mills under them.
The government has planned to take up a project worth $350 million or Tk 2,800 crore for balancing, modernising, rehabilitating and expanding the mills, where China would invest about $280 million or Tk 2,240 crore.
Though China has pledged to provide loans, it is yet to sign a loan agreement. The BJMC officials say once the balancing, modernisation, rehabilitation and expansion was completed, many of the age-old state-run jute mills would become more productive.
China Textile Engineering Corporation has already conducted a feasibility study on the jute mills, said an official of the textile and jute ministry. The study says Bangladesh was losing its leading position in the global jute industry due to a lack of technology, low efficiency, obsolete equipment, single product focus, and a lack of competitiveness.
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Vietnam imported 840,000 tons of cotton worth nearly 1.6 billion U.S. dollars in the first half of this year, posting respective year-on-year increases of 23.7 percent and 25.8 percent, according to its Ministry of Industry and Trade on Monday.
In the six-month period, Vietnam also imported 505,000 tons of yarn totaling roughly 1.2 billion U.S. dollars, up 17.9 percent in volume and up 34.7 percent in value.
Meanwhile, the country spent 6.4 billion U.S. dollars importing cloth, up 17.1 percent, and spent 2.9 billion U.S. dollars importing materials and accessories for production of garments, textiles and footwear, up 6.6 percent.
Vietnam, whose yarn industry heavily depends on imported cotton, has imported increasingly bigger volumes of the material in recent years to feed its growing textile and garment production and export, local economists said, noting that its biggest cotton import market is the United States.
Vietnam’s imported cotton volume surged to nearly 1.3 million tons in 2017 from 150,000 tons in 2005. Last year, the country spent over 2.3 billion U.S. dollars importing cotton, up 41.2 percent.
Vietnam reaped 13.4 billion U.S. dollars from exporting garments and textiles in the first six months of this year, seeing a year-on-year rise of 13.8 percent, mainly to the United States, the European Union, Japan and South Korea.
The country’s garment and textile export turnovers were over 25.9 billion U.S. dollars last year, up 8.8 percent, said the ministry.
Chinese investments flow into the textile industry of Uzbekistan has registered an increase.
This was noted during the meeting of the leadership of the Uztekstilprom association with Chinese Ambassador to Uzbekistan Jiang Yan, Uzbek media outlets reported.
The amount of Chinese investments in the country’s textile industry exceeds $ 200 million, the press service of the association said.
The Chinese side was provided with information on successfully implemented and currently implemented projects with the participation of Chinese companies such as Jinsheng group, Nanyang Mulanhua, Marjan Investment Group, and others.
During the meeting, issues of development of cooperation between Uzbek and Chinese textile associations, large textile companies, expansion of investment activities of Chinese companies in Uzbekistan, increase in trade turnover between the countries, in particular, consideration of the issue of optimization of rates of customs duties on the import of Uzbek textiles to China were discussed.
Particular emphasis was placed on the development of the Chinese Government’s technical assistance program aimed at training and upgrading the skills of young specialists for the textile, clothing and knitting industries. During the period January-June 2018, within the framework of this program, 15 specialists of the industry in the different regions of China were trained.
Also, the Chinese side invited representatives of the textile industry of Uzbekistan to participate in the upcoming International Exhibition “Expo China 2018” set to be held in November.
In its turn, the Association invited Chinese companies to take part in the International Exhibition of Textile and Fashion Industry “UzTextile Expo 2018” and the international conference “Uzbekistan Textile Conference,” which will be held in Tashkent on September 4-7 this year.
In the period 2010-2014, the textile industry of Uzbekistan received and spent foreign investments worth $785 million while 147 new textile enterprises with participation of investors from Germany, Switzerland, Japan, South Korea, the U.S., Turkey and other countries were commissioned. Export potential of these enterprises amounted to $670 millions.
The new support prices for rain-fed kharif crops will be 50% over the costs of production, says Prime Minister Narendra Modi. New Delhi: The central government will approve the much-awaited higher minimum support prices (MSP) for kharif crops in a cabinet meeting next week, Prime Minister Narendra Modi told farmers at his residence on Friday.
The new support prices for rain-fed kharif crops will be 50% over the costs of production, Modi said. The decision follows an announcement in this year’s budget promising higher MSPs to farmers.
The announcement next week “would ensure a significant boost to the income of farmers” said the Prime Minister’s Office. It added that within the next two weeks the government will also approve higher fair and remunerative price (FRP) for sugarcane farmers for the 2018-19 season, compared to the year before.
Modi’s latest attempt to reach out to farmers follows repeated protests by them as prices fell after successive years of record harvests and as growers took to the streets demanding loan waivers. The new MSP regime is likely to significantly raise the support prices for crops such as paddy, ragi, maize, moong, groundnut, sunflower, soybean and cotton. Going by the MSPs announced for these crops in the 2017-18 crop year, returns to farmers were under 50% of the costs of cultivation.
The centre had earlier clarified it will take the A2+FL cost matrix while fixing MSPs, which include all paid-out costs for inputs like seeds and fertilizers, including an imputed value of family labour.
The new MSP regime, likely to provide relief to farmers battered by falling crop prices, will also increase the costs for the exchequer because of higher outlays for procurement of crops such as paddy, which is supplied under the subsidized public distribution system, and pulses, of which government procured a record ?20,768 crore worth in 2017-18, trying to arrest a price crash.
The government is also likely to unveil a new MSP policy ahead of the kharif harvest which begins in October to ensure farmers benefit from MSP announcements.
Currently, government purchase at support prices is limited to rice, wheat and some pulses, leading to a situation where farmers have little choice but to sell to traders at lower than MSP when market prices crash.
The proposed hike in MSP for crops, based on 1.5 times the A2+FL costs, in the case of rice and cotton especially, is likely to hit India’s exports considerably.
The proposed hike in MSP for crops, based on 1.5 times the A2+FL costs, in the case of rice and cotton especially, is likely to hit India’s exports considerably.
In the case of paddy, where the MSPs will rise by 13.5% due to the new formula, this will take the cost of finished rice to around Rs 26,651 per tonne. Once transport costs of 5% are added to this to take it to Kandla port, it becomes marginally more expensive than the existing global prices. If the rupee falls to below 67 to the dollar, on average for FY19, the competitiveness gets further eroded. Last year, India exported $7.8 bn of rice.
Matters are even worse in the case of cotton, where on average, prices will rise by a whopping 28%, from Rs 40,200 per tonne for kapas to Rs 51,600 per tonne. Given the conversion ratio of around 33%, this means the prices of finished cotton will rise to Rs 156,364 per tonne as compared to the current global price of around Rs 125,553 per tonne, based on a Rs 67 per dollar exchange rate.
At this price, India’s cotton exports will be hit badly, though the fact that the rupee is depreciating will cushion the fall a bit, says DK Nair, former secretary general of Confederation of Indian Textile Industry.
Since two thirds of all fibre used in India — both for local and exports market — is cotton, Nair says this will have a knockdown effect on exports of both textiles and readymade garments as well. India exported $19.3 bn worth of cotton, cotton-based textiles and readymade garments in FY18.
Gautam Nair, MD, Matrix Clothing, one of India’s largest garment exporters expressed the same fears.
“Garment exporters are already reeling under high yarn and dye and chemical prices. If, on top of that, the price of basic raw material (cotton) is raised substantially in 2018-19, it will have very, very significant negative impact on our apparel exports.”
IJ Dhuria, director (raw materials) at Vardhman Textiles, India’s largest spinning mill says raising the cotton MSP will benefit farmers and may not hit cotton exports too much immediately since China has slapped an additional 25% import duty on American cotton and the rupee has also depreciated against the dollar. If the import duty is reduced and/or the rupee corrects, he says, India’s cotton exports will be hit.
“Also, high raw material prices will erode the competitiveness of our textile and garment exports vis-a-vis competitors. It may prompt some players to explore the possibility of imports”, he added.
Tirupur Exporters’ Association (TEA) today urged textile mills to ‘save’ the knitwear garment export sector as cotton yarn price increase by Rs 20 a kg had made it difficult to sustain themselves in a competitive global environment.
“The beleaguered knitwear export sector has been passing through a challenging business environment further to implementation of GST, which led to a continuous decline of knitwear exports month on month basis since October 2017 after completion of three months transition period, TEA president Raja M Shanmugham said in a release.
Stating that the decline in exports for the second half yearly period of 2017-18 was 21 per cent, he said the most worrying factor was that the negative trend in exports growth was continuing in the current fiscal also
The average of knitwear exports in April and May was 34 per cent, he said.
Stating that the sector was now only booking orders and that business has now started to look ahead and was poised to bring back the industry from the brink after a prolonged one year period lull, he said the increase in yarn prices now would derail the industry.
This would lead to not only the sector getting affected, but also having a boomerang effect on textile mills, he said.
The TEA President said he had already met Union Textiles Minister Smriti Irani over the issue, with a request to mandate that Cotton Corporation of India ensure availability of enough quantity with desired quality to protect the interests of farmers, the textile industry and also to generate employment.
The impact of the price increase has made textile mills increase yarn prices which ultimately affect downstream value added sectors like weaving, knitting, garmenting and made ups, particularly value added exporters, as they could not hike the price, fixed more than three to five months back,he said.
Businessmen here say that the traditional textile business was predominantly in cash and based on trust and informal dealing. The effort to formalize trade, although advisable prima facie, has actually derailed the trade, say businessmen. The sector is suffering from lack of demand from end users. Processors say they are also hit by rising prices of raw materials, which has squeezed their margins. Their eyes are all on Diwali to lift the sentiments.
The Background
Textile trading business has traditionally been in credit and dependent of rapport between large and small traders. Orders are on credit and payment in cash as per the business cycle of three months. It was in June last year that it was announced that fabrics will be covered under GST, catching the traders on wrong foot. Businessmen had initially opposed the introduction of GST on fabric and also participated in various calls for bandh given by their counterparts in Surat. However, the intensity of protests was not so strong as in Surat.
Teething Troubles
There were issues right from the outset, with organizations like Maskati Market Kapad Mahajan had to organize special camps to get the traders registered under GST. Businessmen, both in trading and processing sector now complain that sales are down by about 35-50%. However, they are not blaming GST only for the mess.
“It was a well known fact that this business was predominantly unorganized and informal. The sudden shift to formal economy meant that there was shortage of money that can be used for transactions. Demonetization had already slowed down the economy. Later on GST slowed it further,” explained Gaurang Bhagat, president of Maskati Market Kapad Mahajan. He is also the president of New Cloth Market. It is a very rare occasion that both the leading trade body for textiles are led by a single person.
Chain Reaction
The lack of demand on the side of end consumers affected the sales of retail and wholesale traders. Textile processors from whom, these traders make purchases, were consequently hit. “Our sales are down by 50-60%. Units are facing trouble. We have started offering compulsory holidays, sometimes even two or three per week,” said Naresh Sharma, vice president of Ahmedabad Textile Processors Association. It was a double whammy for theme as raw material prices have risen by about 40%. Caught between devil and the deep sea, they are now looking for demand to revive. Sharma, however, said that 5% GST is not much of an issue. Initially, they were not entitled for refunds. Now they are eligible. Sharma said that many of the units have got refunds in past two months.
Refunds still an issue
Prior to introduction of GST, importers of textile machinery got exemption on customs duty paid on imported machinery. With the role out of GST, it was replaced by Integrated GST. However, IGST refund was denied initially. On October 13, the government ordered hat IGST refund could be availed. Those importing after October 13 are getting the refund but for those who had imported between July 1 and October 13 are yet to get refunds.
Wider Damage
Bhagat said that the lack of demand is because of a drop in purchasing power of masses. “Rise in prices of essential items and slowing incomes has altered expenditure pattern of masses. People are now giving priority to basic needs like food and fuel and curbing discretionary expenditure. The resultant impact is that business in all sectors have been hit and textile is not an exception,” said Bhagat. He advised government to bring in experts to revive the economy or else the situation will worsen.
WHAT INDUSTRY PLAYERS SAY
We welcome GST a move towards formalization of economy. But the resultant liquidity crisis has blocked all the parallel currency, which should be somehow brought back into circulation. Government can once again bring amnesty scheme like VDIS and should also reduce Income Tax rates so that there is no tax evasion. The resultant infusion of money into the system will not only accelerate the economy but also bring more revenue in government treasury.— Gaurang Bhagat, president of Maskati Market Kapad Mahajan.
It is not GST per say that is causing the problems. We are now in 5% tax bracket with a provision of Input Tax Credit. We have started getting tax refunds. Actually other factors like rise in prices of raw material is a major problem. On the other hand, there is no demand from the consumers. So we are squeezed from both the sides. Our margins have been squeezed. We now hope that Diwali should change our fortunes and bring turnaround in the market.— Naresh Sharma, vice president, Ahmedabad Textile Processors Association
The Cotton Mission with MCX in Akola, Amravati and Wardha will focus on the creation of cotton farmer producers’ organization (FPOs). The MCX and agriculture department will together identify groups of cotton farmers for the creation of FPOs. The state government has taken a decision to launch Cotton Mission, complete with foolproof market linkages, to help farmers get higher renumeration for cash crop. The mission will be launched from Vidarbha, which is among the highest cotton cultivating regions of Maharashtra.
Chief Minister Devendra Fadnavis has given a nod to the project that entails expansion of multi-commodity exchange (MCX) in districts of Vidarbha.
The first phase of the Cotton Mission, complete with MCX, will be taken up as a pilot project in districts of Wardha, Akola and Amravati. Sources in the government said, “The objective of Cotton Mission is to provide a robust infrastructure to farmers, complete with forward linkages and access to the commodities market.”
Although the government has always mandated minimum support price (MSP) for the cotton crop, often there are various factors, including pest attacks and climatic conditions, which prove detrimental to farmers in fetching higher dividends. Apart from initiating measures to streamline financial flow through increased credit crop loans to cotton cultivators, the government believes access to MCX is essential. The aims and objectives, which have been cited by government officials on MCX states, “Cotton being the prime crop in Vidarbha, a Mission focusing on enhancing market linkages to provide the right support to our farmers, is a must.”
The Cotton Mission with MCX in Akola, Amravati and Wardha will focus on the creation of cotton farmer producers’ organization (FBOs). The MCX and agriculture department will together identify groups of cotton farmers for the creation of FPOs. To make cotton cultivation more economically viable, the state government has also incorporated group farming in the Cotton Mission.
Another area of concern highlighted under Cotton Mission is the expansion of warehouses. At present, there are warehouses in Yavatmal and Jalgaon.
Even after a year has passed since the introduction of GST, tax refunds and anomaliesstill remain a challenge for many in businesses like handicrafts, textiles, gems and jewellery, which have a larger footprint in the state’s economy. Businessleaders from multiple sectors said that while the industry is gradually settling into the new normal the irritants, in some cases holding back companies from expanding their capacity, need to be removed.
“The benefits of Goods and Services Tax (GST) are multiple. But there are some tax anomalies that need to be corrected,” said Dileep Baid, ex-president of Federation of Rajasthan Handicrafts Exporters.
Baid said that the ceramic industry used to pay only 2% tax on diesel which now has increased close to 20% and this has put the Indian handicraft makers at a disadvantage compared to the rivals in China.
“Despite higher cost of doing business in India, we were able to find a market for ourselves against Chinese products. But the additional burden of tax on diesel has created further headwind and reduced our competitiveness. We can only hope that the government understands this and rationalizes taxes on diesel,” added Baid.
Rajasthan is the second largest manufacturer of handicrafts in the country after Uttar Pradesh. The sector which used to pay VAT of around 5% has been put under 12-18% tax bracket in the GST regime. Some segments like furniture even attracts the highest slab of 28%
The textile industry catering to domestic market was impacted initially. But since then, businesses have restructured their operations to the new tax regime. But the export segment has been hit hard by the reduction of duty drawback significantly.
“There are two problem the industry is facing today. The refunds are not being cleared causing tightness in working capital requirements. Secondly, reduction of duty draw back by about 60% for textile exporters has dwelt a big blow,” said Saurav Gupta, general secretary, Association of Garment Exporters, Sitapura.
For the gems and jewellery industry, GST is not much of an issue. What the industry wants is the reduction of 10% import duty and also 0.25% GST on precious and semiprecious stones when studded in jewellery.
“We have been demanding for reduction of import duty from the current 10%. Because, along with GST, the tax component goes up to 13%. In times like this when the rupee is depreciating, we cannot help but increase the prices which is not good for creating demand in the market,” said Kailash Mittal, president of Sarafa Traders Committee.
As Bihar’s Finance Minister, and the chair of an Empowered Committee of State Finance Ministers on GST, Sushil Kumar Modi has been associated with both the formulation and the implementation of the indirect tax regime for long. He now heads a panel of State FMs on GST discounts for digital payments. In an interview with BusinessLine, he spoke of the need to lower the levy on items such as sanitary napkins and biscuits, and also his views on the one-year-old GST regime. Excerpts:
On one year of the GST and the stability of the new tax system
The performance has been better than the expectations. There is stability and whatever apprehensions there were during the initial days, have waned. People have accepted the system and it has, more or less, stablised.
On formalisation of the economy post-GST
GSTN has over one crore registered entities while there were not more than 70 lakh entities under the previous tax system — over 30 lakh entities are new entrants. If you talk about revenue, please remember that the e-Way bill was introduced only from April. We do not have a system of cross-verification. Despite this, we managed to have an average monthly revenue of ?90,000 crore. I am hopeful that with the e-Way bill, the new return forms, the facility to verify input tax credit and settle IGST, the revenue collection during 2018-19 will be much better. Also, this will be indicative of greater formalisation of the economy.
On fewer slabs, and the lowering of rates on some items
I feel we should wait for some time. But what can be considered is removing some goods from the 28 per cent category and placing them in the 18 per cent category; and moving some others from the 18 per cent to the 12 per cent category. Take the example of biscuits, which falls into the 18 per cent category. Another item of common use is the sanitary pad, which attracts GST of 12 per cent. There are many such goods of mass consumption with little revenue implication. Higher rates on such goods also create a bad [public] perception. Hence, the GST Council should consider lowering rates for such goods. You must appreciate that it will be difficult to rationalise the entire structure as of now.
On the experience of consumer States such as Bihar
Prior to the GST’s introduction, the average standard rate of taxation was 14 per cent. For example, it was 14.5 per cent for Bihar, and 13.5 per cent for many States. States were earning 70 per cent revenue from this standard rate. Now, this rate has come down, to 9 per cent on an average. So the States are earning less. At the same time, States are not getting that much revenue from services, which they should get additionally as they are not well-equipped to keep an eye on services.
On bringing petrol and diesel under GST
Petroleum companies will undoubtedly get input tax credit once these products are part of the GST. They will have some advantage, which means some impact on prices. From what I know, throughout the world, States are empowered to levy taxes over and above the GST.
States get up to 40 per cent of their revenue from petroleum products and if there are losses after bringing them [on a par] with the GST, neither the Centre nor the State can absorb such losses.
I don’t think, at least in the near future, petroleum products will be brought under GST. First, we need to be more stable with GST, and then we have to think about bringing natural gas and ATF (aviation turbine fuel) under GST.These will be the first to come under GST.
It is not time to bring petrol and diesel under GST. Until and unless revenue growth is more than 14 per cent, nothing can be thought about. It is not correct to say that the tax rates on petrol and diesel have a big impact on their prices.
