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The Southern India Mills’ Association

Committed to Foster the Growth of the Textile Industry

The agony and ecstasy of MSP: What’s good for farmers may hurt your pocket

Textile industry, which has been consistently seeking help from government for its MSMEs, has conveyed mixed feelings on the announcements made by the finance minister Arun Jaitley in his budget speech in Lok Sabha.
“Overall it is a balanced budget. Several measures have been announced which will benefit the MSME sector and since 99% of the textile industry fall under the MSME sector this is good news,” said Confederation of Indian Textile Industry, Chairman, Sanjay Jain.
The good news
The FM announced a comprehensive package of Rs. 7148 crore for the textile industry in his budget presentation. This has cheered the industry which has been struggling with a backlog of ROSL (rebate on state levies) on exports.
The increase in allocation from Rs 6000 crore to Rs 7148 crore is a big plus. We will have to see the break-up of this allocation, but presuming it is in line with last year’s percentage break-up, it will make more money available for ROSL which has a big backlog. This will consequently help export of madeups and apparels,” said Jain.

The two big announcements made by the government pertaining to the MSME sector: extension of reduced corporate rate tax of 25% for companies with a turnover of up to Rs 250 crore and the promise to “soon announce measures to effectively address NPAs and stressed accounts for MSMEs,” will have a far reaching impact on the textile industry.
The government has also included the textile sector in its fixed term employment system which was earlier made available only for the madeups and apparel segments.
The bad news
To comply with the government’s vision to double farmers’ income by 2022, the finance minister announced the formula for minimum support price will now be applicable to all crops.
“In our party’s manifesto it has been stated that the farmers should realize at least 50% more than the cost of their produce. In other words, one and half times of the cost of their production. We have decided to implement this resolution as a principle for all the crops. I am pleased to announce that as per pre-determined principle, government has decided to keep MSP for the all unannounced crops of kharif at least at one and half times of their production cost. I am confident that this historic decision will prove an important step towards doubling the income of our farmers,” said Jaitley in his speech.
While the move is a welcome initiative for the cotton farmers, it may end up increasing the burden of the MSMEs dealing with cotton fabric. “The biggest highlight of budget is the announcement of MSP for cotton. We are still working out the figures, but this move will definitely result in a high inflation in cotton and though the farmers will gain but the rest of India will have to pay a higher price for clothing,” said Jain.
The move will also end up making the domestic cotton uncompetitive vis-a-vis international prices, added Jain. He said that the textile industry, comprised mainly of MSMEs should not be made to carry the burden of increased cotton rates.
“Our contention has been that the MSP burden should not be transferred to the rest of the chain but that the farmers should be given a direct subsidy. The government could get into a similar trap which had Chinese government in a tangle five years back when they tried to sell their cotton for much above the natural prices and though they moved to direct subsidy two years back, the industry is still saddled with unsold stock,” warned Jain.
The industry has been asking the government for increase in import duty and export incentives to correct the imbalance caused by the introduction of GST.
The foreign trade data released by the Ministry of Commerce and Industry for the month of December 2017 revealed a 3% decline in CAGR in textiles and apparel exports compared to the corresponding period December 2016. The exports of Textiles and Apparel stood at $ 2996 million during December 2017 as against $ 3075 million in December 2016. However, the cumulative export has slightly improved by 2% CAGR as the exports stood at $ 26,136 million in April-Dec 2017 in comparison to $ 25,721 million .
The imports on the other hand saw an increase during the same period imports of textiles during December 2017 stood at US$ 165.34 in comparison to US$ 137.24 in December 2016, registering a rise of 20.48 per cent.
The FM did not announce an increase of 10% in import duty but only on silk fabric the industry is getting dumped with imports from China. We have been demanding increase in the basic custom duty across the chain – yarn and fabric – and it is a big disappointment for the industry. The whole industry is being hit by imports post GST, but now we will have to live with it,” said Jain signing off.