What steps can you suggest to make the Technology Upgradation Fund (TUF) a success?
Since its inception one year back, TUF has received only 557 applications for a project cost of Rs 7,668 crore with a request for loan amounting to Rs 4,288 crore.
Only 380 applications have been sanctioned for an aggregate amount of Rs 2,757 crore of which the amount disbursed is Rs 1000 crore only. The percentage of rejection of applications is around 50 per cent.
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To give a boost to the TUF Scheme, the government has relaxed some prudential norms. However, the main problem today is the survival of the industry. Hence, what is necessary is that the present lacunae noticed in government policies should be removed forthwith.
If discriminatory policies in the field of excise duty and other administrative acts are removed, there will be a level-playing field, which would create the requisite confidence for availment of loans under TUF.
What measures do you suggest to prevent dumping of textiles?
The government has taken an effective step by imposing specific duty rates on imported fabrics with the condition that either the ad valorem rate or the specific rate whichever is higher, is payable. This step has helped to check imports of cheap fabrics to some extent.
That apart, it is noticed that the facilities given to 100 per cent export-oriented units (EOUs) are being misused in some cases. There are reports that some 100 per cent EOUs have imported large quantities of fabrics for conversion into garments and they have simply disappeared without effecting exports. It is, therefore, necessary to be more vigilant while giving licences for such firm avoid malpractices.
It is also said that some garment exporters misuse the facility of duty-free imports of fabrics. To mitigate the situation, one way would be to stop duty-free imports and introduce the facility of proper drawback for neutralising the incidence of duty.
It is also necessary that imported fabrics should be subjected to stamping regulations which have been introduced as consumer protection.
While the rules do provide for stamping on imported fabrics, what is necessary is the tightening of monitoring machinery to ensure that no unstamped fabrics enter the country.
How will be the domestic textile industry scenario by 2005?
The objective of free trade in textiles post-General Agreement on Trade and Tariff has already been threatened by the posture taken by some developed countries. Agreements like North Atlantic Free Trade Agreement (NAFTA) and Sub-Saharan Carribean Basin Agreement would create regional blocks which will enjoy duty exemption to the exclusion of other countries.
The spate of anti-dumping enquiry slapped on developing countries is another formidable barrier to exports. The changes in the rules of origin, environmental issue, labour standards are other weapons in the armory of the developed countries to impede our export efforts significantly.
The rapid progress made by the textile industry in other countries particularly China and countries in south-east Asia to upgrade their production facilities would also result in giving a cut-throat competition in the international trade. Thus, the Indian textile industry has to face a period of challenges, but if we succeed, then there are tremendous opportunities.
Comment on the South Asian Association of Regional Co-operation (SAARC) agreement signed by the government vis-a-vis the textile industry.
The recent SAARC agreement has all the potential to destabilise the domestic textile industry. Already Nepal is the sixth largest supplier of textiles to India without significant presence of the industry in that country.
This happens because SAARC countries import fibres and other raw materials on payment of lower import duty than India and then they send large quantities to India taking advantage of the preferential rates of import duty.
It is, therefore, necessary that instead of giving such preferential treatment, it would be better to have a customs union of SAARC countries so that there will be uniform import duties for all the SAARC member countries. In such a situation, the trade between SAARC countries will not harm any member country.
What is the present status of the domestic textile industry?
At present, out of the 1,569 spinning mills in the country, 243 are closed. In the case of composite mills, the picture is even more depressed as 112 mills are closed out of 286 ones.
The main problem confronting the industry is the existence of over capacity in relation to existing level of domestic consumption of fabrics and the current support opportunities. There are several other factors, which are equally responsible for the sickness of the industry.
In the case of spinning mills, exemption given to small scale spinning mills producing cotton yarn has been the root cause for the plight of the organised spinning sector.
Small scale mills have a cost advantage of Rs 6.75 per kg in lower counts up to 20s and Rs 15.25 per kg in higher counts up to 40s because of depressed wage structure, confessional power tariff and low overheads.
Large scale sector pays excise duty at the rate of 9.2 per cent on cotton yarn which gives further advantages to SSI units because of excise exemption. Thus, the over all advantage to the SSI sector is to the extent of Rs 12.37 per kg.
All this gives unfair competition to large scale spinning mills. The small scale sector has captured 33 per cent of the market.
For composite mills, there is no level-playing field vis-a-vis independent processors because of the existence of differential rates of excise duty.
The so-called hand processing sector has been permitted to use sophisticated finishing machine with the aid of power which makes a mockery of their status as hand processors and of excise exemption given to them.
The independent power processing units pay excise duty on compounded basis. The incidence of excise duty including yarn duty comes to 5-6 per cent in their case against 16 per cent paid by the composite mills.
Naturally, with the distinct advantages of low excise duty, which is just 30-40 per cent of what composite mills are paying, the power processing sector has stolen a march over composite mills.
The wage cost of the organised sector is very high because of higher basic wages, full neutralisation of the rise in the cost of living index, grant of various perquisites etc. The wage structure in the decentralised sector is highly depressed because of low basic wages, inadequate dearness allowance and near-absence of social security measures and other benefits.
Thus the wage cost in the decentralised sector is hardly 20 per cent to 25 per cent of that in the organised sector. As the wage cost accounts for 16-18 per cent in the case of cloth and 30 per cent in the case of yarn, the incidence of higher wage cost puts a heavy burden on the organised sector.
Power is another important element of cost where again there is differentiation between the organised sector and the decentralised sector.
While the organised sector pays power charges at Rs 4 per unit, decentralised sector pays lower charges on compounded basis, which worked out to hardly 50 paise per unit earlier and now 80-90 paise on the revised tariff.