Exporters in Tirupur happy, but say tax holiday can help more

Exporters in Tirupur happy, but say tax holiday can help more

Kochi: Exporters in Tirupur, Tamil Nadu—a hub of India’s textile industry—have welcomed the economic stimulus package the government announced on Sunday.

They, however, plan to ask for a five-year income-tax holiday and a two-year moratorium on repaying term loans and interest in the next phase of stimulus when it comes, using the examples of Pakistan and China, both large garment exporters that have extended sops to the industry there, an industry lobby group said.

“Our buyers are asking for price reduction, and in the current circumstances, our garment exporters are no way in a position to concede the buyers’ requisitions as their cost of manufacturing has already gone up significantly," A. Sakthivel, president of the 6,000-member Tirupur Exporters Association, said.

He said the 2% subvention, or interest subsidy, on packing credit was welcome, though the industry had sought 4%, given that prime lending rates (PLR) were still on the higher side.

PLR is the rate at which banks lend to their most creditworthy customers. Packing credit refers to loans to textiles companies to buy raw material. The government will now pick 2% of the interest cost on such credit.

The government infusing some Rs1,400 crore into the Technology Upgradation Fund Scheme should help the industry clear its backlog, Sakthivel said.

Textile units were earlier eligible for a 5% subvention and 10% capital subsidy to upgrade textile machinery. The new infusion is expected to clear backlog in payments for such technological upgrades.

The provision of an additional Rs1,100 crore for full refund of terminal excise duty and another Rs350 crore for export-incentive schemes and a backup guarantee of Rs350 crore to Export Credit Guarantee Corp. of India Ltd to provide guarantees for exports to difficult markets and products will help exporters in a big way, Sakthivel said.

“It is also important to look at exemption from payment of all service and fringe benefit taxes instead of giving refund of tax paid on a few services, fixing duty drawback rate for cotton knitwear garments at 12% and a 7% packing credit across the board or an increase in interest subvention to 4% from the present 2%," he said.

If these issues were not addressed immediately, the garment industry, which is facing a 25-30% decline in growth this year, could see a flight of orders to competing countries, such as Pakistan and China, Sakthivel said.

The hosiery units in the textile town currently use about 25% of the 2,600 million kg cotton yarn produced in India and export some 250 million kg of the 700 million kg garments produced. Tirupur’s textile units did business of some Rs9,950 crore in the fiscal year to March.

Other competing countries that include China and Pakistan have increased export incentives for textile products to counter the global economic slowdown, Sakthivel said. China, for example, has also increased tax refund rates to 13% from 9%, he said.