Cabinet approves special package to make garment segment globally competitive
Jobs for one crore people, mostly women, $30 billion increase in exports and investments worth Rs. 74,000 crores – all in three years. These are the targets set in a special package for the textile and apparel sector recently approved by the Union Cabinet under the chairmanship of Prime Minister Narendra Modi.
The move comes in the backdrop of the package of reforms announced by the Government for generation of one crore jobs in the textile and apparel industry over next three years. The package includes a slew of measures which are labour friendly and would promote employment generation, economies of scale and boost exports. The steps will lead to a cumulative increase of $30 billion in exports and investment of Rs. 74,000 crores over the next 3 years.
The majority of new jobs are likely to go to women since the garment industry employs nearly 70 per cent women workforce. Thus, the package would help in social transformation through women empowerment.
The salient features of the package announced are:
Employee Provident Fund Scheme reforms
The Union Government would bear the entire 12 per cent of the employers’ contribution to the Employers Provident Fund Scheme for new employees of the garment industry, who are earning less than Rs. 15,000 per month, for the first three years.
At present, 8.33 per cent of employer’s contribution is already being provided by the Government under Pradhan Mantri Rozgar Protsahan Yojana (PMRPY). The Ministry of Textiles shall provide an additional 3.67 per cent of the employer’s contribution amounting to Rs. 1,170 crores over the next three years.
EPF shall be made optional for employees earning less than Rs. 15,000 per month
This would leave more money in the hands of workers and also promote employment in the formal sector.
Increasing overtime caps
Overtime hours for workers not to exceed 8 hours per week in line with the ILO norms. This would lead to increased earnings for workers.
Introduction of fixed term employment
Looking to the seasonal nature of the industry, fixed term employment will be introduced for the garment sector
A fixed term workman will be considered at par with a permanent workman in terms of working hours, wages, allowances and other statutory dues.
Additional incentives under ATUFS
The package breaks new ground in moving from input to outcome-based incentives by increasing subsidy under the Amended-TUFS from 15 per cent to 25 per cent for the garment sector as a boost to employment generation. A unique feature of the scheme will be to disburse the subsidy only after the expected jobs are created.
Enhanced duty drawback coverage
In a first of its kind move, a new scheme will be introduced to refund the State levies which were not refunded so far. This move is expected to cost the exchequer Rs. 5,500 crores but will greatly boost the competitiveness of Indian exports in foreign markets. Drawback at All Industries Rate to be given for domestic duty paid inputs even when fabrics are imported under the Advance Authorization Scheme.
Over the next three years, this is expected to result in increase in exports by $9.5 billion, increase in employment by 9.5 lakhs and increase in investment by $2.7 billion.
Enhancing scope of Section 80JJAA of Income Tax Act
Looking at the seasonal nature of the garment industry, the provision of 240 days under Section 80JJAA of the Income Tax Act would be relaxed to 150 days for the garment industry
CITI hails special initiative for job creation
The Confederation of Indian Textile Industry (CITI) has welcomed the special initiative taken by the Government for job creation in the garment industry.
In a press release, CITI has stated that this is the first step towards creating employment and that more such initiatives are expected to follow to strengthen and support the textile value chain and the “Make in India” initiative.
China and India have robust textile value chain, which has been the core strength and source of confidence for international buying houses. It is also a fact that Bangladesh is heavily investing to strengthen the textile value chain to provide relief to buying houses and maintain their growth for garment exports.
On the back of TPP discussions, Vietnam is investing in substantial capacities for yarn and fabric manufacturing to bolster the value chain to support and enhance garment exports. The package approved by the Cabinet should integrate the apparel export benefit to further strengthen the textile value chain.
While CITI appreciates that the Government is considering compensation for the State taxes suffered by garment exporters, it feels it is important to appreciate that the highest embedded State taxes are at the fabric stage due to complex and involved manufacturing process.
In the interest of maintaining and strengthening the textile value chain and the ‘make-in-India’ initiative, CITI has suggested that garment exporters be encouraged to source cotton and other fabrics that are manufactured in India. Textile manufacturers should able be to avail the benefits under the deemed export scheme, which would make them eligible for the benefits of the duty-drawback scheme. It would indeed be a win-win situation for apparel and textile manufacturers working together, contributing to employment and retaining value addition within the country.
It has also been suggested that some of the benefits such as the overtime and fixed time employment scheme be extended to the full textile value chain. If the scheme can be modified to strengthen the value chain, eliminate taxes and support productivity improvement, the ultimate outcome would be far superior.
A recent study by the World Bank on apparel sector employment, trade and economic development in South Asia recognizes the fact that international buyers value full package vertical capability and thus the entire value chain. This would mean that international buyers prefer to work with suppliers who provide full package, that is, fabric manufacturing and supply chain related services, in addition to assembly activities. CITI further acknowledges that the vertical integration of textile value chain is India’s strength.
Keeping these factors in mind, CITI has urged the Government to link the scheme to other segments of the textile value chain.
Package is timely, says AEPC
Reacting to the special steps announced by the Government, Mr. Ashok G. Rajani, Chairman of Apparel Export Promotion Council (AEPC), said: “The apparel industry thanks the Prime Minister and the Textile Minister, Mr. Santosh Gangwar, for a very comprehensive package that has not only addressed the industry’s needs, but also the employment generation needs of the country that this industry can address. The cost differential that India suffers vis-à-vis the competing countries has been duly addressed. The refund of employers’ contribution of EPF, additional incentives under ATUFS, enhanced duty drawback coverage with drawback for domestic duty paid inputs even when fabrics are imported under the Advance Authorization Scheme, etc., are measures that will help the industry gain cost competitiveness”.
He added: “The labor reforms will not only help the industry but also the workmen as it encourages new employment, ensures better take-home salaries for lower income workers and puts contractual workers at par with permanent workman in terms of working hours, wages and other statutory dues. The industry is gearing up for the $20 billion target set for this year. With a decline in exports for the last five months in a row, major global markets still recording negative growth and the Brexit uncertainty looming large, the package is timely and gives the industry hope for revival.”
An attractive package: SIMA
The Chairman of the Southern India Mills Association (SIMA), has profusely thanked the Prime Minister and the Union Cabinet, particularly the Minister of State for Textiles, for announcing such an attractive package at a time when the entire textile industry has been passing through a long-drawn recession due to delayed FTAs and market access limitations.
He has stated that the package would also help the entire value chain, right from fibre to finished fabric, thanks to the expected higher demand in the long run.
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Mr. R. Rajendran, Director, Lakshmi Machine Works Ltd., has stated that the policy will have a positive impact on the far end of the value chain and will help in job creation and boost exports. The additional incentives for duty drawback scheme for garments, flexibility in labour laws to increase productivity as well as tax and production incentives for job creation in garment manufacturing are most welcome. The Government has made a right move when exports are stagnant.
The policy will act as a morale booster for the stressed textile industry and will help increase garment exports. The additional TUFs funds for garment sector will help it to modernise the units and reduce the input cost to stay competitive.
According to him, the measures are to be implemented upright, and any positive growth in the garment sector will have a cascading effect on the entire value chain. Thus, it will benefit all other segments such as spinning, weaving, knitting, processing, etc.
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Mr. Updeep Singh, Managing Director, Itema Weaving India, has observed: “This is a welcome step for the Indian textile industry, and a lot will depend on its implementation and ease of operation. This will definitely give a desirable boost to the industry in terms of value addition by building up scale and competitiveness. This package, coupled with timely and effective culmination of FTA with Europe, will provide a level playing field for the garment industry in India with its neighbouring countries.
Taking advantage of the package, the industry should invest significantly in technology and skill development to augment its scale and efficiency. To further enhance the opportunities arising from this new textile policy, it is quintessential that the industry prioritizes to invest in the best technology available in the market today in order to maximize the Indian companies’ competitiveness in the global landscape and achieve the highest possible pinnacle of success and return of investment.
Mr. Singh has further stated that to achieve the projected growth of export earnings and also to meet the domestic demand, the Industry is bound to invest heavily in the latest technology in the textile value chain where weaving is a critical link both for upstream and downstream, and requires a major boost. “We see this as a big opportunity for the weaving industry to grow, especially in the small and medium sector. This will also help to improve the domestic market for yarn, which has been subdued for quite some time now. With the scale of weaving in India improving, the garment industry will benefit in terms of availability of fabric, shorter lead times and lower logistics costs. In addition Export incentives in such case can be passed across the value chain.”
Itema Group, with its innovative technology and growing leadership in the three top weft insertion technologies – rapier, airjet and projectile – has a great potential to grow in all sectors like apparels, functional clothing, technical textiles, home textiles and many others to be part of the ‘Made in India’ campaign for fabric, with the implementation of this package.
“Moreover, due to our organization in India, with qualified aftersales service, real time assistance and local spareparts stock, Itema is the ideal partner for the Indian weavers,” Mr. Singh has added.