Apparel industry has reasons to cheer

With the announcement of Union Budget 2012-13, the apparel industry was given some reasons to rejoice and some to frown. The highlights of the Budget for the apparel industry are:

• Branded clothing to get costlier as government implements 10 per cent excise duty
• Cotton sector will continue to remain in the 4 per cent Cenvat bracket
• Provide Rs 30 billion to NABARD, which will benefit 15,000 cooperative societies and about 300,000 handloom weavers
• The list of specified goods, allowed to be imported duty free for use in the manufacture of textile and leather garments, has been expanded by including anti-theft devices like labels, tags and sensors, etc
• Duty free import permitted for trimmings, embellishments, components, etc against exports of leather, footwear and textile garments by merchant exporters subject to certain conditions
• The optional scheme for payment of excise duty on readymade garments and textile made up, those that bear a brand name or are sold under a brand name would no longer be available. An excise duty of 10 per cent is being imposed on such goods without Cenvat credit facility
• The general SSI exemption has been extended to such goods
• The tariff value for charging duty on readymade garments and textile made-ups would be at 60 per cent of the retail sale price
• Excise duty of 5 per cent has been imposed on automatic looms and projectile looms

Association Speak:

Apparel Export Promotion Councileciates the various progressive measures taken in the Union Budget 2012-13. Chairman, AEPC, Dr A Sakthivel says, “Extension of relief for R&D activities and testing laboratories and exemption upto 150 per cent for expenditure on skill development in manufacturing sector as also allocation of Rs 1,000 crore for national skill development programmes are steps in the right direction. The apparel industry also welcomes the initiatives for improving infrastructure facilities like roads, ports and ICDs, which have been major bottlenecks for exports.” The council also welcomes the Rs 5,000 crore allocated for venture capital and exemption of capital gains tax for purchase of new plant and machinery by SMEs. The council looks forward to the government’s intent to implement GST by August 2012.
Custom duty relief to shuttles-less looms and processing machinery is welcome. The council also welcomes the extension of concessional rate of custom duty of 5 per cent to new textile machinery. “However, the council was expecting zero customs duty for special machineries for manufacturing synthetic garments and processing of fibres, which could have increased our export competitiveness,” Dr Sakthivel adds.
Given the increase in the number of services to be included in the service tax net and increase in the service tax rate, the council strongly recommends increasing the service tax refund rate for the apparel sector to 1.5 per cent from the present 0.15 per cent.
Chairman, AEPC, Dr A Sakthivel, says, “The increase in standard excise duty rate from 10 per cent to 12 per cent will adversely impact raw material costs. Besides this, the council is disappointed that the recommendation for removal of excise duty on branded garments has not been accepted.”

E-commerce Speak:

Reacting to the Union Budget 2012-13, Navin Joshua, Founder of Fashos.com, says, “Small and Medium Sector Enterprises face difficulties in raising capital and are often dependent upon banks for the same. The move by the honourable Finance Minister to set up a Rs 5,000 crore India Opportunities Venture Fund with SIDBI is likely to ease some of the difficulties faced by MSMEs. The move is also likely to encourage new entrepreneurs to set up their own businesses, which, in turn, will result into more employment opportunities. “
“The increase in the tax slabs will also help in increasing disposable income of customers, which, in turn, will help them increase spending and investments. This will further augment the growth in the retailing sector (or even e-commerce sector with a modern and smart way of sale and purchase online). Further, the growth sentiments portrayed by the Finance Minister for the economy lays the ground for increased confidence among the masses, which will usher in sense of well being and improved spending,” Joshua adds.

Apparel Retailer Speak:

Gautam Singhania, Chairman and MD, Raymond Ltd, says, “The Union Budget is a positive step towards getting the system back on track. Although big reformist measures were not proposed, the Finance Minister has done a balanced job and has targeted growth across social classes. The middle class also gets some relief by way of an increase in income tax exemption levels, which potentially can spur demand-led growth as well. The reduction of duty on branded garments and abatements to the textile sector, although marginal, is a step in the right direction. Overall, the Budget aims at resilience in the context of the current political and economic scenario.”

Fashion Brand Speak:

Deepak Agarwal, Managing Director, KAZO
This Budget is not providing any growth stimulus to the economy. We were expecting it to be a populist Budget after the election results from a few states and even expecting lot of dynamism for the sunrise sectors in the Budget this time. Also, we were expecting it to be a market friendly Budget besides being slightly reformist.
The increase in excise duty to 12 per cent will prompt immediate price hike from manufacturers and add to the inflation.
The service tax increase impact will also be huge as it will raise inflationary pressures throughout the economy. Services account for nearly 60 per cent of economic activity, so price hikes in this sector will definitely affect the overall prices. It would now be impossible to cut any interest rates since the government has increased taxes on several goods as well. So, overall it is not a good Budget as it leads to higher service charges, climbing inflation and lower chances of an interest rate cut.
On FDI in retail, our view is that the Indian retail industry is one of the prime sunrise sectors with huge growth potential. In spite of the current growth rates, the industry still seems to be the least evolved and the growth of organised retail in India has been much slower as compared to the rest of the world. This slow progress in an otherwise growing and liberalised economy is due to a lack of FDI encouraging policies in the country.