Textile and Leather industries seek tax benefits and labour reforms

The two most labour intensive industries, Textile and Leather, seek tax benefits and labour reforms.
Significance of the textile and leather sector

Indian textile sector is one of the oldest industries in Indian economy. Textile sector is among the largest contributors to India’s exports with ~13% of total exports. The textiles industry is also labour intensive and is one of the largest employers. The textile industry has two broad segments i.e. unorganised and organised. The unorganised sector consists of handloom, handicrafts and sericulture, which operate on a small scale and through traditional tools and methods. The organised sector consists of spinning, apparel and garments, which apply modern machinery and techniques such as economies of scale. The textile industry employs about 45 million people directly and 20 million people indirectly.

Leather is one of the most widely traded commodities globally. The growth in demand for leather is driven by the fashion industry, especially footwear. Apart from this, furniture and interior design industries, as well as the automotive industry also demand leather. The leather industry has a place of prominence in the Indian economy due to substantial export earnings and growth. The Indian leather industry accounts for ~13% of the world’s leather production of hides/skins. The country ranks second in terms of footwear and leather garments production in the world and accounts for ~10% of the world’s footwear production.

Key Budget 2018-19 expectations for textile and leather industries

Garment exporters have sought that the duty reimbursement to them should be retained at the pre-GST (Goods and Services Tax) drawback rates of 5-7%, amid declining exports. Outward shipments likely to miss the US$45bn target for 2017-18 (currently, the drawback rates are 2-2.5%)
Assocham has sought an interest equalisation of 3% in respect of yarn exports in order to make domestic product competitive in international market for boosting yarn exports. It has also sought exemption from payment of GST on exports, reduction in GST rates from 18% to 12% on manmade fibre and sufficient provision for Technology Upgradation Fund Scheme in Union Budget 2018-19.
At least three different industry associations, including silk weavers and textile processors, have made representations to the Centre for relief from the impact of the GST on businesses for getting rid of cost attached to GST compliances, which are hitting small trader’s pocket.

Agriculture experts and farmers’ associations sought income security for the community in a pre-budget meeting with Finance Minister Arun Jaitley. They also urged buffer stocking for commodities whose prices are trading below the MSP i.e. Minimum support price. (Currently the Medium Staple and Long Staple of Cotton are having MSPs of Rs4,020 and Rs4,320 respectively)

All India Trade Union Congress has sought a special social security organisation be set up for providing social security to unorganised workers, where in major contribution should be made by Government. As expected, Government will not go slow on labour reforms. All four codes would be pushed in 2018, including The Code of Wages.

Our Take

To summarize, the textile and leather industries have largely sought tax and labour reforms by the Government in Union Budget 2018-19.

In Budget 2018-19, a comprehensive national policy covering all segments of the textiles industry can give a push to exports, which have remained stagnant because of less demand and stiff competition. A scheme of capacity building in textile and leather sectors can boost skill development and job creation.

It seems very difficult that Government will provide any relief to small traders of textile and leather industries from GST, as it will break input tax credit chain.

A well crafted and well executed National Employment Policy would be the right step in the right direction of labour reforms (in-line with Niti Aayog’s Action Agenda till 2019-20, where it made a case for reforming India's labour laws).

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