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Expectations from Budget 2018 belied – Here is why

The cause was the unintended but sharp reduction in input tax reimbursement after GST introduction — a reduction of about 5% of sales value. The cause was the unintended but sharp reduction in input tax reimbursement after GST introduction — a reduction of about 5% of sales value.

This is is one Budget which was greatly anticipated by the apparel and textiles industry — and in particular, the apparel export industry. For the last four months, starting October 2017, the apparel export industry has faced continued stress. The cause was the unintended but sharp reduction in input tax reimbursement after GST introduction — a reduction of about 5% of sales value. Indian exporters have a difficult time competing with the duty free status of competing countries like Bangladesh and Vietnam — the added double whammy of the Indian rupee strengthening against the dollar combined with the reduction in input tax has put the industry in huge turmoil.

There is broad agreement that the apparel industry in particular needs a special focus. Its potential for job creation was wonderfully illustrated by Dr Arvind Panagriya in a recent comparision between Reliance Industries Limited and Shahi Exports, India’s larger manufacturer exporter of apparel. For every $2.2 m in assets, RIL employs 5 workers while Shahi employs a staggering 1,260 workers. And Shahi employs mainly women with minimal educational qualifications – precisely the kind of jobs which India needs. The recent Economic Survey stressed the same point and recommended that the GST Council conduct a comprehensive review of embedded taxes arising from products left out of GST, as well as the taxes that get blocked because of tax inversion. Timing is critical – China is vacating market share in apparel owing to its own compulsions and on paper, India is best poised to clothe the world after China.

Unfortunately, most of the market share being vacated is being captured by Bangladesh, Vietnam and Cambodia — with India just not being able to compete.

This is the most important policy change we expected from the Budget and it is here that our expectations have been belied.

The Budget has made perfunctory allocations towards previously announced schemes; interest equalisation (`2,500 cr), Textiles Upgradation Fund (`2,300 cr), Refund of State Levies (`2,164 cr). The extension of Sec 80 JJA to other labour intensive industries like leather/footwear is a good step — and the rationalisation of the 150 day rule is welcome; the reduction of corporate tax to 25% where company turnover is less than `250 crores is also welcomed by the apparel industry, where over 90% are in the MSME sector and below this turnover level.

We appreciate the finance minister’s incentive to encourage participation of women in formal sector employment by reducing their PF contribution to 8% — again of special importance to our industry which employs a high percentage of women.

Income tax Calculator: Calculate impact of Arun Jaitley’s Budget 2018 on your tax liability

What is especially noteworthy is the National Health Protection scheme of upto Rs 5 lakhs per family offered to 10 crore poor households in India. This is the most significant feature of this Budget and will improve the quality of life amongst the less privileged. The allocation towards skill development, affordable housing and TIES (Trade Infrastructure for Export Scheme) is laudable — proper implementation of these schemes should help increase India’s overall competitiveness.

By Gautam Nair, Founder & MD, Matrix Clothing

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