High GST slabs had put the textile exporters in a quandary, but business is normalising after a reduction in taxes. In an exclusive interaction with The Dollar Business, Narain Aggarwal, Chairman, Synthetic & Rayon Textiles Export Promotion Council, talks about the sector’s growth prospects, the role of man-made fibres in helping the sector achieve its ambitious export target and the challenges that exporters continue to face.
Interview by Anishaa Kumar | January 2018 Issue | The Dollar Business
TDB: You took over as the Chairman of the Synthetic & Rayon Textiles Export Promotion Council (SRTEPC) in February 2017. What are your focus areas?
Narain Aggarwal (NA): While there are certain matters which our Council has been looking into since formation and will continue to do so, my area of focus will be increasing exports. I want exports to increase at an average annual growth rate of 15%. The growth however has been miniscule, just about 4% y-o-y between FY2016 and FY2017. Secondly, I would like to make SRTEPC an independent and reliable organisation which will work on a self-sustainable basis. Currently, our only source of income is membership fees. This at times is not enough to complete the many functions of the Council and I would like to explore other areas of revenue generation.
TDB: How would you describe the importance of the Council for the sector?
NA: The Council plays a very important role. It acts as a bridge between the government and the exporters of man-made fibres (MMF), fabrics and yarns. We are the eyes and ears of the government and the government agencies are highly dependent on the Council for the feedback and suggestions to increase exports.
TDB: The government recently agreed to the SRTEPC’s demand for a reduction in GST on yarns from 18% to 12%. Are you satisfied? Are there any concerns that have not been addressed?
NA: Earlier, many traders were not in the tax net: neither Excise nor VAT. But GST has brought these traders under the tax net. Because of this, traders are facing many challenges, but I believe business will normalise by March 2018.
We are satisfied with the latest update with regards to reduction in GST on yarn. That will reduce, to a great extent, the accumulated tax credit problem that the weavers were facing. Due to accumulated tax credit (which is non-refundable), taxes were being indirectly exported. This was not the intention of the government and hence the tax slab was reduced from 18% to 12%.
We have requested that in the entire textile chain, wherever there is a case of accumulated credit, it should be refunded. We have also requested that the government should allow weavers to get the refund of already accumulated tax credit. Despite the reduction, 2-4% accumulated tax credit is still being suffered by weavers. This tax credit should be refunded, or the entire textile chain should have a parallel tax structure.
TDB: What recommendations had you made to the government before GST was implemented?
NA: What we had suggested when GST was being introduced was that there should be ‘fibre neutrality’ i.e. there should be the same rate of tax irrespective of the type of fibre. The government accepted our demand in part. There was ‘fabric neutrality’ as all fabrics were taxed at 5%. Even in garments, the tax credits were the same irrespective of the type of garment. We do appreciate the government’s efforts to create a level-playing field on this issue.
But, there was a major lacuna in the tax framework. In case of synthetics i.e. MMF, the tax on yarn was 18% and on fabric it was 5%, and to add to that the tax was accumulated and non-refundable. So, there was a large quantity of accumulated credit which the weavers could not use, and they had no other option but to add it to the cost of the product they were selling. In business terms, this has resulted in increased prices. We have raised the issue with the government and asked it to reduce the rate or to refund the accumulated tax credit.
TDB: The government recently announced an increase in basic customs duty on the import of fabrics and made-ups of man-made fibres. How will this impact the sector?
NA: There was a huge reduction in duties payable on imported fabrics with the implementation of GST. The reduction was so high that the price difference between fabrics imported pre-GST and post-GST was to the tune of 13%. The import duties have now been increased by 20-25%. There has also been an increase in the floor prices – in order to keep a check on the import price – of some man-made fibres. This will prevent the product from being undervalued during invoicing. These steps will help the sector. Earlier, around Rs.5,000 crore worth of fabric was being imported, which is now expected to decline. If our fabric import is brought down to Rs.1,000 crore it will give the sector an additional revenue of at least Rs.4,000 crore. This will provide a boost to the local industry – weavers, spinners, traders and other stakeholders.
TDB: The New Textile Policy is expected to set an annual export target of $350 billion for the sector by FY2025. How much do you expect MMF exports to contribute towards achieving this?
NA: Our current textile production is way below the target. We will have to raise production by at least three times. Of our total textile production, around 65% is natural fibres like cotton and the remaining 35% is MMF. In natural fibres, a three-fold growth in the next 7 to 8 years is near impossible. As it is a natural product, you cannot raise the productivity to this extent. Also, as the demand for other agricultural products is high, large tracts of land cannot be allocated for cotton production. What can increase is the yield, and I do not expect that to increase by more than 4-5%. So, the onus will be on man-made fibres and textiles. That said, we will have to more than triple their production. At present we are putting together the data and analysing it to find the best way to achieve this target. We need to define a strategic framework to achieve this ambitious target. We will also need assistance and guidance from the government.
TDB: What are the other issues restricting exports?
NA: Our products are not competitive in the international market as some taxes are still being exported. In Gujarat, for example, we have 15-20% in electricity duties that account for around 2% of the FOB value. This is in addition to local taxes, charges at customs and banks, etc. These add to the costs of the exporter and make our products uncompetitive.
Our rate of interest is also higher compared to the international rates. The government has tried to lower the rates for us, but a lot more needs to be done.
Also, the Indian textile sector constitutes a large number of medium and small-scale entrepreneurs while in the international market the textile sector is defined by large enterprises with huge order sizes. As individual entrepreneurs, it is difficult for us to negotiate and compete with these international organisations. We need to set up large manufacturing units to be on an equal footing. We also need to pay much more attention to the processing sector.
TDB: India currently exports MMF textiles to over 100 markets. Are we also exploring newer markets?
NA: We are constantly exploring new markets. The Council is conducting exhibitions and trade fairs in around 8-9 new markets, every year. With the support of the government, the Council and its members are now concentrating on a few countries in Latin America and Africa. These are the continents that hold a lot of growth potential for our exporters. We aim to hold at least one exhibition every year in each of these markets. We are also looking at overcoming certain shortcomings like lack of proper data on these markets. The Council wants to equip exporters with proper tools so that they can attain the best results.