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G. Gurumurthy

COIMBATORE, March 7

THE organised textile mill sector has sought to consolidate the gains of the Cenvat chain completion acceded in the Budget for 2003-04, which has sought to plug two key areas of excise duty evasion being witnessed in the industry for years.

The two issues that have been squarely addressed in the Budget along with the announcement of a special package for the textile sector are removal of the deemed Cenvat credit and replacing the optional excise duty at fabric stage hitherto allowed for both woven and knitting segments with mandatory excise regime.

"The long-time benefits of the Cenvat chain completion would be in the area of contracting more investments not only domestic but through the foreign direct investment route, which means speedier modernisation," Mr Vijay Venkataswamy, Deputy Chairman of the Southern India Mills Association (SIMA), said.

"This is because the mandatory excise duty regime now imposed at the fabric stage would allow the weaving sector to avail the Modvat on all inputs including the capital which amounts to 3-4 per cent of the turnover of a modern weaving unit."

Enunciating the advantages of the fiscal corrections attempted by the proposals in the Union Budget relating to the textile sector, he said that the extension of the mandatory excise duty to the weaving stage would remove bottleneck investment constraints hitherto faced by the decentralised weaving industries that have been unable to profitably achieve loom modernisation.

This was partly because the transactions were being carried out outside the books.

The credit flow for the decentralised weaving sector would be made easier now because of the Modvatability of the duties paid.

The abolition of the deemed Modvat claims and the levy of mandatory excise at fabric stage would effectively plug the duty evasion which had of late gone to the extent of disrupting the market mechanisms in the cotton yarn market where quality producers had to suffer losses, he added.

Mr Venkataswamy also held the view that with the Government through the Budget proposals limiting the excise duty exemption in the textile processing industry strictly to those small processors who use only hand-operated machines and in no way used power or steam run operations, the modernisation of the processing sector too would gain momentum.

"Now, we have wider width looms but there has been dearth of wider width processing facility. Possibly with the Budget giving scope for more investment and modernisation of the processing sector, this deficiency could be removed slowly."

The Government's willingness to consider a proposal to have a textile reconstruction fund aimed at helping viable textile units facing difficulties in meeting the debt burden has really pepped the organised textile industry, which has been holding that at least some 30 per cent of the spinning capacity in the country could be nursed back to health if some form of recapping of capital is done on time.

If the potentially viable capacity within India is allowed to die, it may not by itself end the excess capacity syndrome in the sector as an equivalent capacity would spring again in some other parts of the global textile scene such as those in the African and Eastern European regions.

Hence, it is imperative that a textile debt relief fund for revival of the workable spindle capacity is pursued.

The industry's view is that in such an eventuality, the entry level for accessing the debt funds for the units seeking financial recapping should be strictly credit-worth based and not be need-based one.

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