Mumbai, March 4 : The imposition of a 16 per cent excise duty on branded readymade garments is likely to affect investments in the textile sector.Raymond managing director Gautam Singhania said that the decision will be a big blow to the textile industry which has just opened out to an organised sector initiative. Any impediment like imposition of excise duty would seriously affect investments in this area, experts say."The industry warrants a significant amount of value addition, as production is very labour intensive. Hence, the gap left between benefits of Modvat and the excise duty is far too significant to be absorbed by the industry and would have to necessarily be passed on to the consumer," he said.
Mr Singhania added that since the ready-made garments business depends on the textile industry, any impact on it would also logically affect the textile industry in the form of fabric's sale to garments manufacturers. Hence, the imposition of the excise duty is detrimental to the buoyancy, Mr Singhania added.
The Mumbai Textile Merchant's Mahajan also feels the same. The association said: "Imposing 16 per cent advalorem duty will have a negative impact on the textile trade. As such, the trade is passing through critical times since the last few years. At present, 90 per cent production of powerloom in the country is processed through individual processors. All these will be affected. The 16 per cent advalorem duty on powerloom processors will tempt them to evade duty. Even though the duty has been imposed on registered and branded garments which will be modvatable, it will be difficult to claim it as retailers and small manufacturers are not organised.
According to Crisil, the levy of the excise duty would have a mixed impact across the industry, with composite mills being better placed to compete in the market and independent processors facing higher excise incidence. The agency feels that the excise duty is a logical step since the sector has been dereserved from the small scale industry and it is also a form of a preemptive measure for imposition of a counterveiling duty on garment imports at a later date if required. This would result in additional cash outflow for the branded garment segment. Indo Rama Synthetics (I) Ltd managing director OP Lohia said: "Bringing branded garments under the excise regime, reintroducing advalorum duty for independent processors and withdrawing exemption for payment of excise duty for small scale cotton yarn spinning units would reduce evasion."
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
