The Hindu Business Line : `Level field must for more investments in textile industry'

EVEN as the controversy over bringing in some segment of the unorganised powerloom industry under excise net is raging, with the United Progressive Alliance (UPA) Government distinctly but discreetly signalling its reluctance to do so, the key issue of retention of unbroken chain in Central Value Added Tax (CENVAT) by bringing all segments of textile industry under excise levy appears to have been sidestepped.

But the Secretary (Textiles) Mr S.B. Mohapatra, who demits office on June 30, told Business Line here in an exclusive interview that not only domestic chambers of commerce and industry but also international consultants such as McKinsey, Accenture and KC Techopack and Kelkar Committee on tax reforms have plumped for the unbroken CENVAT chain in textile industry so as to reduce policy-induced distortions and ensure a fair level-playing ground.

``The objective of CENVAT chain is to see that at every stage duty is Modvated (modified value-added tax) so that ultimate incidence is very minimal. Today, some people are saying that CENVAT chain is bad. It has killed handloom and powerloom,'' he said.

Stating that the Finance Ministry sought the views of the Textile Ministry on this, Mr Mohapatra said, ``we told them that we have created a system. Now if you can create a better system you are welcome; and if you think the same objective can be achieved in a different way, what is our problem?''

He further noted that today some people are saying ``we can go for even zero duty on textile products. CENVAT chain should be modified. Powerloom can be exempted. My view is that if you feel that CENVAT is not good, you modify it. But ensure three things.''

First, he said, the policy should be to boost investment and modernisation in the textile industry. Second, provide some measure of protection to domestic industry against dumping from China and other countries and third it should provide a fair level playing ground to all the sectors— organised mills, powerloom and handloom.

He further said that ``if your Budget is not investor-friendly, if it does not give incentives for investment in textile or if it does not provide a level-playing field'' investors would not come into the industry in droves.

Asked to amplify what he meant by a fair level playing field, Mr Mohapatra said, ``some sectors are getting undue advantages and the classic case is hand-processors versus normal processors. When you see good processing units in South India, they are all hand-processors, cheating on excise duty. You can't have a system where some fellows would be compelled to pay duty while others will be allowed to go scot-free. This cannot work.''

To a specific query about the dwindling contribution of organised textile mills in the country's total textile and clothing production, Mr Mohapatra said that the time has come to review policy for organised mills which suffer from cost disadvantages vis-à-vis powerlooms. He said the move to effect a textile-restructuring fund for the sick mills in the organised sector has also not been successful. ``They wanted to do it by raising commercial borrowings but Indian banks are not either willing or eligible to borrow abroad,'' he quipped.

He said that even as the Indian textile industry is ready for ``a quantum jump'' after the quota regime is over, this is not possible ``unless we give a proper fiscal regime which will encourage investment'' as otherwise ``the textile industry will face very stiff competition and go down.''

When his attention was drawn to export prospects for the industry, Mr Mohapatra said, ``you must have free trade agreements (FTAs) and successful market access negotiations post-Cancun'' to cash in on the dismantling of the quota regime. He said last year India achieved textile export turnover of $13.5 billion. For the current fiscal, he said the target is tentatively put at $15 billion. He also pointed out that retail giants like Wal-Mart, J.C. Penny and Gap have opened their representative offices for procuring Indian textile goods but cautioned against any complacency by stating that ``if they place orders China supplies in 15 days, while India will take 45 days because your truck wallas or port wallas go on strike.''