KEY INDUSTRY REGULATIONS

The following regulations and legislations are the significant laws, which broadly govern this industry in India:

Government Regulations & Support

The textile industry, being one of the most significant sectors in the Indian economy, has been a key focus area for the Government of India. A number of policies have been put in place to make the industry more competitive.

Government policies have a major impact on the cotton textile industry. The National Textile Policy, announced once every decade by the Ministry of Textiles, aims at ensuring that the industry is internationally competitive, in terms of manufacturing practices and exports.

The textile packages such as the TUFS aim at making the sector competitive, in terms of productivity and costs. Similarly, the Exim Policy contains export promotion measures like the DEPB and duty drawback schemes. The Union Budget also contains provisions on customs and excise, which have a strong impact on the cost structure of manufacturers.

The government introduced a major positive change for the cotton textile industry in the Union Budget 2004-05 by abolishing the mandatory CENVAT for cotton textile companies (yarn, fabric, garments) and giving an option of complete excise exemption to the companies. Further, in the Union Budget 2005-06, the government de-reserved the knitwear sector that was erstwhile reserved for the SSI sector.

Technology Upgradation Funds Scheme

Government of India has launched Technology Upgradation Fund Scheme (TUFS) for Textile and Jute Industries for a

period of 5 years with effect from 1st April 1999 which has been further extended upto 31/03/07. Under this scheme,

effective rate of interest charged to the concerned borrower will be five percentage points lower than the prevailing commercial rates of interest charged by the Financial Institutions and Banks concerned; the Ministry of Textiles will reimburse the five percentage points under the scheme.

There is no cap on funding under this scheme. Further, loans sanctioned by the lending agency till the last date of the duration of the scheme period will be eligible under the scheme and the reimbursement would continue to be available till the same is repaid as per the normal lending period of the nodal agency.

Regulation of Foreign Investment FEMA Regulations

Foreign investment in India is governed primarily by the provisions of the FEMA which relates to regulation primarily by the RBI and the rules, regulations and notifications thereunder, and the policy prescribed by the Department of Industrial Policy and Promotion, GoI, which is regulated by the FIPB.

The RBI, in exercise of its power under the FEMA, has notified the Foreign xchange Management (Transfer or Issue of Security by a Person Resident Out side India) Regulations, 2000 ( “FEMA Regulations” ) to prohibit, restrict or regulate, transfer by or issue security to a person resident outside India.

As laid down by the FEMA Regulations, no prior consents and approvals is required from te RBI, for FDI under the ‘automatic route’ within the specified sectoral caps. In respect of all industries not specified as FDI under the automatic route, and in respect of investment in excess of the specified sectoral limits under the automatic route, approval may be required from the FIPB and/or the RBI. Presently, investments in companies engaged in the textile sector fall under the RBI’s ‘automatic route’ for FDI/NRI investment of up to 100%.

Ministry of Industry, Department of Industrial Policy and Promotion, Press Note No. 17(1998 series)

Government Regulations Affecting Specific Segments in Cotton Textile Chain

Cotton

Minimum Support Price

The government has to ensure adequate production of cotton, the main raw material for yarn. Therefore, it announces a MSP for cotton to provide incentives to cotton growers every year. This ensures adequate returns to the growers (after accounting for input costs). Whenever cotton prices fall below the MSP, the Cotton Corporation of India (CCI) provides price support by buying the cotton produce and bringing the prices at normal levels. In general, market prices are higher than the MSP announced by the Central government. Hence, the MSP does not have a significant impact on domestic prices and thus is redundant.

Cotton Technology Mission (CTM)

The CTM was introduced to increase the yield and quality of cotton available to the domestic spinning mills. It aims at upgrading the ginning and pressing mills to minimize the contamination of cotton. The CTM is jointly commissioned by the Ministry of Agriculture and Ministry of Textiles. The Ministry of Textiles is responsible for implementation of Mini Mission III and IV involving improvement in marketing infrastructure and modernization of ginning and pressing factories, respectively. The Central and state governments allocated Rs 1.5 billion to the CTM during the Tenth Plan (2001-2002 to 2006-07).

Four mini missions were established under CTM

Mini mission I: Cotton research and technology generation, with the Indian Council for Agriculture Research (ICAR) as the central agency.

Mini mission II: Transfer of technology and development, with the Department of Agriculture and Co-operation (Ministry of Agriculture) as the central agency.

Mini mission III: Improvement of marketing infrastructure, with the Ministry of Textiles as the central agency and setting up of new regulated markets.

Mini mission IV: Modernization and up gradation of ginning and processing factories, with the Ministry of Textiles as the central agency.

Progress

Till January 2005, under Mini mission III, a total of 112 project proposals (setting up of 17 new market yards, improvement of 80 market yards and activation of 15 market yards) have been sanctioned. The total estimated cost is Rs 1,968.4 million, of which the share of the government is Rs 985.5 million. Out of the 112 market yards sanctioned for development, work on 75 yards has been completed.

Under Mini mission IV; modernization of 429 ginning and pressing factories has been sanctioned, at an estimated cost of Rs 5,539.8 million, of which the Central government’s share is Rs 966.8 million. In the post-quota regime, these measures are significant, as they will help in enhancing the cost-competitiveness along with quality, which will be the parameters guiding the global trade in textiles. Therefore, to achieve the desired objective of producing contamination-free cotton, the Ministry of Textiles is considering an expansion of the scheme so that 80 per cent of the cotton in the country is marketed in developed market yards and processed in modernized factories.

Control through CCI (Cotton Corporation of India Limited)

In July 1970, the government set up the CCI for purchasing, selling and distributing cotton, and as a ationaliz agency for imports and exports, to ensure stability in cotton prices and adequate supply to the spinning sector. In 1986, the government redefined the role and functions of CCI, in order to include price support operations without any quantitative limits. This was to ensure that whenever the market prices of cotton reached the support price levels fixed by the government, the entire loss would be reimbursed by the government. CCI also undertakes commercial purchases of cotton on the basis of firm indents received from buyers. In addition to marketing activities, CCI has initiated schemes to benefit cotton growers by increasing the area, yield and production in the country, and upgrading processing facilities and other infrastructure.

Cotton yarn

Hank Yarn Obligation Scheme

Cotton yarn can be packed either in a hank or cone form. (Handloom units use the hank form and weaving units use the cone form.) In January 1974, the Indian government introduced a scheme of Statutory Hank Yarn Obligation in order to ensure the availability of the required quantity of hank yarn to the handloom sector. According to the scheme, a yarn producer will have to compulsorily pack not less than 50 per cent of the total yarn packed for domestic consumption in the hank form. In addition, 80 per cent of the yarn packed in hank form will have to be of ‘the 40s and below’ count group. Mills will have to submit quarterly returns regarding the delivery of hank yarn to the respective regional offices of the Textile Commissioner. This scheme is not applicable to 100 per cent export-oriented units and deemed exports.

The cotton-spinning sector wanted the abolition of the Hank Yarn Obligation Scheme. This was because the powerloom sector was misusing the scheme by using hank yarn to produce cotton fabric, as hank yarn under this scheme was exempt from excise duty. To prevent this misuse, the Union Budget 2002-03 brought cotton hank yarn under the tax net of excise duty. Handloom weavers will continue to benefit, as a subsidy will be provided on the price of the hank yarn purchased by them.

Fabric

Group work shed scheme for powerlooms

The Central government approved a group work shed scheme for the rationalization of powerloom sector, during the tenth 5-year plan. This scheme aims at setting up powerloom clusters with modern weaving machines to facilitate installation of larger and improved looms, a better working environment and improved working efficiency.

Under this scheme, the maximum permissible subsidy per beneficiary will be restricted to Rs 1.15 million to cover an area of 14,400 square feet, for both powerloom sheds and preparatory units The government proposed various government regulations for the weaving and knitting sector separately.

Weaving sector Power looms

In the Textile Policy 2000, the government proposed to provide cluster-weaving facility in various weaving zones to improve the economies of scale of the powerloom sector. It recommended ationalizati of the powerloom centres and facilities in order to achieve optimum production levels. The government gave 20 per cent capital subsidy for rationalization of weaving machinery, limiting the investment on capital equipment to Rs 5 million.

Handloom

The Textile Policy 2000 recommended training modules for weavers to upgrade their skills to survive competition in the global markets. It also laid stress on value-added items such as made-ups for exports in the handloom sector. The policy announced government support for research and development, design inputs, skill upgradation and market infrastructure.

According to the Textile Policy 2000, the Hank Yarn Obligation Scheme will be reviewed (based on the needs of the handloom weavers). In line with this, cotton hank yarn was brought under the tax net of excise duty in the Union Budget 2002-03. This was to prevent misuse of the hank yarn by the powerloom sector, since it was exempt from excise duty. However, handloom weavers will continue to benefit, as a subsidy will be provided on hank yarn purchased by them. The policy also provides life insurance scheme for 2 million handloom weavers, with an insurance cover up to Rs 50,000 for each in 2 years (which will cost Rs 3 million per year).

Composite mills

workers employed with non-viable textile mills in the public and private sectors. It also proposes to review the textile workers policy in the Rehabilitation Fund scheme. It laid stress on encouraging large integrated textile complexes.

The Central government implemented the Textile Workers’ Rehabilitation Fund Scheme (TWRFS). This scheme is meant to provide relief for an interim period of 3 years to workers displaced by permanent closure of textile mills or units.

Many composite mills will be able to focus better on fabric processing and brand development with the closing down of non-viable composite textile mills (after the rationalization of the exit policy).

Knitting sector

The government proposed to review the SSI reservation policy for the sector. In the Union Budget 2002-03, it was proposed that the knitted garment sector be deregulated and removed from the SSI category. However, this did not happen, due to resistance from the knitted garments sector. Finally, in the Union Budget 2005-06, it was de-reserved from the SSI category that earlier had a cap of Rs 50 million on plant and machinery. The government also proposed to encourage capacity expansion in the sector, through the TUFS.

Processing and finishing sector

The textile policy proposed to encourage new, modern processing units that meet international quality and environment norms. It also proposed to increase the availability of eco-friendly dyes for processing. The processing and finishing sector is not expected to be affected, as the policy does not provide any significant incentives for rationalization of production facilities.

Clothing sector

The government proposed to remove the garment industry from the SSI reservation list. It also planned to set up new textile/apparel parks to provide necessary infrastructure facilities in various states with the help of the Textile Commissioner’s office. Apart from the above, the government also intends to encourage the setting up of domestic retail chains, in order to ensure easy availability of branded products. In the Union Budget 2002-03, the woven garment sector was deregulated and removed from the SSI category. In the Union Budget 2005-06, the knitwear sector including knitted garments was de-reserved from the SSI sector.

Excise Regulations:

The Central Excise Act, 1944 seeks to impose an excise duty on specified excisable goods, which are produced or manufactured in India. However, the Government has the power to exempt certain specified goods from excise duty, by notification. The rate, at which the said duty is sought to be imposed, is contained in the Central Excise Tariff Act and presently attracts an excise duty at the rate of 16% of the value of the goods calculated in accordance with the said Act. An additional 3% education cess has been levied and therefore, the aggregate excise duty is 16.48% ad valorem.

Customs Regulations:

Environmental and other Regulations:

Power looms

In the Textile Policy 2000, the government proposed to provide cluster-weaving facility in various weaving zones to improve the economies of scale of the powerloom sector. It recommended ationalizati of the powerloom centres and facilities in order to achieve optimum production levels. The government gave 20 per cent capital subsidy for modernising machinery, limiting the investment on capital equipment to Rs 5 million.

Handloom

The Textile Policy 2000 recommended training modules for weavers to upgrade their skills to survive competition in the global markets. It also laid stress on value-added items such as made-ups for exports in the handloom sector. The policy announced government support for research and development, design inputs, skill upgradation and market infrastructure.

According to the Textile Policy 2000, the Hank Yarn Obligation Scheme will be reviewed (based on the needs of the handloom weavers). In line with this, cotton hank yarn was brought under the tax net of excise duty in the Union Budget

2002-03. This was to prevent misuse of the hank yarn by the powerloom sector, since it was exempt from excise duty. However, handloom weavers will continue to benefit, as a subsidy will be provided on hank yarn purchased by them. The policy also provides life insurance scheme for 2 million handloom weavers, with an insurance cover up to Rs 50,000 for each in 2 years (which will cost Rs 3 million per year).

Composite mills

Through the textile policy, the government proposed to encourage strategic alliances with international textile majors to develop new products and to encourage retailing. It also spoke of closing down non-viable mills, while ensuring adequate safety nets for workers and employees. The policy also covered the need to ationaliza the exit policy for the textile workers employed with non-viable textile mills in the public and private sectors. It also proposes to review the textile workers policy in the Rehabilitation Fund scheme. It laid stress on encouraging large integrated textile complexes.

The Central government implemented the Textile Workers’ Rehabilitation Fund Scheme (TWRFS). This scheme is meant to provide relief for an interim period of 3 years to workers displaced by permanent closure of textile mills or units.

Many composite mills will be able to focus better on fabric processing and brand development with the closing down of non-viable composite textile mills (after the ationalization of the exit policy).

OUR HISTORY AND CORPORATE STRUCTURE