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Textile firms seek tax reform

India's struggling cotton textile industry, once the country's economic powerhouse, is seeking rejuvenation through tax and tariff reforms, an industry executive said on Tuesday.

"The time has come to correct fiscal distortions," Siddhartha Rajagopal, executive director of the Cotton Textiles Export Promotion Council, told Reuters.

The distortions he refers to are excise duty concessions that apply to some segments of the industry but not others, and the application of different tax rates depending on the size of the company, which have created a fragmented industrial structure.

The textile industry contributes about four per cent to India's gross domestic product, 15 per cent of industrial output and 10 per cent of central excise revenue.

"We expect some positive action this year, as the government is seriously looking at various suggestions made by the industry," Rajagopal said, referring to the annual Budget due on February 28.

The sector, which accounts for nearly 30 per cent of India's total exports and employs some 38 million people, is gradually losing its competitive edge, industry officials say.

Higher manufacturing costs and preferential trade agreements by its rivals with the United States and the European Union -- the two biggest markets -- have also hurt India's exports.

About 25 per cent of India's textile exports go to the United States. A large chunk of cotton yarn that is sold to other nations also gets routed to the United States in the form of garments.

Textile exports, including handicrafts and jute products, fell 14 per cent in the first half of 2001-02 (April-March) to $5.29 billion from $6.16 billion a year earlier.

Cotton yarn exports fell 14.1 per cent to 457 million kg (£1 billion) in calendar 2001 from £532 million a year earlier.

Industry officials say financial reform policies should be framed for three to five years to remove uncertainties and enhance the competitiveness of the sector.

WISH LIST

The industry has sought several changes in the tax structure to remove anomalies.

"We are seeking excise duties at every stage of production, from cotton ginning to production of readymade and knitted garments," the Indian Cotton Mills' Federation said in a pre-Budget memorandum to the government.

Some segments are now exempted from excise duties.

"Knitted garment manufacturers are completely exempt from excise duties," said an ICMF official, adding the levies on knitting and weaving segments should be the same as both belong to the same industry and have similar cost structures.

This will ensure a level playing field, leading to increased investments and a bigger share in the world textile market, he said.

"The industry's profitability is so low that it is not attracting any investment which can be called meaningful," said a Northern India Textiles Mills Association official.

"If we fail to address these issues now, the country's share in the global textiles trade may fall to two per cent in the next three years from about 2.7 per cent at present," the official said.

The association also wants the government to abolish the import duty on cotton, currently at 10 per cent.

Rajagopal said the government should extend the concessional customs duty rate of five per cent to imports of all textile machinery. At present, the concession is available only for imports of selected machinery.

Reuters

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