The Rs 6,000-crore Booster

The Central government's decision to provide a Rs 6,000 crore special package for the textile and apparel sector is a welcome move. It will boost exports and benefit the workers. The incentives are intended to create over one crore jobs in three years, attract investments of $11 billion and generate exports worth $30 billion.

Our industry has a clear disadvantage due to our main competitor Bangladesh's least developed nation status, which makes overseas buyers exempt from import duty. India used to be the leader in garment exports but Bangladesh and Vietnam overtook us in the past few years due to our competitive disadvantages.

So, the government has announced an additional 5 per cent duty drawback for garments. Also, for the first time, it has decided to refund the state levies. Drawback at 'all industries rate' will be given for domestic duty paid on inputs even when fabrics are imported under the Advance Authorisation Scheme. Of the Rs 6,000 crore, Rs 5,500 crore is for this benefit. The remaining Rs 500 crore is for additional incentives under the Amended Technology Upgradation Funds Scheme, where subsidy to garment units under the scheme is being increased from 15 per cent to 25 per cent. This will create more employment.

Earlier, under Section 80JJAA of the Income Tax Act, 30 per cent deduction on additional wages paid to new regular employees was allowed only if they were employed for 240 days. For the garment industry, this has been relaxed to 150 days for the initial three years. This is welcome considering that the business is seasonal in nature.

Similarly, the government will pay the entire employer's contribution of 12 per cent for three years under the Employee Provident Fund Scheme for new employees of the industry earning less than Rs 15,000 per month. Under the plan, 8.33 per cent will be paid through the Pradhan Mantri Rozgar Protsahan Yojana and the remaining 3.67 per cent will be given by the Ministry of Textiles.

Another path-breaking move is to allow overtime for workers. As per our local laws, workers were not allowed overtime for more than 50 hours over three months. This has been revised to 96 hours. The workers were demanding more overtime. This will help improve productivity and income.

I think with these incentives, the disparity with Bangladesh will come down straightaway by 5-6 per cent from the 11 per cent duty difference right now. The incentives will encourage existing entrepreneurs to start more units and attract new entrepreneurs to the sector. The changes can be visible in the next 6-10 months as it is easy to add a new unit in the garment industry.

The changes are sure to bridge the export gap between India and Bangladesh, as currently we export garments worth $17 billion whereas Bangladesh exports garments worth $36 billion. The decisions are sure to attract more buyers from EU, US and countries like Canada. Another advantage India has is that China is losing edge in this industry due to increasing labour and input costs and is moving to high-technology exports.

All these changes are sure to increase the profit margins of Indian exporters.

As told to P. B. Jayakumar

The writer is Chairman of NSDC's Apparel, Made-ups and Home Furnishing Sector Skill Council