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PRE BUDGET REPORTS

Textile Machinery: Remove TUFS benefit for imported second-hand textile machinery

Textile Engineering Industry (TEI) in India was is more than 6 decades old, dated back to 1950's – age of Industrialization. The capacity creation and technological levels in the Textile Engineering Industry has been largely influenced by the spinning sector which has modernized and expanded substantially in the last several decades. The entire range of machinery required for spinning is manufactured by Indian TEI. According to the industry statistics, production of spinning and allied machinery constituted lion share of 60% of the total textile machinery production in FY10, followed by Synthetic fibers/ yarn machines and 10%

The pre-dominance of the decentralized sector in the weaving and finishing sectors has stymied the demand for domestic capital goods (generally) and hi-tech ones (specifically). In the absence of an economically viable demand the Textiles Machinery Manufacturing Industry (TMMI) did not built up enough capacity to produce hi-tech weaving, knitting and processing machines, earlier. However, Due to the spurt in demand after 2004, the TEI had geared up its technology level and ventured in the fields of shuttle less rapier looms, water jet looms and air jet loom and continuous dyeing range, bleaching range, mercerizing and pre-shrinking ranges. The share of weaving and allied machines was 10% of total production value by end of FY10.

The fortunes of the TEI are linked with the textile industry and the performance of the TEI has also shown significant improvement during 2005-06 to 2007-08 in line with textiles industry. Financial meltdown in US and EU during 2008/09 coupled with spike in the cotton prices during 2010/11 has dented the sheen of textile industry and there by resulted in slowdown of capacity expansions. This resulted in pressure on the order intake and also order backlog of textile engineering industry. On a lower base, the aggregates of 19 textile machinery companies have reported marginal 1% dip in the Net Profit at Rs 140 crore despite healthy 26% increase in the revenues at Rs 1834 crore. OPM slipped 260 bps to 13.7% mainly on the back of spike in the raw materials, thus resulting in the flattish profitability.

Textile Machinery Manufacturers Association (TMMA) has voiced the Issues, concerns and has reported their submissions to the Government for consideration in the upcoming Union Budget 2012. The recommendations of the above associations are as below.

Industry Recommendations

• Launch TUF scheme dedicated to the Indian textile machinery Industry with an interest reimbursement outlay of Rs 250 crore for 12^th five year Plan and based on similar principles and address the following major areas: (a) Expansion and modernization of existing textile machinery manufacturing companies (b) Acquisition of technical know-how from overseas (c) Industry segments regarded as weak or non-existing (rotors spinning, automatic winding, weaving, processing, knitting and industrial sewing equipment) should be eligible for 10% capital subsidy in addition to interest reimbursement.
• Restrict free import of textile machinery in second hand machines by stipulating a specified minimum residual life of 10 years and further subject to the condition that the second hand machinery should not be older than 5 years. Further, Imported second-hand textile machinery should not be given subsidy under the Technology Up gradation Fund Scheme (TUFS) and its derivatives namely 20% CLCS and 15% CLCS Scheme, in the name of modernization.
• Ban import of second-hand shuttle less looms with weft insertion rate less than 700 mtrs per minute.
• Treat supply of local textile machinery under EPCG on par with EOU schemes.
• Cut the excise duty on all items of Textile machinery in general and all parts, components and accessories of textile machinery from current 10% to 8%.
• Provide uniform duties on machines and their parts. Excise duty on textile machinery under "List 2" should be kept at same level of 5% and increase the excise duty on textile machinery under "List 3" should be increased to 5% from current nil duty. On the other hand, the excise duty on parts and components of machines under List 2 and 3 should also be placed at 5% respectively.
• Cut the rate of customs duty on raw materials, parts, components and accessories of textile machinery from existing 7.5% to 5%.
• Import duty on dedicated parts, components and accessories of shuttle less looms, compact ring spinning machines and cone winding machines which are not made in India so far, should be cut to zero so as to facilitate manufacturing of high tech machinery and bridge the technology gap.
• Provide level ground for all textile machinery and levy 7.5% customs duty on all the textile machines. Thus increase customs duty on complete list of machinery and its parts under list 30, 31, 32, 45, and 46 from 5% to 7.5%.
• Include partnership/ proprietary units along with companies for 200% weighted deduction on R&D expenditure.
• Provide Tax break for a period of 5 years for any unit manufacturing Hi-Tech item of textile machinery with or without foreign collaboration
• Strengthen existing TEI clusters in five important cities by establishment of five Common Facility Centers (CFC). Encourage establishment of new TEI units and SEZ especially for FDI promotion
• Foster R&D culture through specific initiatives like Capital subsidy up to 50% for viable R&D projects, Incentive for innovation design and product development, Institutional collaboration between Indian and foreign institutes etc.

Companies to watch:

Lakshmi Machine Works, Lohia Starlinger, Schlafhorst Engineering, Veejay Lakshmi Engineering etc.

Outlook:

Indian Textile Engineering Industry requires support for modernization, technical up gradation and productivity advancement of their units. Creation of modernization or TUF similar to textile industry and aid in R&D will help to increase the scale of the industry and expand its product portfolio covering range machinery required for entire value chain of the textile industry. Discouraging the import of second hand machinery will not only help the TEI but also help modernisation of the textile industry with latest and improved technology.