The Synthetic & Rayon Textiles Export Promotion Council

MARKET WATCH 29 APRIL, 2017

NATIONAL

 

INTERNATIONAL

 

Industry body seeks special treatment for small units in GST 

RSS-backed Laghu Udyog Bharati today called for preferential treatment for micro and small enterprises with turnover of less than Rs 2 crore, urging the government to put them under zero duty structure of GST. 

"We want GST to be modified. We are not satisfied with GST in the present form. The government should come up with amendments to remove its drawbacks," National President of Laghu Udyog Bharati O P Mittal told reporters here. 

He said micro and small industries have been availing of excise exemption for the past 30 years, under which the turnover limit was raised to Rs 1.5 crore in 2006-07. 

"However, under the GST regime, the government has set a threshold of Rs 20 lakh turnover for excise duty exemption in this era of inflation," Mittal said. 

Other alternatives as suggested by the body are that the tax rate under the CGST Act should be made zero for MSEs up to a turnover of Rs 2 crore so as to compensate for the current exemption of excise duty. 

It also suggested that refund provisions should be introduced for CGST amount collected on a quarterly basis or the Composition Scheme for micro and small scale manufacturers should be enhanced to Rs 2 crore of aggregate turnover. 

"GST is supposed to bring in ease of doing business for all the sectors, but the complex structure of filing of returns, the draft rule of E-way bill and accounts and records etc are definitely going to hamper the growth of this sector," Laghu Udyog Bharati said in a statement.

"Hence, keeping in mind the smooth implementation of GST, the micro and small enterprises should be allowed to file all the details in one return, i.e. the details required in GSTR- 1, GSTR-2, GSTR-3 should be clubbed in one return," it said. 

It pushed for exemption in relation to penal, inspection and survey provisions for the MSEs up to a turnover of Rs 2 crore at least for the initial three years. 

The RSS-backed body demanded that the government make efforts to get the Small Factories Bill passed in Parliament at the earliest, saying it will benefit the micro and small industries immensely and facilitate ease of doing business. 

Referring to the recommendations of the one-man committee headed by former Cabinet secretary Prabhat Kumar on the MSME policy framework, Mittal said the incentives extended under the priority sector tag should not be applicable to medium industries if their turnover is up to Rs 25 crore as per proposed definition. 

Moreover, as per the new definition, the medium scale industries should be brought under the commerce and industry ministry or the heavy industry ministry, he suggested. 
 

Under the definition of medium scale units proposed by the panel, manufacturing units having a turnover between Rs 7 crore and Rs 25 crore should be categorised as medium enterprises whereas in the case of service units, the medium scale industry should be classified as units with an annual turnover between Rs 4 crore and Rs 15 crore. 

SOURCE: The Economic Times

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Exports may touch $325 billion in 2017-18: PHD Chamber

India's exports are expected to touch $325 billion in 2017-18 on account of rising competitiveness of Indian products and revival in global demand conditions, industry chamber PHDCCI today said. 

"Our merchandise exports are expected to touch $325 billion mark in 2017-18," PHD Chamber President Gopal Jiwarajka said in a statement. 

The remarkable performance exhibited by exports is driven by rising competitiveness of India's products and revival in global demand conditions, he said. 

He added that the new tax regime - GST - would also help enhance competitiveness of Indian products and increasing exports. 

Further, he said strong rupee is favourable for the growth of exports in Indian scenario.

"Recent evidences have also indicated that when rupee appreciated from around Rs 68.60/$ in November 2016 to Rs 64.86/$ in March 2017, exports growth jumped considerably from around 2.29 per cent to 27.59 per cent, respectively," Jiwarajka said.

SOURCE: The Economic Times

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Rupee should not become too strong, says CEA Arvind Subramanian 

Making a case for supportive exchange rate policy, Chief Economic Advisor Arvind Subramanian today said the rupee should not be allowed to become too strong as it hurts exports and economy in general. 

"All the evidence is that in order to be more open, one supporting policy with experience shows is that you have to have a supportive currency. If the currency becomes too strong, it is not easy to keep open markets because a lot of goods come in and industry feels the pressure," he said.

India needs to have supportive exchange rate policies, he said, adding that the rupee should not become too strong. 

"For those who say we will do other things to make the economy competitive, my response is use all the instruments available and don't rule out exchange rate as an instrument," he said at the CII event here. 

He wondered as to why the industry is not coming out in support of exchange rate policies that will be conducive to India being more open, able to be more competitive and to export a lot. 

Exchange rate is a very important instrument for maintaining competitiveness and for boosting growth, he emphasised. 

Terming it as a mistake and misguided view that strong currency is a sign of national or economic strength, he said, "That is a mistake that we should not make and that is something we should be careful about. If you look at the last two years, our country has lost competitiveness from exchange rate by 10-15 per cent and that is a huge loss in competitiveness that is effecting our exports." Clothing, pharma and leather sectors have been impacted due to this, he said. 

To a query on what should be done, Subramanian said: "The reason we are experiencing this is because a lot of capital is flowing into India, people are rightly bullish about the Indian economy... We are not intervening and we are allowing the rupee to appreciate." 

On a question whether we are making a mistake by allowing the rupee to appreciate, he said "that is a question that you know another city in India will answer and not New Delhi". 

Subramanian dismissed the argument that the era of globalisation is over. 

"While hyper globalisation is dead, globalisation is alive. We may not get rapid increase in trade in the world, but we are not going to get rapid declines either. So, it's not a bleak scenario," he said. He emphasised that India has interest in keeping world markets open. 

"Therefore, we need to take leadership and that leadership means we should also be willing to open our markets in return for others opening their markets. That's why features like the European Union, free trade agreements are worth thinking about," he said. 

SOURCE: The Economic Times

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 CBDT signs two more unilateral APAs

The Central Board of Direct Taxes (CBDT) has entered into two unilateral advance pricing agreements (APAs) with Indian taxpayers on Thursday. Both the agreements also have a roll-back provision in them.

The two APAs signed on Thursday pertain to information technology and banking and finance sectors of the economy.

The international transactions covered in the agreements include software development services, IT enabled services and KPO services, an official release said.

With these two agreements, the total number of APAs entered into by the CBDT has reached 154. This includes 11 bilateral APAs and 143 unilateral APAs.

An APA is an agreement between a corporate taxpayer and the tax authority on its transfer pricing methodology and the tax rate applicable on inter-company transactions. It helps avoid disputes with tax authorities over transfer pricing.

The APA scheme, which was introduced in 2012, tries to provide certainty to taxpayers in transfer pricing by specifying the method of pricing and setting the prices of international transactions in advance.

SOURCE: The Hindu Business Line
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GST impels review of export incentives

With a national goods and services tax (GST) to take effect from July 1, the government has started a review of the Foreign Trade Policy (FTP), which could see some export incentives getting reduced in scope.

The Directorate General of Foreign Trade under the commerce ministry has been meeting legal and tax consultancy entities on the issue. Particularly on scrip-based incentives such as the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme. The ministry or its agencies issue a scrip to an exporter to be used for payment of central taxes such as Customs duty or excise duty and service tax on future procurement of goods and services. Such modes of payment would not be allowed after the GST regime begins. 

Significant changes to these schemes are not expected, owing to their scale and the lack of alternative ones. “MEIS benefits are also given to exporters for the processing part, i.e any loss incurred due to inefficiencies in the government processing part of the export. On that note, any major changes to the scheme will affect exporters significantly,” says L Badri Narayan, taxation partner at law firm Lakshmikumaran & Sridharan.

While exports will remain zero-rated under GST, there is also confusion on schemes under the Customs department such as the Export Promotion of Capital Goods one and the Advance Authorisation Scheme.

While the mid-year review of the FTP was scheduled for September, the imminent introduction of GST has given rise to the debate over whether it should be advanced. The five-year (2015-20) policy provides a framework for boosting of export of goods and services, besides creation of employment and increasing of value addition. It sets a target of export of goods and services to $900 billion by 2020; the figure in 2016-17 was $275 billion.

GST is aimed at reducing of existing duty exemptions, is one argument. "Proponents of this view say that as exports are anyway zero-rated (i.e. output is not taxed and input credits are allowed), the refund of input taxes would always be available. However, this view does not consider the huge working capital issue that would be faced by exporting units under FTP schemes,” says consultancy KPMG.

Also, states have to be on board, since benefits under the state GST would be routed through them. “What will happen to the benefits being given in some backward areas?” asks Abhishek Rastogi, partner at legal firm Khaitan & Co.

Source: Business Standard

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Don’t fret too much over a strong rupee: It shores up the capital account, and some exports

With nearly half-a-trillion dollars of external debt and another $400-billion-plus stock of foreign portfolio investments in Indian debt and equity, Indian policymakers have to learn to weigh the impact on the capital account of the country’s external transactions of any changes in the exchange rate, and stop obsessing over what such changes mean for exports. Sure, exports are important and policy must encourage them, but not at any cost. A weak rupee would play havoc with company balance sheets and stock markets.

The rupee has been one of the strongest emerging market currencies and has strengthened against not just the dollar but against a host of Asian currencies as well. This does affect the competitiveness of Indian exports. However, the very factors that are pushing the rupee up also work to boost the demand for exports from India. Forecasts of stronger global growth in general and in the advanced economies, in particular, have buoyed investor sentiments. Stock market indices are rising to record levels in the advanced markets and find sympathetic movements in emerging markets. As the fastest-growing large economy, India receives more than its fair share of the fruits of global investor optimism. Such investment inflows, supported by foreign direct investment inflows, are responsible for the rupee’s strength.

The RBI cannot purchase too many dollars to restrict their supply in the currency market: the banks are already flush with demonetisation-induced liquidity and the RBI would have to aggressively sterilise the counterpart rupees of dollar purchases. That would push up interest rates. The alternative of allowing the rupee to rise and reaping the added benefit of cheaper imports, including oil, holds far more appeal. After all, India’s current account deficit is about 1.5% of GDP, and has plenty of room to rise within the limits of prudence. Robust global growth will raise the demand for exports. All import-intensive exports — refined petroleum, gems and jewellery, pharmaceuticals, IT services — will gain from a strong rupee. It would keep inflation down and incentivise project imports, too.

Source: Economic Times

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Consumers entitled to benefits of lower taxes on items: Jaitley

In an indication that prices under the Goods and Services Tax will not alter significantly, Finance Minister, Arun Jaitley, on Friday said there will be no big surprises for consumers under the new tax levy. “Profit or profiteering is not a bad word, but unfair enrichment is. And therefore the benefit of reduction in taxation is a benefit that consumers are entitled to. And that’s not a principle that can be seriously contested,” he said at the annual general meeting of CII. To ensure that companies pass on the benefit of tax reduction under GST to consumers, the government will also set up an anti-profiteering authority.

Jaitley’s comments come at a time when a committee of officers under the GST Council is finalising the fitment of commodities into the four-tier rate structure. The GST Council will meet on May 18-19 when it is likely to finalise the tax incidence on each item. Jaitley also said that the GST Council is now in final stages of fixing tariffs for different commodities. “The formula under which it is being done has also been explained and therefore nobody is going to taken by surprise, it's not going to be very significantly different,” he said. Meanwhile, following the Finance Ministry’s efforts to curb tax evasion, the Minister said “tough steps” have to be taken to make the country more tax compliant along with reforms to simplify the tax regime.

Defence manufacturing
Outlining other plans, Jaitley, who is also the Union Minister of Defence, said that the government is in advanced stages of formulating a policy to encourage domestic defence manufacturing and cut import of combat planes, ships and submarines. “The response that we have from domestic and international industry has been quite encouraging itself,” he said, noting that India is the world’s largest arms importer and spends about 1.8 per cent of its GDP on defence.

Foreign investment
Jaitley also announced that the plan for the abolition of the Foreign Investment and Promotion Board is in final stages. “Nearly 90 per cent of the investment in India comes under the automatic route. So for the balance 10 per cent, do we need multiple forums to give approval or do we need just one forum in one ministry?” he asked. The Minister had in the Budget announced that the FIPB will be done away with.

Source: Economic Times

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INTERNATIONAL

Technical Textile Helps Brazil’s Textile Industry Bounce Back

As the largest economy in Latin America, Brazil has been witnessing sluggishness in its economic and industrial performances over the past few years. The textile and apparel industry in Brazil is among one of the most affected sectors. However, thanks to its economic rebound, Brazil’s textile and apparel industry is expected to perform better from this year on, and its technical textile sector is likely to be one of the major segments to facilitate industry growth.  

At present, Brazil is the only Latin American economy that holds a prominent position in the global textile and apparel market. The country is responsible for around 2.4% of global textile production and 2.6% of global apparel manufacturing, making Brazil the world’s fifth largest textile producer and fourth largest apparel producer, reported by the Institute of Studies and Industrial Marketing of Brazil.  

Brazil is intensely investing in domestic production with the goal of the textile and apparel industry expanding its operations. The technical textile sector is a key focus, and Brazil continues rapid development with investment from both domestic and foreign multinational companies.  

Brazil’s technical textile industry is currently composed of over 200 companies with employment of over 40,000 people. According to the report from the US’ International Trade Administration (ITA), the technical textile sector in Brazil is expected to exhibit the fastest growth. This sector includes disposable non-wovens with end use applications such as air and liquid filtration at 9.4%, absorbent hygiene at 8.4%, and wipes at 7%. Within the durables market, the only technical textiles nearing the growth of disposables are those used in the automotive market.  

So far, Brazil is steadily rising as a leading global consumer of disposable hygiene textiles. Disposable hygiene textile demand in the country has experienced double digit growth over the past few years, mainly driven by the increasing purchasing power of middle-class consumers as well as continuing product development efforts that have created a strong platform for category growth in the country.  

The consumption of technical textiles in Brazil is still low compared with other emerging markets, but the growth of non-woven and technical textile usage in Brazil has risen at a double-digit rate per year. With the increased capacity of the country’s technical textile productions, along with growing demand, Brazil is expected to witness substantial growth in its technical textile sector in the near future.  

SOURCE: International Trade Administration (ITA)

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China Fights Hard Against Textile Industry Pollution

The surge of the textile and apparel manufacturing in China over the recent decades has brought a huge negative impact on the environment. Today, the increasingly serious pollution caused by the country’s booming textile manufacturing sector has become of the biggest challenges for China’s economic and environment sustainability. But luckily, Chinese authorities are taking some hard actions to fight against textile industry pollution.


According to the recent report released by China’s Ministry of Environmental Protection (MEP), those enterprises and manufactures in China who caused serious pollution were fined total 264 million yuan (US$38.3 million) in the first quarter of 2017, many of these enterprises and manufactures were operating in China’s textile Industry. One of the cases shows that a textile and dyeing plant in Zhejiang Province was not only fined for forging water quality monitoring data after discharging untreated wastewater, but also eight people responsible for the case were detained as a result of breaking China’s Environmental Laws.


China’s Ministry of Environmental Protection (MEP) also reports that there were nearly 5,000 cases of violating environmental protection regulations and laws in the first quarter of 2017, cases reported so far this year almost doubled from the same period a year ago.  Last year, that China received 33,000 tip-offs on environmental violations caused by enterprises and industrial manufactures, issued fines worth over 6.63 billion yuan (US$963 million), up by 56% compared to the precious year and detained 720 people in more than 800 cases.


The China Textile Sourcing Guide have suggested that pollution violations by textile mills and dyeing and finishing are the most serious in China’s textile manufacturing sector. Fujian, Shandong, Jiangsu, Guangdong and Zhejiang are the provinces which show a significant surge in violations of environmental regulations and laws since the introduction of new wastewater treatment guidelines in China in 2015.  

The guide also notes that “pollution, whether it be China’s waterways or airborne pollution, is a massive problem generally and the textile industry is one of the biggest culprits. Such issues have been ignored in the past, but with apparel brands increasingly twitchy about the ability of NGOs to expose evidence of pollution in their supply chains, the Chinese textile industry has no choice but to act or risk losing western custom. There is firm evidence that China is acting, not only introducing stricter guidelines relating to the treatment of industrial wastewater but also – and this is the crucial part – actually enforcing these guidelines.”

 

SOURCE: China’s Ministry of Environmental Protection (MEP)

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Trump lowers taxes; will other countries follow?

Donald Trump has just lowered corporate taxes to 15 per cent from 35 per cent, in an effort to seduce American companies, which have stashed $2.5 trillion of surplus funds abroad, to bring them back to America at an attractive rate. If a large part of this is brought back to the US, as this columnist expects, it would help revive investments, and jobs, and also help fund a government which is about to hit a Congress-authorised debt ceiling.

Individual tax slabs have been cut to three from seven and rates lowered. Estate duties have been abolished.

Given that the US has a cheap source of energy in shale oil/gas, the 15 per cent tax on corporate profits should be attractive enough to revive its investment cycle.

Competitive pressure

The tax cut would also put severe competitive pressure on other countries, including India, to follow suit. The Modi government has been attempting to sell a ‘Make in India’ programme, aimed largely with the objective of job creation.

Its efforts have not borne much success, for many reasons, mainly the snail-like pace of our judicial system. International companies prefer the alternate route of settling disputes through international arbitration. India’s track record in arbitration is poor, and it has lost in cases such as DoCoMo and Dai-ichi.

Last week, India was at the receiving end of adverse decisions in international arbitration in the Cairn Energy case. Our States are also, often, badly governed. What else explains the slowness of the Maharashtra government to curb illegal sand mining, as wonderfully brought out by RN Bhaskar in FPJ. The Maharashtra government has not filed a single case of illegal sand mining in court!

Proactive measures

The Centre is, however, taking some sensible steps. In a bid to jumpstart the sale of electric vehicles, it is contemplating giving tax breaks to electric vehicles sold without a battery.

The bane of electric vehicles is the long time (hours) it takes to recharge a battery compared to the short time (minutes) for a petrol tank to be filled. To avert this, an idea mooted by Israeli company Better Place, is being adopted. Batteries are to be rented (not owned) just like mobile phone plans. So, when an electric vehicle owner drives into a pump to recharge a battery, it is simply removed, and replaced, within minutes, by a fully charged one.

A flight of funds to the US thanks to the tax-break can threaten the ongoing market rally. Besides, there are other threats. An escalation of the North Korean situation once the US aircraft carrier reaches the region (next week) is one of them. Another is the withdrawal of funds given by Chinese banks to ‘entrusted’ asset managers to manage. The total is a whopping $1.7 trillion. The asset managers, in turn, had lent the money to construction and other firms, which will face a severe funds crunch.

Another risk factor is if the US Fed drops the MOAB and raises interest rates more sharply than expected.

SOURCE: The Hindu Business Line

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Dollar index edges up, but poised for losing month

The dollar edged up in Asian trading on Friday but was on track for a losing month against a basket of currencies, while the euro shed some of its monthly gains after the European Central Bank maintained its easing bias.

The dollar index, which tracks the greenback against a basket of six major rivals, edged up 0.1 per cent to 99.205 , but down 0.8 per cent for the week and 1.1 per cent for April.

The euro was down 0.1 per cent at $1.0863, but up 1.3 per cent for the week and 2 per cent for the month.

ECB chief Mario Draghi had said on Thursday after the central bank's policy meeting that removal of the bank's easing bias was not discussed, stressing the barriers the ECB still faces before beginning to tighten its ultra-loose financing conditions.

However, he also said that euro zone's recovery was increasingly solid and downside risks had diminished.

“My feeling is that Draghi's statement will be an important factor to set the tone for the euro's movement next month,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. “He said the ECB is unlikely to start its exit strategy this year.”

Against its Japanese counterpart, the dollar inched 0.1 per cent lower on the day to 111.30 yen, up 1.9 per cent for the week but still down 0.2 per cent for the month.

“The Japanese Golden Week holidays are ahead, and investors have already adjusted their positions,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

Tokyo markets will be closed for three days from May 3 for a string of holidays known as the Golden Week, and some market participants take additional time off.

“Because of the holidays, we're not seeing the usual Japanese profit-taking or exporter selling on the dollar's rise, though some investors are still hoping for a chance to buy the dollar on dips,” Ogino said.

Liquidity is likely to be thin next week, which market participants say could exacerbate any sudden moves.

Traders continue to monitor tensions on the Korean peninsula, any escalations of which could give the perceived safe-haven yen a lift.

US President Donald Trump told Reuters in an Oval Office interview on Thursday that a major conflict with North Korea is possible in the standoff over its nuclear and missile programmes, but he would prefer a diplomatic outcome to the dispute.

On Thursday, the BOJ kept monetary policy unchanged as expected, but offered its most optimistic assessment of the economy in nine years, signalling its confidence that a pick-up in overseas demand will help sustain an export-driven recovery.

Japanese economic data released early in the session showed Japan's core consumer prices rose at a slower than expected pace in March from a year earlier, but they posted their third straight month of increase, driven by rising energy costs.

Later in the global session, investors will get a first look at the preliminary estimate for US gross domestic product in the first quarter. Economists polled by Reuters expected an increase of 1.2 per cent, and any downside surprise would likely pressure US Treasury yields and the dollar.

The yield on benchmark 10-year Treasury notes stood at 2.292 per cent in Asian trading, not far from its US close of 2.296 per cent on Thursday.

The dollar was steady against the Swedish crown at 8.8374 crowns per dollar, after it jumped on Thursday in the wake of a decision by Sweden's Riksbank extended its bond-buying. The central bank also predicted its first interest rate hike in mid-2018, later than previously projected.

SOURCE: The Hindu Business Line

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