The Central Board of Indirect Taxes and Customs has set the ball rolling to create goods and services tax grievance redressal committees expeditiously at zonal and state levels. The council at a meeting on December 18 decided that a structured mechanism be put in place for the taxpayers under GST to tackle the grievances of taxpayers. The GST policy wing has prescribed the guidelines and written to all principal chief commissioners and chief commissioners to set up the cells. The grievance redressal committees (GRCs) at zonal and state levels will consist of central and state-level tax officers and representative from GST Network (GSTN), besides representatives of trade and industry and other GST stakeholders Examining and resolving all the grievances and issues being faced by the taxpayers, including procedural difficulties and IT-related issues pertaining to GST, both of specific and general nature, will be one of the mandates of the GRC, the Central Board of Indirect Tax and Customs (CBIC) said in a directive on Wednesday. The GRC will meet at least once a quarter during its tenure of two years. The committee will have access to a web portal, to be developed by GSTN where complaints that the GRC secretary puts up to the committee will be recorded and their resolution status updated on a regular basis. Stakeholders will be able to view these updates. Co-chairs of the GRC, nodal officers of GSTN, policy wings of the CBIC and GST Council Secretariat will also be able to update the status of action taken at their end. Whenever a GST policy-related issue is referred to by a GRC, the concerned policy wing of the CBIC would examine it and if needed place it before the council for consideration or approval. If the matter is related to an IT-related issue pertaining to the GST portal, it would be resolved by GSTN in a time bound manner, preferably within one month. The GRC secretary will submit a quarterly progress report to the GST Council Secretariat as well as the GST Policy Wing of the CBIC. The GST Council has been taking steps to make filing tax returns a much smoother process, in order to increase the base of taxpayers and hence tax collections.
Source: Economic Times
With no promise of additional requisite funding, MSME ministry plans to cut existing schemes. The government may approve setting up a Rs 5,000-crore stressed asset fund for small businesses, as suggested by a Reserve Bank of India committee. But the tight financial condition of the Centre may mean existing schemes for micro, small and medium enterprises (MSMEs) will face a funding cut, sources said. The U K Sinha Committee for MSMEs had in June suggested the fund along with a broad range of MSME reforms for small firms still reeling under the after effects of demonetisation and a liquidity crisis. But a lack of available ways to finance it has delayed the implementation. Case in point, MSME Minister Nitin Gadkari had in early September said the government will seek to implement the recommendations within 15 days. “Talks are ongoing and the government will take a call on how the fund will be used and the parameters on which firms will be categorised as stressed,” a senior government official said. He added that the Prime Minister’s Office has repeatedly asked the MSME ministry to assess the viability of the scheme. But the PMO hasn’t promised the requisite additional funding for rolling out the initiative and has instead asked how existing schemes can be ‘rationalised’, MSME ministry sources clarified. Now, the ministry believes cutting the scope of existing schemes including its largest — the Prime Minister Employment Generation Programme (PMEGP) — may be the only option left.
Possible cutbacks
According to ministry data reviewed by Business Standard, the number of new MSMEs being registered through the PMEGP doubled to 73,427 in 2018-19, from 48,398 in 2017-18. Direct employment generated as a result was 570,000, up from 387,000 the year before. “These are sustainable employment generation, with relatively low level of exposure to business shock and high potential for growth, mostly in the rural areas,” the official said. According to a ministry study, Rs 96,000 is the mean investment currently entering a unit. On average, a unit employs 7.62 people. Aimed at setting up micro enterprises in the non-farm sector, the PMEGP allows manufacturing units to get a loan up to Rs 25 lakh from the Centre. The Cabinet has since approved a second dose of loan up to Rs 1 crore, on a maximum interest rate of 15 per cent a year, for units paying back in time, senior sources confirmed.
The new rules are under implementation, they added.
The ministry is also targeting the setting up of 400 MSME clusters, in both manufacturing and services, up from 98 last year. According to official statistics, the overall sector comprises nearly 63.39 million units, according to the 73rd round of the National Sample Survey (2015-16). It had created 111 million jobs (49.8 million in rural areas and 61.2 million in urban areas).
Source: Business Standard
The Customs Dept’s revamped scheme for manufacturing in bonded zones being considered , says official. With the World Trade Organization (WTO) prescribing withdrawal of prohibited subsidies given to the Special Economic Zones (SEZs) by the middle of 2020, the government is trying to fast-track work on reforming provisions for the zones to make them compatible with the multilateral norms. One the options before the Commerce Ministry, which is exploring several alternative incentives for SEZ units, is the new bonded manufacturing space scheme that the Customs department implemented earlier this year, an official told BusinessLine. “Discussions will take place between officials of the Commerce and Finance Ministries to see if some of the provisions of the new bonded manufacturing scheme could be replicated for SEZ units,” the official added. On October 31, the WTO ruled that many of India’s export subsidies, including the ones given to SEZs, flouted multilateral trade rules as the country’s annual Gross National Income (GNI) had exceeded $1,000 annually for three consecutive years and such countries were not allowed to give export sops. The ruling was based on a complaint filed by the US. Although India has challenged the panel verdict at the WTO Appellate Body, where work is temporarily suspended, the government wants to get its house in order as soon as possible with members like the US breathing down its neck.
Draw insights
“The Commerce Ministry is trying to draw insights from the revamped scheme for manufacturing in bonded warehouses as it involves exempting manufacturers from paying import duties on inputs and capital goods on items that are exported. As the tax exemptions are on inputs and not income, these are permissible under the WTO rules. For those selling the items in the domestic market, the payment of import duty could be deferred,” the official said. Some experts point out that de-linking the SEZ sops from exports would also make them compliant with the WTO norms. As per the report of the high-level group on SEZs headed by Bharat Forge chief Baba Kalyani, Dominican Republic is a good example of regulatory reforms aimed at eliminating incentives contingent on export performance for entities in the SEZ. The government delinked the minimum export share requirement for various units operating in SEZs in a phased manner. Some studies done of the Dominican Republic model point out that the attractiveness of its SEZs as a destination to export from did not go down with the change in rules. “One needs to be clear that the WTO ruling prohibiting export subsidies is for the SEZ units and not the developers. Since the WTO prohibits subsidies for exports, if the government revisits the incentives, namely the export-linked tax exemptions, the issue could be addressed. The tax exemption could be linked to investments made rather than export profits,” said Hitender Mehta, Managing Partner, Centrum Legal.
No clarity on sunset clause
SEZ investors are in the midst of more uncertainty as there is no clarity yet on whether the government would extend the sunset clause on the income tax exemption under the scheme. According to the sunset clause, the 100 per cent income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, 50 per cent for next five years and 50 per cent of the ploughed back export profit for subsequent five years, will expire on March 31, 2020. A total of 351 SEZs have been notified so far, of which only 234 SEZs are operational.
Source: The Hindu Business Line
India must take quick steps to reverse the economic slowdown, according to the International Monetary Fund, which recently said in its annual review that declining consumption and investment, and falling tax revenue, have combined with other factors to put the brakes on one of the fastest growing economies that has been one of the engines of global growth. India is now in the midst of a significant economic slowdown after lifting millions out of poverty, Ranil Salgado, of the IMF Asia and Pacific department, said. "Addressing the current downturn and returning India to a high growth path requires urgent policy actions," he added. However, the government has limited space to boost spending to support growth, especially given high debt levels and interest payments, Indian media reports cited IMF as cautioning. IMF chief economist Gita Gopinath last week said India's slowdown had ‘surprised to the downside’, and said the fund is set to significantly downgrade its growth estimates for the Indian economy in the World Economic Outlook that will be released next month. The IMF in October slashed its forecast for 2019 by nearly a full point to 6.1 per cent, while cutting the outlook for 2020 to 7.0 per cent. Salgado said India's central bank has "room to cut the policy rate further, especially if the economic slowdown continues." India's economy grew at its slowest pace in more than six years in the July-September period, down to 4.5 per cent from 7.0 per cent a year ago, government statistics said. Salgado said "the government needs to reinvigorate the reform agenda," including restoring the health of the financial sector in order to "enhance its ability to provide credit to the economy."
Source: Fibre2Fashion
Investment protection rules are now a part of the proposed FTA, which has made no progress. The European Union (EU) has expressed interest in exploring a bilateral investment protection agreement (BIPA) with India that would be delinked from the proposed free trade agreement (FTA) where ongoing negotiations are in a state of limbo. “The EU wants to follow the model it adopted with Singapore with which it has recently concluded trade and investment deals separately. The proposal has been made to India, which is yet to respond,” an official close to the discussions told BusinessLine. Carving out a separate investment protection agreement from the bilateral FTA — formally called the Broad-based Trade and Investment Agreement (BTIA) — which is currently under negotiations, will make it possible for the investment protection pact to be signed even if there is no progress on the BTIA.
Greater market access
Launched in 2007, the BTIA negotiations have been languishing since 2013 when the talks collapsed over certain demands from the EU such as greater market access for automobiles, wine and spirits, and further opening up of the financial services sector such as banking, insurance and e-commerce. The EU wanted labour, environment and government procurement to be included in the talks. India’s demand for easier work visa and study visa norms as well as data secure status, that would make it easier for European companies to outsource business to India, were also not received enthusiastically by the EU countries. “Since investment treaty is also part of the BTIA, it has got stuck with the trade and services negotiations. If a BIPA is carved out separately and de-linked from the BTIA, it could be concluded and signed even if the the bigger agreement is not,” the official said. India terminated all its Bilateral Investment Treaties (BIT) with partner countries, including EU members, by March 31, 2017. It then asked EU countries to get into negotiations for a fresh agreement individually with India based on the model BIT passed by its Union Cabinet. “When India had contacted EU countries individually for a new BIT in 2017, it was told that all new deals will be negotiated by the 28-member bloc as one single unit. That remains the same,” said the official. What has changed is that while, earlier, the EU wanted the BIPA to be part of the BTIA with India, it now wants it separate, as a precedent has already been set with Singapore, said the official.
Separate negotiations
Whether India agrees to EU’s proposal for separate negotiations or not is also tied to how open the bloc would be to the country’s model BIT. The model treaty has several conditions which have been criticised by many trade partners, including the EU. Some of the conditions are allowing international arbitration only after all domestic options have failed and not permitting tax laws to be challenged.
Source: The Hindu Business Line
The four schemes whose performance will be evaluated include PowerTex India, Converged Group Insurance, Revised Comprehensive Powerloom Cluster Development and North East Region Textile Promotion Scheme that are in place till March 2020. The National Productivity Council will undertake an evaluation study to assess the performance of four power loom sector schemes for a period from April 2017 to March 2020, to help the Centre make improvements in future schemes to achieve better outcomes for the sector by identifying existing gaps. “The study would focus on detailed field-level interactions with central agencies involved in implementation of the projects and various stakeholders. Field study would be conducted through structured questionnaire/checklists at the cluster level on a pan-India basis,” the Office of the Textile Commissioner said. The four schemes whose performance will be evaluated include PowerTex India, Converged Group Insurance, Revised Comprehensive Powerloom Cluster Development and North East Region Textile Promotion Scheme that are in place till March 2020. The objective of the schemes being analysed is development of the decentralised power loom sector and promotion of textiles in the northeastern region. The National Productivity Council comes under the Ministry of Commerce and Industry.
Source: Financial Express
Central and state governments are facing revenue loss due to refund claims by companies, states and other stakeholders told the Committee of Officers. The Central and state governments together are facing Rs 20,000 crore revenue loss due to refunds claimed by companies on account of flaws in the GST rate structure, according to disclosures made by states and other stakeholders to the Committee of Officers. The Committee of Officers was set up in October this year to suggest measures to augment GST revenue collection and administration to the GST Council. The stakeholders have told the officers' panel that manufactured goods, such as fertilizers, mobile phones, footwear, renewable equipment and man-made yarns, which are in lower rates slab (5-12 per cent) suffer the "inverted duty structure" (IDS). Several other items, including tractors, fabrics, pharma, edible oil, medical equipment, water pumps, LED lights, milling machines, utensils, ink, agri-machinery, job work, PP bags, also add to the IDS, said the sources quoting from the presentation of states and stakeholders to the panel. According to tax website Cleartax, in case of IDS under GST, a registered person may claim a refund of un-utilized Input Tax Credit (ITC) on account of IDS at the end of any tax period where the credit has accumulated on account of tax rate on inputs being higher than the rate of tax on output supplies. Sources said the IDS for manufactured goods led to demands for refunds of ITC on services and capital goods and also to litigations and distortions. "The estimated refund on account of IDS is Rs 20,000 crore a year," the states and stakeholders have stated. The Council was also reportedly informed by the Officers' Committee that with "the tax liability on certain finished products remaining lower than what is paid on raw materials and services, companies businesses claim refunds of the extra taxes paid".Though the issues were presented to the Council in its meeting on December 18, it did not correct the duty structure by raising the tax rate on the final products facing IDS as the economy is facing a slowdown.
Source: NDTV
Non-filing of GST (Goods & Services Tax) returns may lead to attachment of bank accounts and even cancellation of registrations. This is part of the Standard Operating Procedure (SOP) issued by the Finance Ministry to be followed in case of non-filing of returns. The GST law makes it mandatory for a registered person to file returns either monthly (normal supplier) or on a quarterly basis (supplier opting for composition scheme). An ISD (Input Service Distributor) will have to file monthly returns showing details of credit distributed during the particular month. Persons required to deduct tax (TDS) and persons required to collect tax (TCS or Tax Collected at Source) also have to file monthly returns showing the amount deducted/collected and other specified details. A non-resident taxable person also has to file returns for the period of activity.
Revenue hit
It is estimated that up to 20 per cent assessees do not file returns. This affects revenue collection. Since there is lack of clarity on how to proceed with non-filers and lack of uniformity in procedures, the Central Board of Indirect Taxes and Custom (CBIC), has come out with an SOP. Under the SOP, after the due date of return, a system-generated message or mail will be immediately shared with GST defaulters. Five days later a notice will be issued asking the GST payer to file the return or make payment within 15 days This notice is to be issued in Form GSTR 3A. If the defaulter does not file the return within 15 days of the issue of the notice, the proper officer may proceed to assess the tax liability of the person to the best of his judgment taking into account all the material available or which he has gathered and would issue order under Rule 100 of the CGST Rules in Form GST ASMT-13. If the defaulter files the GST return, then Form GST ASMT 13 will be deemed as withdrawn. If not, the officer may initiate recovery. Though the above guidelines are to be followed in most cases, the SOP also prescribes that in some cases, based on facts, the Commissioner may resort to provisional attachment to protect revenue, under Section 83 of the CGST Act before issuance of Form GST ASMT-13. If the return is not filed within the time prescribed under Section 29 of the CGST Act, then the process of cancellation may be initiated. The relevant Section prescribes conditions for cancellation of registration, and fulfilment of any of these will invite action. These include a composition scheme assessee not filing returns for three consecutive tax periods, a non-composition assessee not furnishing returns for a continuous period of six months, not commencing business within six months of the voluntary registration, obtaining registration by fraud, and wilful misstatement or suppression of facts. The Act clearly states that registration will not be cancelled without giving the person an opportunity of being heard. Pritam Mahure, Chartered Accountant, felt that after blocking of e-way bill generation for non-filers, issuing Standard Operating Procedure for non-filers is the next step by CBIC to ensure proper collection. However, “it may be noted that due to the slowdown and cash crunch, taxpayers are already struggling to survive. Thus, the proposed steps will effectively mean halting businesses, with negative consequences for taxpayers and the economy,” he said.
Source: Business Line
Government think-tank Niti Aayog member Ramesh Chand on Wednesday made a case for only two slabs under the goods and service tax regime as against the multiple slabs currently, and said rates should be revised annually if required. The goods and services tax (GST), which replaced almost all the indirect taxes, came into force from July 1, 2017, and the rates on goods and services have been revised several times since then. Currently, there are four GST rate slabs -- 5 per cent, 12, per cent, 18 per cent and 28 per cent. Several items fall in exempt category or nil duty. Besides, cess is also levied on five goods. Talking to PTI, Chand said that when a large taxation reforms like GST are brought in, there are always "teething problems" but soon they stabilise. He said most of the countries took long time for GST stabilisation. The Niti Aayog member, who looks after the agriculture sector, is also strictly against frequent changes in GST rates as it leads to problems. The all-powerful GST Council, presided over by the Union finance minister and comprising state finance ministers, decides on rate for particular goods and services. Besides frequent demand for reduction in the rates on various goods and services, there has also been clamour for a slash in the number of tax slabs. "It has become tendency of every sector to ask for lower GST. I feel GST issues are much larger than asking for rates," Chand said. And, "we should not fiddle with rates or change rates frequently... We should not have many rates. Have only two rates," he said. Chand said the focus should be on steady increase in revenue collection from the new indirect tax regime rather than tinkering with rates. He prescribed that if at all rates need to be changed, it should be done annually. On demands of lower GST on process food, like dairy products, Chand, an agri economist, said the 5 per cent GST on such products is "very very reasonable".Chand said that while every sector is demanding lower rate, they should also understand governments need revenue to spend on development works. "We always ask from the government and forget to give back. This trend is not good. From where will the government get the money to spend for development," said Chand, who is also a member of the 15th Finance Commission. He said that in the agriculture sector alone, the central government is providing a subsidy of Rs 1.2 lakh crore and the states put together spend about Rs 1 lakh crore.
Source: Economic Times
Effecting a reform as significant as GST requires one to be patient, stakeholders must have a give and take approach, and realise that there is always a better way of doing things. The last GST Council meeting was a stormy affair—expected, with an increasing number of non-BJP ruled states and delays in disbursement of the compensation cess to the states. State finance ministers gave some interesting bytes. Kerala’s Thomas Isaac said that the GST Council, had in its minutes, received an assurance from the former finance minister Arun Jaitley, that in the case of a shortfall, the Council would honour its obligations by borrowing to pay the states. Can the Council borrow on its own or do the states want the Centre to borrow? Punjab’s Manpreet Badal said the delay in payment of assured compensation is a sovereign default. If only Badal could convince the CM to stop giving free power to farmers (app cost Rs 6,500 crore pa) and reduce the aggregate technical and commercial losses from over 30% in 2018-19 to 14%, as agreed under the Ujjwal DISCOM Assurance Yojana, things would be different.
Grandstanding makes a good case, but what is the reality?
In order to convince the states to switch, they were assured a 14% growth in revenue collection under GST on the 2015-16 base. This assured return was to be funded by a GST compensation cess (GSTCC) levied on certain commodities (e.g., tobacco products, motor vehicles, etc). The intent was to create a GST compensation fund that would fund the estimated revenue loss for the first five years of GST, i.e., July 1, 2017, to June 30, 2022.
How did it work in 2017-18 and 2018-19?
Finance minister Nirmala Sitharaman stated in the Rajya Sabha on December 12, that in 2017-18, the total cess collected was Rs 62,596 crore, of which Rs 41,146 crore was released to the states. The remaining Rs 15,000 crore was accumulated in the cess fund. In the next year, Rs 95,081 crore was collected and Rs 69,275 crore released to states, but “cess accumulated in the fund was zero”. How the cess accumulation in 2018-19 became zero is not clear. According to an August 30, 2018, amendment “fifty per cent of such amount, as may be recommended by the Council, which remains unutilised in the Fund, at any point of time in any financial year during the transition period shall be transferred to the Consolidated Fund of India as the share of Centre, and the balance fifty per cent shall be distributed amongst the States.” The same amendment also provides that in years of the shortfall, 50% of the surplus amounts taken from the GSTCC account by the Centre and states would be returned. For example, if surplus taken in 2018-19 by Centre and states was Rs 100 crore each, they would return Rs 50 crore to the GSTCC account.
Why should cess surplus in any year not be fully adjusted against subsequent deficits in the GSTCC account?
The states’ GST shortfall was also funded by a special coal cess, renamed as ‘GST compensation cess.’ Cess amount is substantial and increases India’s energy costs. It is subsumed under GSTCC and accounted there. Next, is the issue of 14% revenue protection.
Can the states highlight, on what basis the revenue was calculated in the base year of 2015-16?
According to a National Institute of Public Finance and Policy Working Paper by Sacchidananda Mukherjee, “In the pre-GST regime it was not possible to separate revenue on account of VAT, CST and entry tax into two baskets—items under GST and out-of-GST items. Second, GST subsumes various taxes and cesses, which were earlier used to be collected by local governments/authorities. In the absence of information on state-wise revenue collection from these taxes and cesses, it will be difficult to estimate the revenue under protection for States”.
Mukherjee’s paper shares state-wise growth rate in VAT, entry tax, and central sales tax (CST) for 2012-2016 and 2015-16.
During 2012-2016, Bihar, and in 2015-16, Chhattisgarh, Jharkhand, and Maharashtra had growth rates over 14%. To be fair to states, the above excludes taxes collected by local government and authorities. However, the accompanying graphic indicates a trend.
Can the GST Council be transparent, put numbers in the public domain, so there is an informed and healthy debate?
Another interesting point Mukherjee made is, “The benefits of 14% assured growth in revenue collection under GST will differ across states. States like Gujarat and Punjab have had low rates of growth and the assurance of 14% would imply augmentation of revenue while states like Bihar might not get the same deal”.
So, should the 14% assured increase in revenues be related to the actual growth in state-wise revenues?
This becomes an incentive for states to improve tax-efficiency.
Next, is the central government bound by law to pay a 14% assured increase to states even if cess collections are inadequate?
Let us first look at related issues. Expecting the Centre to bail out states would put additional pressure on its finances without the states having to bear the cost of the economic slowdown, which they are also a party to. According to noted economist Ajit Ranade, states must remember we have “had a continuous and now-severe slowdown in economic growth since 2017, and states would have suffered a bigger drop in tax collections even without GST”. Further, as TN Ninan wrote in Business Standard “an economy growing at 7% would ordinarily be expected to deliver nominal growth (i.e., including inflation) of about 11%—well short of the 14% revenue buoyancy promised to states”. Tax growth rate is based on nominal GDP, which slowed to 6.1% in the September quarter. Pain arising out of lower revenues needs to be borne by the Centre and the states. Promising 14% was a political necessity in 2016! Assured revenue growth reduces the motivation for states to create a business environment that stimulates growth. Coming to the legal aspect, there is nothing in the law which states that the Centre has to dip into its revenues to pay the states assured revenue. Posturing on national television that states would be forced to approach the Supreme Court (SC) is one thing, but that would vitiate the working of the Council, and what happens if the SC dismisses the states’ plea. The states want revenue growth insurance. Any reform takes years to stabilise. Thus, the cost of change must be borne by the Centre and the states. Unfortunately, states have perfected the art of upward delegation. For instance, they complain of farmer distress without saying that agriculture, being a state subject, is their primary responsibility. Similarly, if the states do not charge “farmers and residential users the true economic cost of power”, discoms have lesser resources to buy power.
When power production falls, as a consequence, GDP rates fall too.
Effecting a reform as significant as GST requires one to be patient, stakeholders must have a give and take approach, and realise that there is always a better way of doing things.
Source: Financial Express
The State Government has made significant changes in infrastructure including the policy to promote industries in Madhya Pradesh in the last one year. Magnificent Madhya Pradesh-2019 has been successful in increasing the confidence of investors in the State. Now the scenario of industrial investment has started changing in the State. Investors are moving ahead with confidence to invest in the State. To take advantage of the facilities provided in the Industry Promotion Policy-2014, it has been made mandatory to provide 70 percent of the total employment provided by the industries to the permanent residents of the state. With the implementation of the GST system, the process in relation to continuous tax assistance payable to large-scale industries in the Industry Promotion Policy 2014 has been restructured. The new Government has implemented a land pulling policy for the acquisition of private land for industrial purposes with mutual consent. The State Government has decided to share 15 percent by way of equity contribution to connect Jawaharlal Nehru Port Mumbai to Indore by railway. In this, the rail project from Indore to Manmad will be implemented. This project will facilitate transportation of goods produced in the State. Decision has been taken to provide green and cheap energy to the industrial units through solar photovoltaic power plant at the rooftop in their premises. In its first phase, schemes are being implemented in Mandideep and Pithampur Industrial Area. According to the suggestions received from investors and industrial organisations, decision has been taken to provide additional facilities to the units by making new amendments / provisions in the Industry Promotion Policy-2014. For continuous water supply to the industries established in Pithampur, 90 MLD water supply scheme of Rs 290 crores has been implemented with which water supply to industries has been started. Smart Integrated Industrial Park has been developed in Pithampur in 465 acre area with Rs 300 crore in which land is being allocated to industries. Four textile garment parks are being set up at Budhibaralai Indore, Acharapura Bhopal, Lehgadua Chhindwara and Jaora Ratlam at a cost of Rs 169 crore 50 lakhs to encourage employment oriented industries in the state. Magnificent Madhya Pradesh-2019 was organized on 18 October 2019 in the state's industrial centre, Indore city. The aim was to bring confidence in the minds of major industrialists and industrial stakeholders of the country by bringing them on one platform. At the event, Chief Minister Kamal Nath interacted directly with industrialists, key stakeholders, policy makers and industry experts from across the country. On the occasion, eight thematic sessions were also organised to encourage investment, demonstrating the possibilities available in Madhya Pradesh. The State Government has allocated about 243 acres of land to 248 units in the industrial areas of the state. It is expected to generate capital investment of Rs 3,793.20 crore and employment opportunities for about 8,000 people. In large industrial projects, 57 new and expanded large scale units have been established. In this, more than Rs 6,187 crores have been invested and more than 13,000 persons have got employment.
Source: The Pioneer
The Union Cabinet has approved an ordinance to further amend the Insolvency and Bankruptcy Code (IBC), to protect a winning bidder against liability of a corporate debtor for an offence committed prior to the commencement of the insolvency resolution process. There would be no prosecution for any such offence from the date of resolution plan being approved by the adjudicating authority, an official statement said. This will shield the new owner and the corporate entity while instilling confidence in resolution efforts. Union minister Prakash Javadekar on Tuesday said the Cabinet has cleared an ordinance to amend the Code. “The amendment will remove certain ambiguities in the IBC, 2016 and ensure smooth implementation of the Code,” the statement said. Experts say this will remove hurdles in the way of corporate resolution. “Finality of cost and litigation risks are critical for investment decisions....Thus, these amendments are expected to remove hurdles being faced in resolution of some high value insolvency cases and ensure better realisation for the stakeholders,” said Manoj Kumar, partner, Corporate Professionals. The move comes after investigation agencies filed cases against companies besides erstwhile promoters that were undergoing resolution process. The industry had represented to the government on the issue. The amendments involve insertion of Section 32A in the Code, which will bar government agencies from attaching assets of an insolvent debtor undergoing bankruptcy resolution for prior offences. Assets of companies undergoing liquidation will also be protected from any action from government agencies. The amendments, however, allow for prosecution against promoters or management in case of criminal proceedings. On December 12, the government had introduced a bill in the Lok Sabha to amend the Code. The bill seeks to remove bottlenecks and streamline the corporate insolvency resolution process, wherein successful bidders will be ring fenced from any risk of criminal proceedings for offences committed by previous promoters of companies concerned. The Code, which provides for resolution of stressed assets in a time-bound and market-linked manner, has already been amended thrice.
BILL REFERRED TO STANDING PANEL
Lok Sabha Speaker Om Birla has referred the Insolvency and Bankruptcy Code (Second Amendment) Bill to the standing committee on finance. The committee, chaired by BJP MP and former minister of state for finance Jayant Sinha with former prime minister Manmohan Singh as its member, has been asked to examine and submit the report on the bill within three months. "Members are informed that the Speaker, Lok Sabha, has referred the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, as introduced in Lok Sabha, to the Standing Committee on Finance for examination and report within three months," the Lok Sabha secretariat said.
Source: Economic Times
It wasn’t a one-way street for Indian finance. Dewan Housing went into bankruptcy and NBFCs in general struggled. State -run banks, burdened by bad loans, are not out of the woods yet. But the likes of Bajaj Finance, Kotak Mahindra Bank and HDFC Bank thrived. ICICI Bank and Axis Bank also appear to have put their woes behind. Bank Nifty at a record high shows that it’s not all gloom.
THE GOOD: NPA CYCLE TURNS
The bad loan recognition cycle at Indian banks finally turned the corner with both the systemwide gross bad loan ratio and the stressed asset ratio monitored by the Reserve Bank of India showing a declining trend. Gross non-performing loan ratio was down at 9.1% at the end of FY19 against 11.2% a year ago. For listed entities, this ratio declined nearly 7.5% in the first half of this fiscal year, with absolute numbers at Rs 8.94 lakh crore at the end of September versus Rs 10.18 lakh crore during the same period last year. “Three years since the asset quality review, the level of bad loans is beginning to ease; however, it has not yet relieved the banking system from the pressure over the recovery,” said Sanjay Agarwal, senior director, CARE Ratings. “The decline in the overall slippages is a sign of improvement in the banking system. In light of the June 7 circular of the RBI, banks would have to factor in the effect of the newly prescribed timelines for the restructuring and provisioning of their stressed assets.” Indian banks have recognised around Rs 17 lakh crore of stressed loans as NPAs since FY16, led by accelerated NPA recognition following the central bank’s stringent norms and asset quality reviews. Infrastructure-focused banks like ICICI and Axis changed their strategy towards a more granular lending while IndusInd Bank made efforts to kill the IL&FS ghost. For many state-run banks, the announcement of mergers was a bit of a drag, but data showed that their overall share in bad loans declined primarily due to recoveries and huge write-offs. After the Supreme Court struck down the banking regulator’s February 12 circular on early recognition and resolution of stressed assets, a new framework was brought in which involved signing of intercreditor agreements (ICAs) to arrive upon a resolution. But, with ICAs worth Rs 3 lakh crore signed and resolutions few and far between, the last quarter of this fiscal year will be crucial. Analysts forecast higher recoveries and slowdown in fresh bad loans may reduce banks’ non-performing loans to nearly 8% by March 2020. “Asset quality of banks should witness a decisive turnaround this fiscal (FY20) with gross NPAs reducing by 350 basis points (bps) over two years to around 8% by March 2020. This will be driven by a combination of reduction in fresh accretions to NPAs as well as stepped up recoveries from existing NPA accounts,” Crisil said in a note.
THE BAD: IBC BACKLOG
When the Insolvency and Bankruptcy Code (IBC) became law, it promised a new loan recovery mechanism for banks in a defined time frame of 270 days from when a case had been admitted. However, three years since the law has been in force, it has been marred by delays due to litigation, poor court infrastructure and, in some cases, companies taking their own time to pay up money. Data from the Insolvency and Bankruptcy Board of India at the end of September shows that the 156 resolution plans completed took an average of 374 days, which is even higher than the revised 330 days granted by the Supreme Court in July 2019. In November, while ruling on the muchawaited Essar Steel case, the Supreme Court struck down its own timeline of 330 days noting that the deadline can be extended in exceptional circumstances so as to get the best value to creditors. “After the Supreme Court order, there is no timeline even for 330 days and we have already seen cases lingering for two years or more,” said RK Bansal, CEO of Edelweiss ARC, India’s largest bad debt aggregator. The Essar case itself is a prime example of the delay plaguing the IBC, as it took close to 900 days for completion.
Even as banks rejoice over their 42,000-cr recovery in the Essar case, eight out of the 12 large cases forced to the IBC by RBI in 2017 are yet to find closure. Like Bhushan Power & Steel, which has been awarded to JSW Steel but is yet to be closed due to litigations amid allegations of irregularities in the company. Or take the case of Alok Industries, which was awarded to a Reliance Industries-JM Financial ARC joint venture in March 2019, is yet to close because banks are awaiting payment. Delays are not only in resolution but also in admission of cases. “The law provides for cases to be admitted within 15 days but, in reality, there are cases which are pending admission for months. Additional benches have been created but they are not fully functional. There is not enough infrastructure and not enough people to manage it. Now with personal guarantees also a part of the law, we expect delays to worsen as multiple guarantees will be linked to one corporate debtor. It will make things worse,” said KP Sreejith, managing partner, IndiaLaw LLP. Fed up with the delays, bankers are now looking at alternatives outside the IBC, like in power projects where the issues are structural in nature, because once a company admitted is not resolved in the IBC, it has to be liquidated. Bankers hope that this new law, which has so far given mixed results, does not go the way similar previous laws like debt recovery or SARFAESI went.
AND THE UGLY: NBFC CRISIS
The year gone by witnessed the full aftermath of the collapse of IL&FS, which froze the credit markets and the contagion spread. Nonbanking finance companies were shut out of the market throwing investors into a tizzy and speculation over which would be the next domino to fall. The next to fall was mortgage lender Dewan Housing Finance Co with nearly a Rs 1 lakh crore balance sheet. The slide didn’t stop there with small-sized nonbank lender Altico Capital defaulting. “Overall risk aversion remained high among the lenders as they perceived that liquidity issues can threaten solvency of leveraged corporates in stressed sectors and of many mid and small-sized non-bank lenders and housing finance companies that could potentially face an asset-side problem,” said Rajiv Mehta, lead analyst, Yes Securities. “Amid such cacophony, the investors have taken shelter in wellgoverned banks, NBFCs and HFCs having robust balance sheet.” Since IL&FS collapse in September last year, without announcing any bailout or liquidity window for the struggling nonbank lenders, the government and the Reserve Bank of India announced several measures to arrest the collapse in the nonbank lending space that contributes over 20% of the total credit. The regulator announced measures to increase liquidity in the system aiding banks to lend to NBFCs, and relaxed securitisation and priority sector norms. The government, on its part, announced a partial credit guarantee scheme which remains a non-starter till date. But these moves did not bring relief across the board, but selectively. Then the government allowed an orderly wind-up or resolution of a failed institution. Since then, DHFL has been referred to bankruptcy. “The trifecta of constrained funding access with rising borrowing costs, recalibration and de-risking of loan book and a slowing economy is set to beat down growth in assets under management of non-banks — comprising non-banking finance companies and housing finance companies — to a decadal low of 6-8% this fiscal, compared with ~15% last fiscal,” Crisil Ratings said. A recent Motilal Oswal report has pointed out that only the top 25-50 NBFCs are able to manage the liability side pressure, while the remaining still struggle to raise funds. While banks have been disbursing loans to the sector, the mutual fund industry has shut their tap and the sector would likely take another year to be out of the woods.
Source: Economic Times
|
Item |
Price |
Unit |
Fluctuation |
Date |
|
PSF |
1006.65 |
USD/Ton |
-0.64% |
12/26/2019 |
|
VSF |
1358.41 |
USD/Ton |
-3.85% |
12/26/2019 |
|
ASF |
2001.86 |
USD/Ton |
0% |
12/26/2019 |
|
Polyester POY |
1018.80 |
USD/Ton |
0.56% |
12/26/2019 |
|
Nylon FDY |
2144.85 |
USD/Ton |
0.67% |
12/26/2019 |
|
40D Spandex |
4103.81 |
USD/Ton |
0% |
12/26/2019 |
|
Nylon POY |
5362.13 |
USD/Ton |
0% |
12/26/2019 |
|
Acrylic Top 3D |
1265.46 |
USD/Ton |
0% |
12/26/2019 |
|
Polyester FDY |
1994.71 |
USD/Ton |
0% |
12/26/2019 |
|
Nylon DTY |
2187.75 |
USD/Ton |
0% |
12/26/2019 |
|
Viscose Long Filament |
1158.22 |
USD/Ton |
0% |
12/26/2019 |
|
Polyester DTY |
2373.63 |
USD/Ton |
0% |
12/26/2019 |
|
30S Spun Rayon Yarn |
1994.71 |
USD/Ton |
0% |
12/26/2019 |
|
32S Polyester Yarn |
1615.79 |
USD/Ton |
0% |
12/26/2019 |
|
45S T/C Yarn |
2402.23 |
USD/Ton |
0% |
12/26/2019 |
|
40S Rayon Yarn |
2173.45 |
USD/Ton |
0% |
12/26/2019 |
|
T/R Yarn 65/35 32S |
1887.47 |
USD/Ton |
0% |
12/26/2019 |
|
45S Polyester Yarn |
1773.08 |
USD/Ton |
0% |
12/26/2019 |
|
T/C Yarn 65/35 32S |
2187.75 |
USD/Ton |
0% |
12/26/2019 |
|
10S Denim Fabric |
1.26 |
USD/Meter |
0% |
12/26/2019 |
|
32S Twill Fabric |
0.69 |
USD/Meter |
0% |
12/26/2019 |
|
40S Combed Poplin |
0.97 |
USD/Meter |
0% |
12/26/2019 |
|
30S Rayon Fabric |
0.53 |
USD/Meter |
0% |
12/26/2019 |
|
45S T/C Fabric |
0.67 |
USD/Meter |
0% |
12/26/2019 |
Source: Global Textiles
Note: The above prices are Chinese Price (1 CNY = 0.14299 USD dtd. 26/12/2019). The prices given above are as quoted from Global Textiles.com. SRTEPC is not responsible for the correctness of the same.
China will adjust import tariffs for a range of products starting January 1 to promote high-quality development of trade, the Customs Tariff Commission of the State Council said recently. The adjustments will expand imports, promote the coordinated development of trade and environment, and advance the Belt and Road initiative, the commission said. To stimulate import potential and optimize the structure of imports, China will implement provisional import tax rates that are lower than the most-favoured-nation (MFN) tariff rates for over 850 commodities. Approved by the State Council, the commission recently released a circular on the adjustments of import tariffs to implement the spirit of the 19th Communist Party of China (CPC) National Congress, the second, third and fourth plenary sessions of the 19th CPC Central Committee, as well as the Central Economic Work Conference, according to an official news agency report. China will introduce or lower the provisional import tax rates for some wood and paper products. In 2020, China will continue to apply conventional tariff rates on some products originated from 23 countries and regions under the relevant free trade agreements or preferential trade arrangements. Further tariff reduction will be made according to the free trade agreements China has separately signed with New Zealand, Peru, Costa Rica, Switzerland, Iceland, Singapore, Australia, the Republic of Korea, Georgia, Chile and Pakistan, as well as the Asia-Pacific Trade Agreement. In 2020, China will continue to apply preferential tariff rates to the goods from the least developed countries that have established diplomatic ties and completed the exchange of notes on the establishment of diplomatic relations with China.
China will also make adjustments to the applicable countries in line with the United Nation's list of the least developed countries and China's transition period arrangements, the commission added.
Source: Fibre2Fashion
Zhao Honggen, manager of a sock-manufacturing plant in Shaoxing, East China‘s Zhejiang Province, decided in 2016 to open a production line in Kuqa County in Northwest China‘s Xinjiang Uyghur Autonomous Region. Though the prospect was exciting, he was nervous. “The local officials in Zhejiang talked with me then, encouraging me to take the lead as a Party member by setting up factories in southern Xinjiang‘s Aksu Prefecture and help provide jobs there,” Zhao recalled. Zhejiang is the province tasked with assisting Aksu Prefecture under a central government program. During the talk, Zhao was impressed by the inexpensive local labor forces as well as the Xinjiang government‘s determination to invite business to the region. However, he was still worried by questions concerning the extent to which the promised favorable policies would translate into actions, and how quickly local labor forces would become highly skilled. Now, three years after opening shop, Zhao‘s concerns have been dispelled. His company, Hongyang Textile Co, is located at an industrial park for micro and small-businesses in Kuqa County under the administration of Aksu Prefecture. It has seen export orders climb by more than $100,000 this year despite impact from the China-US trade war. His export destinations have shifted from the US to Panama and Central Asian countries, taking advantage of Xinjiang‘s geographic position as a core area of the Economic Belt and as a bridge to Central Asia. The company now has 164 employees, 158 of whom are Uyghur. The Global Times learned that their average monthly income is about 2,000 yuan ($284), with some experienced workers able to make 4,000 yuan a month. Last year, the manufacturer helped lift some 30 households out of poverty. Hongyang Textile is just one example of how companies in East and South China have migrated parts of their businesses to southern Xinjiang in recent years. In the first nine months of 2019, Aksu Prefecture welcomed 523 business projects from outside Xinjiang, up 24.23 percent year-on-year, bringing an investment of 45.82 billion yuan, according to data provided by the local government. The region has planned 580 local projects to attract outside investment. Some businesspeople are attracted by the local government‘s subsidies and policies, while others, like Zhao, are lured by relatively affordable labor forces and the region‘s geographic location which allows for diverse export markets.
But those entrepreneurs do not come empty-handed.
They teach new skills, raise local incomes and unite different ethnic groups in southern Xinjiang, where the Uyghur ethnic group accounts for about 80 percent of the population. Most importantly, the presence of their businesses brings wealth and stability to southern Xinjiang, a region once plagued by terrorism and extremism.
Relocating to Xinjiang
Walking around the Guizi business park where Zhao‘s factory is located, slogans advocating ethnic unity can be seen painted on many walls. One banner hanging outside the factory reads, “People of all ethnic groups should unite like pomegranate seeds,” comparing the importance of ethnic unity to agricultural production. Zhang Wenjun, an official of the Kuqa Economic and Technological Development Zone which oversees the Guizi business park, told the Global Times on Friday that such an industrial park for small and micro-businesses is unique in southern Xinjiang. “It is an important means for local governments to solve employment issues,” he noted. Shohrat Zakir, chairman of the Xinjiang regional government, vowed at the region‘s annual two sessions in January that maintaining social stability will continue to be an important task in 2019, Xinjiang Daily reported. Patigu Yusufu, a 55-year-old Uyghur worker, told the Global Times that she is more than happy to work at the industrial park. Yusufu, now a Party member, did not have any income before local officials found her a job at the factory in 2017. Now, she can package more than 4,000 pairs of socks each day, which brings her a monthly income of around $420 – higher than her husband‘s. By working together, Han and Uyghur employees form deep connections, according to Yusufu. “We‘re like a family, we care for each other a lot,” she said. Some industrial parks are created to receive and accommodate companies moving from the south, according to officials. As such, most industrial parks provide free factories and dormitory housing for firms coming from outside Xinjiang. Additionally, they also offer discounts for electricity fees and social insurance payments. “We want to tap into Xinjiang‘s advantage to attract as many as companies as we can. Xinjiang may lack something but it does not lack land, so the local government provides all kinds of fixed-asset investment. What enterprises need to do is to come with equipment and technology,” Zhang said. Take Zhao‘s company as an example. Hongyang Textile has been using a 5,000-square-meter factory free of charge for three years, and the only investment Zhao made to start up the business was 15 million yuan, which was used to source 253 pieces of sock-manufacturing equipment. The local government also purses 60 percent of the company‘s social insurance payment every year, according to Zhao. “It is very easy to set up a business in southern Xinjiang. The business environment is very friendly and local officials are very responsive,” Zhao said. Labor costs are also significantly lower in Xinjiang. Tian Yong, a senior executive of chemical firm Yuxiang Huyang Co, told the Global Times that it only costs about 2,000 yuan to hire a worker in Aksu, while in Southwest China‘s Sichuan Province, labor fees and social insurance could add up to at least 6,000 yuan to hire a worker. The Sichuan-based company, which produces chemical products such as melamine and urea, opened a new factory in Xayar County under the administration of Aksu Prefecture in September 2009. Now, its industrial output accounts for 70 percent of Xayar‘s total, with sales hitting a record high of 1.2 billion yuan in 2018. “We‘re in talks with downstream companies in East China‘s Fujian Province and South China‘s Guangdong Province to bring more industrial chains, such as high-grade melamine tableware manufacturing, into southern Xinjiang,” Tian said. Projects will begin in the first half of 2020. Yuxiang Huyang now employs 1,500 workers, 500 of whom are Uyghur earning 40,000 yuan a year. The establishment of the plant has contributed significantly to the local drive to reduce poverty.
Educating locals
Almost all local companies in southern Xinjiang, including Yuxiang Huyang and Hongyang Textile, organize weekly classes for Uyghurs, covering the Chinese language and tech education. But some executives are disappointed at the progress of the tutoring, which they said “has been moving very slowly among the minority workers.” This in turn drags down production efficiency and weighs on profitability. “It‘s harder than we expected to nurture local skilled labor in southern Xinjiang, and we still have to rely on technical experts from Sichuan after a decade of localization,” Tian complained. “This really is a Long March.” The chemical producer has had to lower its employment standards repeatedly. Now, any Uyghur candidate who can write an article in the Chinese language will be admitted to the company. Yuxiang Huyang then provides training courses to qualify employees to undertake relevant work at the factory. Xinjiang Jinliyuan Clothing Co, a Shandong-based textiles manufacturer that established a new factory in Aksu in 2016, has been hosting tri-weekly classes for minority employees for the last three years. But now, with the same employment levels, the capacity of the Xinjiang factory is only about 40 percent that of the plant in Shandong. “At first, we thought it would be 70 percent after three years of training. This is far lower than our expectations,” Zhang Jie, general manager of Jinliyuan, told the Global Times. He noted that the efficiency issue has made it difficult for Jinliyuan to make a profit. Last year, the textiles manufacturer incurred a loss of more than 9 million yuan. Despite such difficulties, some expressed that things are getting better. Zhao said that through their ongoing education courses, some Uyghur workers have formed the idea, “Work hard to live a better life,” and the factory has seen a significant drop in employment mobility this year. “The process of forming a local skilled labor force is underway, despite being slow. In the future, the Xinjiang factory will also be able to produce high value-added sock products to increase profit margins,” Zhang said.
He also plans to export such products to snap markets in Russia and other countries along the Initiative, via the China-Europe freight train. In September, Aksu Railway Station was approved for a direct link to the China-Europe freight train route under a model of consolidated loading and shipping in southern Xinjiang. The trains, which depart from Urumqi Western Station with the aid of government subsidies, operate twice a week. The linkage to the route allows Xinjiang exporters to reduce the shipping time to Europe by roughly 10 to 20 days. Despite the outbound logistics convenience, some entrepreneurs also long for transportation subsidies when shipping materials into southern Xinjiang, as the region lacks a complete industrial chain. Despite Aksu‘s status as China‘s largest cotton production base, Zhao pointed out that all raw materials, parts and equipment used in the process of making socks are purchased from Zhejiang, which is about 4,700 kilometers from Aksu. “We cannot find such materials in Xinjiang – even dyeing needs to be completed in Zhejiang. Transportation costs have eaten up our profit,” Zhang explained, urging the local government to step in and devise more measures to help create an industrial chain for the textiles industry.
Source: Dodson Digest
The country's textile industry has strongly protested against what it says misrepresentation of facts by the Federal Board of Revenue (FBR) at a recent meeting of National Assembly Standing Committee on Finance, sources close to Prime Minister Advisor on Commerce, Industries and Production and Investment, Abdul Razak Dawood told Business Recorder. The textile industry conveyed its concerns to the Chairman Standing Committee Faiz Ullah Kamoka through a letter, copies of which have been sent to all the concerned authorities including Razak Dawood and FBR Chairman Shabbar Zaidi. According to the industry, during the meeting FBR claimed that withdrawal of zero rating was done in consultation and agreement of the industry in lieu of the energy package that was extended to the industry. “We strongly protest at the misrepresentation of facts. Zero rating was withdrawn on the pretext by FBR that domestic sales constituted 50% of all sales from the textile sector and paid little or no sales tax on it," APTMA said in the letter. The textile Industry, according to the letter objected vehemently at the facts and figures that domestic sales of the sector were no more than 25% of the industrial output and that FBR should tax the point of sale to capture the sales tax potential of the market. In this manner all goods of any origin would be taxed (including imports, legal or smuggled). FBR however proceeded to withdraw zero rating in total disregard of the industry's concerns. APTMA further claims that despite having announced regionally competitive energy tariffs (electricity at 7 cents per unit all-inclusive and $6.5 MMBTU RLNG/gas) implementation simply has not been done. The all-inclusive power tariff of 7.5 cents/kWh was available to the industry up to June 30, 2019 and the Power Division has thereafter been charging an additional 25% as quarterly tariff adjustment over and above the 7.5 cents defeating the very purpose of a predictable and stable regionally competitive tariff. According to sources, APTMA further claimed that in so far as RLNG/gas tariff of $ 6.5 MMBTU is concerned, the Implementation of this is continuing due to court intervention as SNGPL is still insisting on charging the full RLNG rate of $11.5/MMBTU. They have also substantially increased the 3-month consumption security deposit to reflect the full RLNG rate of $ 11.5/MMBTU soaking up much needed liquidity from the market. This reversal of the regionally competitive energy prices is coming at a time when exports have started picking up momentum. The letter written by Executive Director APTMA, Shahid Sattar, states that the momentum built up with increasing exports/capacity utilization is being frittered away by the soaking up of liquidity on account of withdrawal of zero rating and the road blocks placed in the implementation of the energy package. APTMA maintains that only Rs 10 billion of current refunds have been released during the five month period while Rs 80 billion which has been collected will eventually have to be refunded. “We reiterate that there is no connection between the two issues as is being claimed by FBR," Sattar maintained. During the Standing Committee meeting, the FBR also claimed that it has collected additional Rs 55 billion taxes from export-oriented sectors without disclosing that it has yet to refund Rs 60 billion of sales tax to the industry.
Source: Business Recorder
There’s nothing like curling up next to a roaring fire wrapped up in a warm sweater, soft blankets and furry pillows on a cold day. As we bundle up for the remainder of the winter season, we can give thanks to global trade for gifting us with some of today’s trendiest and coziest items – Sherpa wool coats, Mongolian lamb fur pillows and cashmere sweaters, Giza cotton sheets, and Turkish towels. The United States imported $110 billion worth of textiles and apparel last year, with China, Vietnam and India as the lead exporters. These larger economies dominate overall textile and apparel imports, but specialty products from smaller economies are making a name for themselves with American consumers this holiday season. Before you buy “faux” versions, read on to get the skinny on the originals.
Sherpa from Nepal
Sherpa wool coats, sweaters, and scarves are everywhere this holiday season. Once a high-end statement piece, trendy Sherpa items are now available at varying price points at your local mall. While most of the Sherpa in your closet is likely the faux variety made from polyester, acrylic or cotton, the real deal is inspired by wool clothing worn by the Sherpa people living in the Himalayas. There are some 150,000 Sherpas residing in the mountainous regions of Nepal, India and Tibet. Many make their living today guiding climbers and tourists up the dangerous summit of Mount Everest as expert mountaineers. But they’re also well-known traders of salt, wool and rice. The United States is Nepal’s second-largest export market. Top imports include carpets, handicrafts and antiques, animal feed, textiles and apparel. In 2015, the United States established a stand-alone trade preference program with Nepal as part of the Trade Facilitation and Trade Enforcement Act to help support Nepal’s economic recovery following disastrous earthquakes that year. The program established duty-free access for 77 categories of products including carpets, shawls, scarves, handbags and suitcases through 2025. Although Nepal may have started the Sherpa trend, we get most of our wool products from elsewhere today. U.S. wool apparel imports topped $3.1 billion in 2018. China was the top source at over 42 percent, followed by Italy, Canada and Vietnam.
Fur pillows and cashmere sweaters from Mongolia
Fluff up your indoor space by throwing a trendy Mongolian lamb fur pillows on your sofa. (These pillows are all the rage with teens and millennials.) While faux versions are likely a mix of acrylic and polyester, the real ones are made from sheared sheep wool from Mongolia. Mongolia is home to some 14 million sheep. They graze year-round on Mongolia’s vast plains, accustomed to severe winters, steep mountains and poor vegetation. Mongolia’s sheep aren’t the only grazers sought after for their soft coats. Mongolia is also home to some 27 million goats that produce 9,400 tons of soft cashmere each year, making Mongolia the world’s second-largest producer of cashmere behind China. Top destinations for Mongolian cashmere include Italy and England. It’s the country’s third-largest exporting industry and employs over 100,000 people, the majority of whom are women. Exports account for more than half of Mongolia’s GDP. Its economy has traditionally relied on herding and agriculture, but in recent years has gotten a big boost of foreign direct investment in its mining sector which seeks to extract rich deposits of copper, gold, coal, uranium, tungsten and more.
Giza cotton sheets from Egypt
If you’ve ever been up late skimming the TV channels over the holiday break, you’ve likely come across a mustached man happily hugging his “MyPillow”. Mike Lindell is now legendary for his infomercial success, and his company has expanded its product line beyond its namesake pillows to offer dog beds, towels and more. One of the latest product lines from MyPillow is “Giza Dream” sheets and pillowcases made with 100 percent Giza cotton. In one of his infomercials, Lindell explains how he made his signature sheets: “I started by using the world’s best cotton called Giza. It’s only grown in a region between the Sahara Desert, the Mediterranean Sea and the Nile River. It’s ultra-soft and breathable, but extremely durable”. MyPillow’s first infomercial aired in 2011, but Giza cotton has been around for centuries. Known for being both extra fine and extra long, Giza cotton is planted in Egypt every April and harvested in September. It’s then hand-picked to ensure its properly matured. But issues with deteriorating quality of privately produced Giza cotton led the Egyptian government to intervene in recent years to help restore the reputation of Egyptian cotton.
In 2017, the Egyptian government unveiled a 19-step plan which included taking control of the production and distribution of cottonseed. It’s already led to increased yield and quality, according to a 2019 report by the U.S. Foreign Agriculture Service. The plan also seeks to prevent seed mixing, enforce bans on prohibited varieties, and develop Egypt’s local spinning and weaving industries. In 2018, Egypt’s total lint cotton exports were estimated at 220,000 bales. India was the top importer of Egyptian cotton, responsible for over 50 percent of total exports. Other top importers include Pakistan, China and Turkey.
Turkish towels
Turkish towels are a summer must-have for sunbathing, but they’ve also made their way into American homes for use after showering, as tablecloths, and as blankets. Usually striped with fringes on the end, these trendy towels are known for being super absorbent, lightweight and getting softer with each wash. Turkish towels are made with premium Aegean Cotton, known for its extra long fibers. Called “Peshtemal” in Turkey, Turkish towels have a long history dating over 600 years. Turkey is widely credited with inventing the first towels as part of a ceremonial bathing routine for new brides in Turkish hammams. The Turkish textile industry is one of the leading sectors in its economy, accounting for 16 percent of exports in 2018. According to its Ministry of Trade, Turkey was the world’s third-largest supplier of bed sheets, fourth-largest supplier of towels and bathrobes, and fifth-largest supplier of bedspreads in 2016. Of its top exports markets for home textiles, the United States ranks second behind Germany. Unwrapping gratitude for tradeNepal, Mongolia, Egypt and Turkey are inspiring some of the coziest products we’ll unwrap this holiday season. Even if these products are enjoying the fruits of a fad-induced surge in American demand, their histories date back centuries while also representing an important source of employment and exports for their respective economies today.
Source: Global Trade Magazine
The garment sector is facing a double whammy as more and more factories are closing at a time when apparel shipments are falling. Between July and November, garment exports declined 7.74 percent year-on-year to $13.08 billion, which was 13.63 percent below the target set for the period, according to data from the Export Promotion Bureau (EPB). In the last 11 months to November, 61 factories were shut down, rendering 31,600 workers jobless, according to data from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the trade body for apparel makers and exporters. On the other hand, Bangladesh’s main competitor Vietnam reaped nearly $27.4 billion from exporting garments and textiles in the first 10 months of this year, posting a year-on-year rise of 8.7 percent, according to the country’s General Statistics Office on Tuesday. Stronger currencies and policy incentives given by the competitor countries are enabling them to get more business by offering lower prices than Bangladesh, according to the exporters and analysts of the BGMEA. A significant increase in production cost because of the implementation of the minimum wage in December last year is another major reason for the falling garment export, they said. Poor efficiency and relatively higher cost of doing business are decaying Bangladesh’s trade competitiveness. Over-concentration of the industry to a few product items and to a handful of markets are among the top-rated challenges, the leaders of the garment makers’ platform said. “As we are tracking export data on monthly basis, the trend is still giving a dull picture,” said Rubana Huq, president of the BGMEA. The data of the first fortnight of December showed that exports declined by more than 3 percent, meaning the growth may continue falling in the whole month, she said. It is difficult to project the trend since the global market looks volatile due to the emergence of a number of factors such as the EU-Vietnam free trade agreement, the strategic move by China to offset the impact of punitive tariff by lowering prices, and the emergence of new sourcing destinations, according to Huq. “The growing share of online sales will also bring a major disruption to the conventional way of doing business in the medium term. If we do not take proper steps now to get ourselves at par with our competitors, it will be difficult to get the rhythm back in our exports.” The probable fallout could be closure of more factories, displacements of more workers and a decline in export earnings, which might affect the overall macro-economic performance of the country, she said. “We have appealed to the government for a few policy support to tackle the crisis.” The government also responded and lowered the source tax on garment export to 0.25 percent. “However, we have demanded for the retrospective effect of it like previous years,” Huq said. “At the same time we have requested for withdrawal of the conditions to avail the 1 percent special incentive and also for withdrawal of tax on incentives.” She said since the exchange rate has become a major downside of the country’s competitiveness, the BGMEA hopes the government will be considerate to allow a premium—for example, Tk 5 per US dollar on 25 percent of export value—on the local retention on garments exports. According to Huq, diversification of the industry is one of the most important priorities now and the sector needs special incentive to encourage product and material diversification and innovation. “For long-term business sustainability, we need an exit policy.” Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, argued for a temporary devaluation of the taka against the US dollar for some selective exportable garment items. For instance, the government can devalue the greenback for the manmade fibre garment and synthetic fibre garment exports, he said. If the government devalues the local currency against the dollar for selective items, product diversification will take place automatically, he said. Mansur also said the taka can be devalued to Tk 90 against a US dollar right at this moment. However, the government should also notice whether the inflation goes up due to the devaluation of the currency, he said. “Currency devaluation is not a permanent solution,” he said. The garment industry has to increase its efficiency at least by 30 percent if it wants to be more competitive globally, said Mansur, also a former economist of the International Monetary Fund. “The sector can obtain efficiency through efficient management practices, technology selection and product and market diversification.”
Source: The Daily Star
