The Synthetic & Rayon Textiles Export Promotion Council

MARKET WATCH 03 APRIL, 2020

NATIONAL

INTERNATIONAL

If the Textile Industry Is to Recover From the Lockdown, It Needs Quick Government Help

India’s textile and apparel industry is in a crisis and needs fixing. Widely regarded as the second-highest employment generator after agriculture, the sector employs around 45 million workers directly and another 60 million indirectly across the country. The economic shocks that follow the COVID-19 pandemic come at a time when the sector was already struggling from the aftereffects of demonetisation and other declining economic indicators. While there is no denying the need to arrest the spread of the virus by any means possible, including a full or partial lockdown, the need to manage its economic aftermath is just as urgent. Across the globe, there is near unanimity on the fact that the global economy is already in a deep and prolonged recession of the kind not witnessed since the Great Depression. Data emerging from most corners of the globe do not hold out any positives for an Indian economy that was already in the midst of a slowdown. Sample this – the US-based retail giant Macy’s has announced that it would furlough most of its 1,30,000 employees while others such as British luxury giant Burberry have forecast a staggering 70%-80% drop in sales. The UK-based retailer Primark has announced a cancellation of all new orders and Inditex (the owner of popular brand Zara) has already written off some $336 million worth of inventory. Many global buyers are expected to file for bankruptcy or go into liquidation, which would leave textile manufacturers including those in India with crippling levels of bad debt. Around the world, governments have announced record financial aid packages worth trillions of dollars for their industrial sectors. In the wake of this unprecedented crisis, it is important for policymakers to recognise and plan for well-targeted, industry-specific measures to address these issues. It is certain that closing stores and factories across the country for a period of three weeks will cost India’s textile and apparel industry dearly. The export sector is already besieged with cancelled orders and a drying up of future orders for the next four to six months. Domestic consumption was probably the last oasis, but with the shutdown of all forms of commerce, stakeholders are left with few options. In urban centres across the country, apparel retailers and garment factories employ millions of semi-skilled and unskilled workers. Without export orders and a restarting of the economy, many will be either forced to shut shop entirely or inflict stringent cost-cutting measures, including layoffs. For those employed here, the option to work from home is largely impractical. In some of the most backward districts of the country, the handloom sector – which employs a significant and often forgotten labour force – will also be forced to drastically reduce output, or cut wages to compensate for the decline in retail sales across the country. Add to that the fact that the sector is driven by consumer sentiment and discretionary spending, both of which are at an all-time low. Given the current scenario, many Indian industry players have shelved expansion plans indefinitely and have in some extreme instances even been asking customers for contributions to their salary fund. Evidence of the stress in the industry is apparent when most players have started announcing pay cuts to middle and senior management and scaling back of production capacities. So what can policymakers do at this time? What measures can be instituted for immediate relief, and which ideas will help the sector get back on its feet in the coming months?

Here are a few suggestions which if swiftly acted upon can avert a potentially explosive situation.

Wage Support: In a bid to contain the adverse economic fallout of COVID-19, this is by far one of the most direct means of reaching government assistance to those who need it the most. Governments around the world have favoured this approach. The UK, to cite just one example has promised to pay its workers up to 80% of their wages to avoid mass layoffs. While it may be impractical for the government to fund the wage bills of every sector, the textile industry is most in need of such relief. Providing direct wage support of anywhere between Rs 5000-Rs 7000 per worker for even one month (assuming the lockdown is lifted by mid-April) will ensure that the most pressing problem – layoffs and unemployment – is at least partially staved off. It is necessary to ensure that any aid reaches the intended beneficiaries and therefore I would advocate disbursement only through DBT methods directly to employees. Of course, naysayers may argue that such measures will only positively impact the formal sections of the textile workforce, but it will serve those employed in organised apparel and textile units that account for a large percentage of the registered workforce.

GST Refund: The swiftest way to reach the maximum number of stakeholders is to refund GST payments made in part or full for the past six months. This will cover almost the entire gamut of industry stakeholders, right from the handloom weavers in the remote parts of the country to the shopkeepers and traders in the now deserted high streets. It would also be possible to do this on a sector-specific basis since GST refund rates can be decided based on the HSN codes used by registered dealers on their invoices, and will also strengthen the government’s push for greater compliance.

Special Package of Incentives for the Export sector: The export sector is likely to be the worst hit, and will surely lose further market share to competition from other countries, most notably China (which is already recovering from the impact of the virus). The sector will need an immediate package of incentives such as Extra Duty Drawback on exports made in the previous Financial Year (since exports are likely to be slow in coming months), and obviously, a continuation of the same to this Financial Year.

Interest Subvention: While the RBI has already announced a rate cut this can be further augmented by an interest subvention scheme of 1-2 percentage points to be disbursed by the Ministry of Textiles on all Term loans availed by the sector as has been done in the past under the Technology Upgradation Fund Scheme (TUFS).

Reduced GST: Once the lockdown is lifted, the government can provide a reduced GST rate on all textile articles to kick-start demand until the industry recovers sufficiently just as they had done for the auto industry in the recent past.

All of the above may be partially financed by an anti-dumping duty on Chinese textile imports for the next 12 months. It will be no one’s case in the foreseeable future to argue against this measure. And while it may serve as a token measure at best, it will definitely find resonance amongst many in the comity of nations. While this government has traditionally frowned upon sector-specific relief measures, it is worthwhile noting that textile industries around the world—including those in more developed economies such as China, Belgium, and Italy—are among the most heavily subsidised in their respective countries as they are important sources of employment. This is equally if not more true in India, where this sector has employed millions of ordinary Indians since Independence. The prime minister himself represents a constituency that is one of India’s leading textile hubs – Benaras (Varanasi) – where thousands of skilled and unskilled workers depend on the textile sector for their livelihoods.

Source: The Wire

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Covid-19 impact: Indian Ports with exposure to affected cargo to see muted volumes

Ports with significant exposure to cargo affected by the outbreak of Covid-19 pandemic could see their volumes shrinking in the near term.  After the surfacing of the deadly Coronavirus, many industries such as chemicals, dyes & pigments, pharmaceuticals, textiles, electronics and automobiles run the possibility of short-term supply disruptions due to a production shutdown in China, a study by Icra noted. With the contagion spreading to more countries, the supply disruptions could get more pronounced, affecting export and import trade at ports. “Ports that have a significant exposure to the affected cargo categories could see an impact on their cargo volumes in the near term. The extent of the impact will be dependent of the duration of slowdown in consumer demand and industrial activities due to Covid-19 and the pace of subsequent recovery”, the report by Icra noted. Between April and February of this fiscal, Indian major ports have recorded measly growth of 2.8 per cent to 1085 million tonnes (mt). Growth in cargo throughput has been largely contained by lacklustre 1.6 per cent growth in coal shipments. Other cargo categories like containers and bulk cargo also experienced some slowdown in year-on-year (y-o-y) growth. According to the Icra report, “The ongoing slowdown in coal imports is most likely attributable to the economic slowdown in recent months which has brought down the overall demand. Power demand and consequently thermal power generation has witnesses a decline in the last three to four months which along with the slowdown in other consuming industries is resulting in the fall in coal demand supply gap. Growth in coal demand is also stifled by the impact of higher generation from newly added renewable capacities. Systemic inventory with users is also possibly down on account of lower ordering following the anticipation of further slowdown in demand”. Overall container volume slowed down to 3.5 per cent in April-February as against 11 per cent growth in the corresponding period of FY19. Non major ports have outperformed the major ports in terms of retaining higher incremental cargo volumes. This is evident from the relatively higher growth of 4.5 per cent registered by them compared to 1.1 per cent by major ports. While coal logged 13 per cent growth at non major ports, it plunged 9.4 per cent at major ports. In container growth too, the non-major ports scored higher with 5.8 per cent compared to 2.2 per cent for non-major ports. The study forecasts that containers, coal and other bulk cargo could be the most impacted categories. Liquid cargo like LNG and petroleum products would be comparatively less affected as tumbling crude oil prices would buoy demand growth.

Source: Hellenic shipping news

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Shri Piyush Goyal holds videoconference with stakeholders of Start-up ecosystem

Minister of Railways and Commerce & Industry Minister Shri Piyush Goyal today held a meeting through Video Conference with the stakeholders of Start-up ecosystem, including developers, leading startups, Angel investors and others, to assess the impact of COVID-19 and lockdown in the country. The meeting was also attended by the Officers from Department for Promotion of Industry and Internal Trade, Ministry of Corporate Affairs, SEBI, CBDT, CBIC, NITI Aayog, and SIDBI. The Minister stressed the important role being played by Startups in the country as the harbingers of hope and for the future of the country. He said that the country is passing through the unprecedented crisis, and this requires prompt remedial actions. He sought everybody’s cooperation in overcoming the hardships being faced by the industry, particularly the startups. Shri Goyal said that it is the positive spirit of the Startup entrepreneurs that is making them rise to the occasion and trying to find solutions to various problems linked to COVID-30. He welcomed the launch of Action COVID-19 Team (ACT) which is starting a Rs 100 crore programme, aimed to seed over 50 initiatives through grants to combat the economic fallout of COVID-19 in India. The Minister also welcomed another startup venture which is trying to help the Kirana (small retail shops) stores in Tier-II and Tier-III towns, overcome the issues of supply chain and scarcity of resources. After listening to the various problems and suggestions by the startup stakeholders, Shri Goyal called for collaborative efforts. In the meeting, it was mentioned that many Start-ups have been working on finding various solutions to COVID-19 issues with focus on preventive, Assistive and curative aspects of the pandemic. Many of the ventures are in the final stage of launch and others will require some more time to take shape. These ventures will require access, funding, validation, scaling-up, and support. A joint committee from various Government departments and industry associations are evaluating these initiatives. The participants raised specific issues with the Officers present in the meeting. Many a solutions were pointed out in the meeting and it was decided that some suggestions of the startup fraternity needs detailed consideration. The Startup representatives raised the concerns, ranging from the question of their survival, liquidity crunch, cash flow and revenue problems, labour matters, and other difficulties in running the ventures due to lockdown, etc.

Source : PIB

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GST collection in March at Rs 97, 597 crore, down 8.4 %

Goods and Services Tax (GST) collections on a gross basis in March came in at Rs 97, 597 crore, an 8.4% fall over the corresponding month last year, as revenue from domestic and import transactions slumped and fewer taxpayers filed returns compared to previous months. Also, the Centre’s own collections for the financial year (FY20) missed the revised estimate (RE) by Rs 20,747 crore or 3.4% at Rs 5.92 lakh crore. Gross GST collections during the whole of FY20 (April-March) were Rs 12.2 lakh crore, up just 3.8% year-on-year. In FY19, the collections had risen at a faster rate – the monthly average mop-up in the year was up 6% over that in the eight-month period in FY18 (August-March). Of course, the GST revenue growth is not only below the optimistic projections made before the launch of this comprehensive destination-based tax on consumption, but also trails the immediate-past trend growth rates of various taxes subsumed in GST. The 14% growth guaranteed to states in their GST revenue looks too much and the compensation kitty is increasingly falling short. The March collections correspond to transactions in February; March is the third month in FY20 when GST revenue shrank year-on-year. While growth in mop-up from domestic sales in most months of FY20 had been mitigating the falling revenue from imports, March saw both numbers shrinking by 4% and 23% respectively. The states’ own GST revenues — SGST receipts minus the compensation from the Centre — were short of the aggregate protected level by Rs 1.5 lakh crore or 23% in the financial year that ended on Tuesday (FY20). As against this, the compensation funds collected in the year was only Rs 95,768 crore. In the April-November period last fiscal, the states were distributed over Rs 1 lakh crore as compensation for their GST revenue shortfall. The Centre has used about Rs 28,000 crore of the Rs 47,271 crore absorbed by the Consolidated Fund of India in FY18-FY19 period as ‘surplus’ revenue from the GST compensation cess to reduce the state governments’ GST revenue shortfall in FY20. “For the full financial year, 2019-20, the GST for domestic transaction has shown a growth rate of 8% over the revenues during last year. During the year, GST from import fell down by 8% as compared to last year. Overall, gross GST revenues grew at 4% over the last year’s GST revenue,” the government said in a statement. The compliance level also fell in February with only 76.5 lakh eligible taxpayers filing GSTR-3B returns by March 31. The number has been close to 80 lakh or more in the last three months. As reported by FE earlier, nearly all large states saw a doubling of the gap between SGST and protected revenue in FY20 from the FY19 level. In the April-February FY20 period, the highest deficit was reported by Punjab (46%), followed by Kerala, Karnataka, Gujarat, Bihar and Madhya Pradesh. The protected revenue refers to the constitutional guarantee provided to the states that their GST collection would grow 14% year-on-year. This is ensured through compensation cess fund, made out of the proceeds from assorted cesses. As per the relevant law, the Centre could make payments only from the compensation proceeds generated out of cesses levied on items under GST, for bridging the states’ revenue shortfall. “Whatever money comes in that (compensation) fund, only that money can be paid (to states). Now if there is a shortfall (against states’ guaranteed revenue growth of 14%) which is more than what could be overcome by compensation fund, then the GST Council will take a decision on what measures can be taken to either increase the cess amount or consider the rates or take any other measure,” finance secretary Ajay Bhushan Pandey had earlier said. With the Covid-19 pandemic wreaking havoc across the economic value chain cutting across sectors, the GST receipts in FY21 are likely to be hit hard. There are proposals before the GST Council for a fresh round of GST rate cuts, given the need to give impetus to businesses in the current difficult times. While the GST as a comprehensive indirect tax that militates against cascading of taxes was stated to improve revenue buoyancy and collections, it hasn’t really lived up to that promise yet. Analysts ascribe the tax’s under-performance to its imperfect structure. There are key exclusions like petroleum products and real estate, while the tax slabs are multiple and are fraught with inverted tax structures. The tax authorities have been less than successful in plugging evasion and ending practices like excessive/fraudulent use of input tax credits by a section of taxpayers to meet their tax liability. Even 23 months after the tax’s launch, a foolproof system of returns filing that allows matching of invoices uploaded by the suppliers and buyers continues to be elusive.Also, the weighted average GST rate is significantly below the revenue neutral rate estimated before the tax’s launch, with a series of tax rate cuts by the GST Council widening the gap. Pratik Jain, partner and leader of indirect tax at PwC India, said: “While there could be some impact of slowdown that got triggered due to onset of Covid-19 situation (though the impact of lockdown will be reflected in April 20 numbers), there is around 7% reduction in filing of GSTR 3B over last month. It seems that many businesses may not have been able to pay GST because of liquidity issues being faced after the lockdown. As second half of March 20 has been significantly impacted due to Covid-19 outbreak, the collections in April 20 is likely to be substantially lower. In addition, industry has demanded for moratorium in GST payments (as of now deferment of 3 months has been given to MSME sector only) and reduction in rates, which could have an impact as well. The impact on fiscal deficit for FY 19-20 will now have to be seen.” “Due to country-wide lockdown amid Covid-19 outbreak, the returns for the month of March 2020 are still pending, which has adversely impacted the revenue collections. It is noteworthy that the import of goods has also shown a negative growth of 23% as compared to March 2019. It has also played a crucial role to push back the GST collections,” Vishal Raheja, DGM at Taxmann, said.

Source: Financial Express

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How do we keep paying wages, wonders stricken industry

Industries, big and small, are increasingly finding it difficult and, in some cases, impossible to comply with the government’s directive that workers’ wages must continue to be paid through the unfolding economic crisis. The reason: Falling or zero revenues that aren’t compensated by measures such as loan forbearance. We need much more government help, is industry’s consistent message. The labour ministry plans to increase unemployment benefits through Employees State Insurance scheme may not be enough given the scale of the problem, industry observers said.  And industry is also asking whether government directions have any legal backing. The Disaster Management Act, for example, doesn’t provide for a legal basis on continued payment of wages. Adding to this is labour absenteeism, which is a perverse outcome of the government’s directive that workers must be paid even if they don’t turn up for work. In some product categories, labour shortage may soon create supply shortages. ET spoke to industry captains, entrepreneurs, MSME owners and business associations for this story. Some spoke off record.

‘Need Govt help for welfare obligations’

Most employers agree with the government that wage earners should not be made victims in this crisis. But they are asking whether their cash flows can get extra official help to fulfil welfare obligations. Deepak Sood, secretary general of Assocham, said “pressure is mounting on working capital” and industry expects “banks to stretch their helping hand beyond RBI forbearances” and a “large fiscal package”. CII president Vikram Kirloskar said in a statement that “it is critically important that we do not resort to retrenchment” but that costs were a concern.

The smaller industries, facing more cash flow problems, are more direct in their response. S Singla, who runs a plastic tanks manufacturing unit in Baddi, Himachal Pradesh, was categorical: “The government can say anything. Will they pay the salaries? I will have to fire 20% of my workforce… We work on thin margins.” MSMEs and SMEs are in a really tough spot. Chandrakant Salunkhe, founder of SME Chamber of India, said: “I fear that after two months, 500,000-700,000 MSMEs will close down… we need much more government help.” He added that most small units will be able to pay salaries for at most a month. Smaller ecommerce players are in almost a similar position. Vendors that sell ‘inessential’ items and are therefore hit hard say they can pay wages at most till the lockdown lasts. Raja Agarwal, who sells imitation jewellery on Flipkart and Amazon, said, “I’ve decided to pay my employees full salary for April. However, I will start to struggle if the lockdown extends.”

Restaurateurs struggling

Restaurateurs are willing to pay salaries for a month, but working capital difficulties mean they can’t extend it without direct government support. Karan Tanna of Ghost Kitchens, a cloud kitchen platform, said: “Everyone intends to pay staff salaries... but lack of rental waiver from landlords and negligible government support means we can’t carry on.” In some cases, even the promise of wages and benefits are not getting workers to attend because of the expectation that full wages will be paid even without showing up for work. “We have committed extra incentives… yet workers are not willing to report for work because they are shielded by government directives,” said a top official at one of India’s largest foods companies. A large retailer said half his workforce is not turning up. A leading biscuits manufacturer based in the East said worker absenteeism has led to zero production in the past 10 days. The business head of a large FMCG company said: “The government order on paying full wages during the lockdown means workers are staying home.” The executive of a leading FMCG firm said the company was evaluating legally whether the government's notice to pay full wages to labour during the lockdown was an order or a request.

Demand destruction

For large employers facing demand destruction, the problem of paying wages is severe. Textiles, the industry that’s India’s third largest employer, is in a quandary on how to keep paying salaries. J Suresh, MD of Arvind Fashions, said: “Our revenues are now zero. We can support workers for some time, but if this lockdown extends, it’ll get very hard… we’re hoping for government subsidies for paying front line staff.” J Thulasidharan, president of the Indian Cotton Federation, was even more pessimistic: “About 95% of the industries will not be able to pay 100% wages for the lockdown period. We do not have the liquidity, having lost the peak season… as per the Industrial Disputes Act, we are bound to pay 50% of the salary to workers for the layoff period caused due to some calamity. If we get some financial support from banks or the government, some mills might be able to pay the remaining salaries later.” Satish Koshti, who represents the powerloom industry of Ichalkaranji in Maharashtra, said, “Most of us have made arrangements for workers by paying them enough money to get food and other essentials. Paying full wages will be each mill owner’s decision.” Manufacturing’s constraints Manufacturing, another large employer, is also coming up against a cash flow constraint. Rishi Bagla, promoter of a medium-sized engineering group based in Maharashtra, said: “Workers have to be paid salaries at a time companies have no revenues for a month. Nobody can compensate for this loss. The government has to ask banks to step in.” Former president of All India Rice Exporters Association Vijay Sethia also stressed the need for government help — waiver of electricity charges and interest subvention by banks. This is echoed by Ajay Bansal, president of All India Petroleum Dealers Association, who wanted tax relief or power subsidies to help dealers pay wages at a time when pump sales have “dropped 90%”.

Source: Economic Times

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RBI director presses for bold initiatives to revive MSME sector, amid Covid-19 crisis

The government and the Reserve Bank need to come out with a bold and comprehensive package to help small and medium enterprises tide over the unprecedented crisis created by COVID-19, said veteran co-operator and RBI central board director Satish Marathe. Piecemeal initiatives will not help the industry as "this is an exceptional crisis and warrants exceptional response," Marathe told . The coronavirus crisis is likely to end in the next three to six months, but the industry, which bore the brunt of slowdown during 2019, will take much longer to recover, he said. Referring to the recent measures announced by the government and the RBI to mitigate the impact of the pandemic, he said, these are only for short term and may not yield the desired results as the problem is severe and has been further aggravated by the lockdown. There is a need for a bold and comprehensive package to ensure that the industry, especially unorganised sector and MSMEs, comes back on track as quickly as possible once coronavirus is contained and the lockdown is lifted, said Marathe, who is also the founder member of Sahakar Bharati. In a letter written to Finance Minister Nirmala Sitharaman, Sahakar Bharati said announcements made by the government and the central bank would make little impact both on the borrowers and lenders. There is a need to relax bad loan guidelines for classification of non-performing assets (NPA), it said, adding the delinquency period should be raised from 90 days to 180 days. In India, Marathe said, a business is run with support from bank credit unlike in developed economies where it is propelled by capital. 'He also suggested that provisioning norms be kept in abeyance for 1 year and rescheduling be allowed in all personal and retail loans without downgrade. Even the steps like three-month moratorium on EMI payments offered by banks to borrowers hit by COVID-19 lockdown are not providing any income protection as they will have to bear the extra cost of interest charged by lenders and a longer repayment period. Bankers say it is an expensive proposition for any borrower to opt for three-month suspension as announced by the RBI. Last Friday, the RBI announced that all term loans, including retail and crop loans and working capital payments, will be covered by the three-month moratorium. The RBI notification had said "the repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period". The installments included payments falling due from March 1 to May 31 such as the principal and/or interest components; bullet repayments; equated monthly instalments; and credit card dues. Term loans and working capital facilities include all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India financial institutions, and NBFCs (including housing finance companies). All these are permitted to grant a moratorium of three months on payment. In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lenders are permitted to defer the recovery of interest applied in respect of all such facilities during the deferment period. "But the accumulated accrued interest shall be recovered immediately after the completion of this period," the RBI had said.

Source: Economic Times

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Covid-19 & CSR: Time for India Inc to step up

The coronavirus pandemic has brought about a moment that has no precedence in our lifetime. We are dealing with a situation that is fast-evolving, and merits our immediate attention and action. Time has arrived to bring all our resources to the public square and to collectively resist and take affirmative action against the fallout from the pandemic. In peace time, corporate social responsibility (CSR) is seen as doing some social good somewhere. If it is done well, and in compliance with the government guidelines, it is seen as having accomplished its mission. In war time though, as is the case now, CSR needs to acquire a new sense of urgency and indeed responsibility. The finance minister announced that CSR funds can be spent on activities related to addressing Covid-19 impact. Even before this announcement was made on March 23, we saw some examples of benevolent individual corporate leaders offering resources to combat Covid-19. Anand Mahindra, the chief of automobile giant Mahindra has offered to convert Mahindra Resorts into care facilities for Covid-19 patients. Anil Agarwal, the chief of the natural resources conglomerate Vedanta has pledged `100 crore for the fight against Covid-19. And, Reliance has set up a 100-bed hospital in Mumbai and offered healthcare facilities through Jio platform and free fuel for emergency vehicles. While these individual efforts are laudable, we need to nevertheless give serious thought as to how we can collectively add value to the overall societal effort to combat the virus impact. We need to now apply all the strategic thinking we teach in our business schools. We need to collectively identify our priorities first and then see where the resources are to be deployed. The government will do what it normally does in its own way. The corporate sector can bring its unique way of doing things albeit in a strategic way. The corporate sector is good at innovation. This is their forte and must be exercised at this moment. Here are some of the key priorities that need urgent addressing and more importantly funds. In the last financial year, CSR spend was about Rs 12,000 crore. In a war-situation which has unfolded due to the Covid-19 pandemic, the CSR spend can easily double. World Health Organisation has alerted that a lockdown alone does not help in controlling the spread of virus. Much more needs to be done. There are three important areas of urgent strategic intervention.  One, our testing capacities must increase several-fold. We just have 118 government labs and 12 private labs. Many of them are still equipping themselves. This is one critical gap where CSR can contribute very effectively. Start-ups such as Mylab Discovery Solutions that are making indigenous test kits is a case in point. They may have secured the funding for development but lack the resources to scale it to areas where they are needed the most. For instance, in the North-Eastern region (NER), for a population of over 50 million there are just eight labs, and half of them are in Assam. The state of Bihar has nearly 100 million people, but there is just one lab in Patna. With the lockdown in place it is not easy to send samples from Sikkim to Guwahati. It will be weeks before the results come. We need mobile testing labs and deploy them in large numbers. For epidemiological reasons also, a mobile testing lab has many advantages. CSR is quick and an effective instrument to ensure that this happens. The second area of intervention is addressing the severe shortage of Personal Protective Equipment (PPE). This shortage has the serious risk of healthcare workers getting exposed to the virus. Just imagine more than 12% of all those who are infected and indeed dying are healthcare workers in Spain. They have just run out of all PPEs. It is important to identify the current and potential epicentres in India and ensure that PPE demand is met in all healthcare centres and hospitals. The current institutional arrangement has come under severe criticism. We need to overcome these limitations and galvanise our energies with zero red-tape. We are dealing with a potential disaster scenario and we need to work on a war footing to resolve the issues and increase the manufacturing and supply of PPE wherever it is needed. CSR can ensure that enough supplies reach these epicentres to protect our health and front-line workers. Lastly, it is equally important for CSR to reach out to the most vulnerable sections of our society with an emergency basic income. Cash relief to those who are daily wage earners and must stay home due to lockdown can get the priority. This is to ensure that no one dies of hunger. Corporates can start this at least in their own catchment areas where they are working. The challenge here is to design a fool-proof and leak-proof method of transferring cash to people in need. What does all this mean? Foresight to make CSR mandatory by law by government of India has not to be lost sight of but more importantly now corporate India, with their CSR armament, must rise to the occasion. India beckons.

Source: Financial Express

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Karnataka MSMEs urge KERC to waive fixed charges in power bills

Karnataka Small Scale Industries Association (KASSIA) has written to Karnataka Electricity Regulatory Commission (KERC), to direct Electricity supply companies in Karnataka (ESCOMS) not to levy fixed charges. ''As you are kindly aware that the country is passing through a serious crisis due the Covid-19 outbreak. Industries were already running below capacity due to global recession and which is now compounded by the onslaught of COVID-19 virus outbreak, which has further worsened the situation with lock down being imposed,'' said the KASSIA President R Raju in its letter to KERC. He further said that even after lifting of lockdown, it will take minimum 6 months for Small industries to reach the normal level as all the major automakers and textile industries and other major industries on whom Micro and Small industries are depending have virtually closed manufacturing activities right now. ''In view of the above, we request you to kindly issue direction to all ESCOMS not to levy fixed charges. However, we assure that we will pay the charges for actual consumption, keeping in view that ESCOMS also have to survive in this unprecedented situation, as MSMEs are their good Customers,'' the letter read. KASSIA further inform states like Gujarat have waived payment of fixed charges on power bills for three months. ''We request Karnataka also waive fixed charge on power bills for three months for Micro & Small industries. This will be of great help to the SMEs in these difficult times,'' KASSIA said.

Source: KNN India

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Downgraded Rs 7-trn debt as credit quality of Indian firms worsened: ICRA

Domestic credit rating agency Icra said credit quality of Indian companies worsened in fiscal year 2019-20 as it downgraded Rs 7 trillion of debt and warned of "unprecedented strain" on credit profiles of corporates due to the coronavirus pandemic.  The agency said policymakers will have to unleash more measures to avoid severe economic imbalances if the COVID-19 crisis prolongs. In its annual credit quality review after the end of the fiscal year, Icra said it downgraded Rs 7 trillion of debt in FY20, as against Rs 3 trillion in the year-ago period, driven largely by actions against financial sector companies. However, this wasn't accompanied by an increase in the overall default rates which softened to 2.3 per cent in FY20 in comparison with the past five-year average of 3 per cent, it noted. It downgraded debt of 584 entities in FY20, as against 282 upgrades, the agency said, adding the downgrade rate has moved to 16 per cent, while the upgrade rate has dipped to 8 per cent. Going ahead the economic outlook looks muted as the COVID-19 leaves an economic cost, it said. India's GDP expansion rate is expected to plummet to decadal lowsof 5 per cent for FY20 before the onset of the COVID-19 pandemic. The credit challenges that lie ahead because of the COVID-19 crisis are going to be exceptionally overwhelming and would likely put unprecedented strain on the credit profiles of a large number of entities across sectors," ICRA head of credit policy Jitin Makkar said. The agency said credit quality of a large swathe of entities, across a wide range of sectors would worsen as a fall-out of the COVID-19 crisis, but the acuteness of the impact remains uncertain at this stage. The impact will depend on how quickly the pandemic is contained and the measures taken by the government to soften the deleterious impact, it said.ICRA chief rating officer Anjan Ghosh said, the duration of the lockdown, pace at which normal business activity resumes, quantum of government and regulatory support, and the dynamics of the individual sectors will determine the extent of the impact. The agency has created a heat map of likely impact on sectors, as per which companies in aviation, hotels, cut and polished diamonds, retail and textiles (cotton spinning) and real estate sectors are most likely to face a downgrade. Telecom, healthcare, roads, agri-products, FMCG and education might be less exposed to cash flow disruption, it said. Acknowledging the interventions done by the RBI and the government to minimise the economic impact of the crisis, it said the moratoriums, systemic liquidity enhancement measures and large repo rate cuts should lend some support to market stability and offer protection against widespread defaults in the near term. The year FY21 thus portends to be a challenging year for credit quality of India Inc. as it might be for various other human, social and economic facets, it said.

Source: Business Standard

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Covid-19 exposes Indian industry’s supply chain vulnerabilities

The novel coronavirus or Covid-19 is what epidemiologists term as “Disease X”, an unknown disease that emerges suddenly and races ruinously across the world. The impact of Covid-19 across the world has been as unprecedented as it has been devastating. Equally unprecedented has been the response of the nations of the world, with bans on travel, closure of borders, closure of businesses, and in several cases, complete lockdowns. The attempts at “flattening the curve” seems increasingly likely to lead to an international recession. Considering the impact an exponential spread of Covid-19 can have on a country with high population density and relatively limited healthcare infrastructure as India, the Government of India found itself compelled to order a complete nationwide lockdown for 21 days starting March 25. The impact of this on an already beleaguered Indian economy, struggling with slowing growth and shrinking consumption, is a matter of acute concern.

Impact on supply chains

Even before the imposition of the lockdowns and the spread of Covid-19 across the world, the severe disruptions in China were having a ripple effect on global trade flows. Most companies across the globe had been working to make their supply chains leaner. The emphasis had been on minimisation of costs and “just in time” deliveries. This has led to reduction of inventory buffers and left no room for adequate buffers or safeguards. The vulnerabilities of this system has been brutally exposed by Covid-19. In India, certain industries have become more and more dependant on Chinese imports. These industries are under significant risk. This includes pharmaceuticals (China supplies almost 70 per cent of active pharmaceutical ingredients (API) requirement for the industry); automobiles (10-30 per cent of the raw materials and base components are imported from China); chemicals and textiles. The renewable energy sector relies on China for 80 per cent of the sector’s requirement of solar panels. Finally, and potentially most problematically, several micro, small and medium enterprises (MSMEs) are dependant on Chinese imports. In early March, the Directorate General of Foreign Trade (DGFT) imposed restrictions on the export of 13 APIs and 13 formulations made from these APIs. Steps were taken to expedite customs clearances of Chinese imports. The Apparel Export Promotion Council (AEPC) has identified alternative sources of input suppliers to help diversify sourcing of raw materials and products.

Combating supply side concerns

The present outbreak provides valuable lessons for companies in general and Indian companies in particular. Lean supply chain strategies, while increasing short term profits, contribute to supply chain vulnerability. Covid-19 has taught corporate decision-makers that in formulating future supply chain designs, apart from cost, quality and delivery they would also need to stress-test the chains on new performance measures including resilience, responsiveness and reconfigurability. Companies would also seek to diversify supply chains from a geographic perspective to reduce supply-side risk from one country. Multiple sources of key commodities or strategic components would be identified and protocols will be in place to activate alternative sources of supply in short notice. It is likely that corporate strategy would also look to build a robust inventory as buffer against supply chain disruptions. The only silver lining for the present crisis has been that because of the anticipated Chinese New Year holidays, companies had stocked up inventory. In the absence of this, the situation would likely to have been worse. Many companies would want to move at least a part of their supply chains locally. This would lead to increased investment in India’s local industries and act as a shot in the arm for an economy in crisis. For example, with respect to pharmaceuticals, the Government of India’s has decided to promote domestic manufacturing of critical Key Starting Materials (KSMs)/Intermediates and Active Pharmaceutical Ingredients (APIs) in the country. The approved scheme will promote Bulk Drug Parks with financial investment of ₹3,000 crore in the next five years. This is an urgent wake-up call for Indian industry to realise the need to develop its own local sourcing units and adopt alternative strategies for reducing the dependency on China.

Source:  The Hindu Business line

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Global Textile Raw Material Price 2020-04-03

Item

Price

Unit

Fluctuation

Date

PSF

751.10

USD/Ton

-0.65%

03-04-2020

VSF

1289.42

USD/Ton

0%

03-04-2020

ASF

1896.08

USD/Ton

0%

03-04-2020

Polyester    POY

655.28

USD/Ton

-1.06%

03-04-2020

Nylon    FDY

1775.59

USD/Ton

0%

03-04-2020

40D    Spandex

4016.22

USD/Ton

0%

03-04-2020

Nylon    POY

2043.34

USD/Ton

-0.68%

03-04-2020

Acrylic    Top 3D

5214.04

USD/Ton

0%

03-04-2020

Polyester    FDY

937.12

USD/Ton

-3.62%

03-04-2020

Nylon    DTY

1648.76

USD/Ton

0%

03-04-2020

Viscose    Long Filament

2170.17

USD/Ton

0%

03-04-2020

Polyester    DTY

810.29

USD/Ton

-0.86%

03-04-2020

30S    Spun Rayon Yarn

1881.28

USD/Ton

0%

03-04-2020

32S Polyester    Yarn

1409.20

USD/Ton

-0.99%

03-04-2020

45S    T/C Yarn

2212.44

USD/Ton

0%

03-04-2020

40S    Rayon Yarn

1606.49

USD/Ton

0%

03-04-2020

T/R    Yarn 65/35 32S

2071.52

USD/Ton

0%

03-04-2020

45S    Polyester Yarn

2043.34

USD/Ton

0%

03-04-2020

T/C    Yarn 65/35 32S

1803.78

USD/Ton

-1.54%

03-04-2020

10S    Denim Fabric

1.19

USD/Meter

-0.35%

03-04-2020

32S    Twill Fabric

0.66

USD/Meter

-0.43%

03-04-2020

40S    Combed Poplin

0.94

USD/Meter

-0.15%

03-04-2020

30S    Rayon Fabric

0.51

USD/Meter

0%

03-04-2020

45S    T/C Fabric

0.65

USD/Meter

-0.22%

03-04-2020

Source: Global Textiles

Note: The above prices are Chinese Price (1 CNY = 0.14092 USD dtd. 03/04/2020). The prices given above are as quoted from Global Textiles.com.  SRTEPC is not responsible for the correctness of the same.

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Surveys: Manufacturing contracts last month in US, world

Manufacturing contracted in the United States and around the world last month, dragged down by economic fallout from the coronavirus outbreak.The Institute for Supply Management, an association of purchasing managers, reported Wednesday that its U.S. manufacturing index fell to 49.1 in March after registering 50.1 in February. That was a slight improvement on February''s 47.1 — but only because Chinese factories began ramping back up last month after being locked down in February to counter COVID-19. Excluding China, J.P. Morgan found, global manufacturing dropped to the lowest level last month since May 2009 at the depths of the Great Recession. Economists had expected a bigger drop in the U.S. index. Timothy Fiore, chair of ISM manufacturing index committee, said that “things got worse'''' as March dragged on and predicted that the index will signal more weakness in April. New orders and factory employment fell last month to the lowest level since 2009. Production and export orders also fell. The COVID-19 pandemic and the quarantines, travel restrictions and business closings imposed to combat it have hammered global manufacturers, disrupting their access to supplies and crushing demand for their products. But the impact of the outbreak is falling even harder on service businesses such as restaurants and hotels. “Manufacturing is not, for the most part, in the very front line of the virus hit, but nonetheless large swathes of the sector are vulnerable as consumers cut back on spending on goods, especially big-ticket items like cars and trucks," Ian Shephardson, chief economist at Pantheon Macroeconomics, wrote in a research report, adding that “while this headline ISM reading is a pleasant-looking surprise, don''t be fooled. ''Ten of 18 U.S. industries surveyed reported growth in March, but six contracted, led by energy companies, coal producers and textile mills.  Already weakened by President Donald Trump''s trade war with China, manufacturers around the world are reeling from COVID-19 and its economic impact. J.P. Morgan reported that its manufacturing index for the 19 European countries that share the euro currency dropped last month to the lowest level in nearly eight years. Confidence among eurozone manufacturers fell to a record low. Manufacturing in the Philippines dropped to the lowest level on record as authorities locked down Luzon, the country''s biggest and most populous island, to combat COVID-19. J.P. Morgan also reported that Italy, the Czech Republic and Vietnam registered especially deep manufacturing contractions last month.

Source: Outlook

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Coronavirus pandemic threatens Bangladesh garment industry

Millions of jobs under threat in Bangladesh as clothes factories lose orders and close their doors. The coronavirus pandemic is threatening the jobs of more than a million factory workers in Bangladesh. It is the world's second-largest garment and textile producer after China, and the industry drives the country's economy. Companies around the globe have already cancelled orders worth more than $2bn, and workers are worried.

Source: Al Jazeera

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China Plus One Series: Cambodia’s Appeal to Foreign Investors

In recent years, many foreign investors based in China have been assessing alternative locations in Asia to supplement their operational capacity. In this series, we profile potential destinations for foreign investors looking to diversify their presence in the Asian market. A “China plus one” strategy is one where investors complement their core China operations with additional ones in another country to lower costs, diversify risks, and access new markets. Lying between Vietnam and Thailand in Southeast Asia, Cambodia is a less talked about destination when investors consider alternative destinations for their China plus one strategy. While Cambodia lacks Vietnam’s rapid growth and large labor pool and Thailand’s friendly business environment and skilled workforce, it is carving a niche for itself in the garment industry. The garment industry, which includes products like clothing, footwear, and textiles, has been gradually relocating from China in the face of rapidly rising labor costs, and Cambodia has been one of the main beneficiaries of this trend. The garment industry alone is responsible for 16 percent of Cambodia’s GDP and 80 percent of its exports. Cambodia’s relatively small size and challenging business environment limit its attractiveness for foreign investors, but those in the garment industry will find a developing ecosystem to tap into.

Labor market

Cambodia’s labor market is in the midst of a long-term trend away from agriculture and towards services and manufacturing. Currently, about 40 percent of the population works in agriculture, while the garment industry and construction are the two largest non-agricultural employers. In 2018, the garment industry employed 86 percent of all Cambodian factory workers. The shift to a service and manufacturing driven economy, however, is limited by the labor force’s skills deficit. According to the World Economic Forum’s Global Competitiveness Report, Cambodia ranks 120 out of 141 economies in terms of workforce skills. Further, compared to its neighbors, Cambodia has a relatively small population of 16.3 million. As such, Cambodia’s labor market lacks the depth of other ASEAN countries like Vietnam and Indonesia. Cambodia only has a statutory minimum wage for workers in the garment industry. The minimum wage for these workers is US$190 per month in 2020, up 4.4 percent from US$182 in 2019. Workers on probation have a slightly lower minimum wage of US$185 per month. In addition to base wages, garment workers are entitled to allowances, including US$7 for transportation and rent US$10 for regular attendance. The allowances for 2020 are unchanged from the previous year. Despite increasing minimum wages for 2020, the government also cut the number of public holidays from 28 days to 22 in an effort to increase productivity.

Taxation

Cambodia has a standard corporate income tax rate of 20 percent, which is competitive in the ASEAN region. It is lower than the Philippines (30 percent) and Indonesia (25 percent), and equal to Vietnam and Thailand. The government is considering lowering the CIT rate for garment firms to 15 percent to boost the industry, though this has not been formally decided. In terms of withholding taxes, dividends, interest, and royalties are all subject to a 14 percent tax rate. Cambodia also levies a 10 percent value-added tax (VAT) for goods and services. Personal taxes are levied on a progressive scale that goes up to 20 percent on worldwide income. Non-residents, meanwhile, are taxed at a flat 20 percent rate on Cambodia-sourced income. Cambodia has signed double tax agreements with seven countries – Singapore (in effect January 1, 2018), Thailand (in effect January 1, 2018), Brunei (in effect January 1, 2019), People’s Republic of China (in effect January 1, 2019), Vietnam (in effect January 1, 2019), Indonesia (signed in 2018 but not yet in effect), and Hong Kong (in effect January 1, 2020). For DTA’s that are in effect for Cambodian tax residents, the relief of double taxation is provided through a tax credit for the tax that has been paid in the other jurisdiction on presentation of supporting documentation showing payment.

Trade agreements

Cambodia currently benefits from inclusion in the EU’s “Everything But Arms” (EBA) trade policy, which excludes exports from the world’s least-developed countries from EU duties. This policy makes Cambodian products especially competitive in the EU, which is responsible for over a third of Cambodia’s exports. However, Cambodia’s preferential trade benefits were partially suspended following a decision by the European Commission on February 12, 2020. The commission decided to partially suspend Cambodia’s benefits in response to what it deemed to be the government’s systematic violation of human rights. According to the ruling, selected garment and footwear products and all travel goods and sugar will be subject to import tariffs following a six-month interim period. The ruling is the culmination of an investigation that began in February 2019 after the EU raised concerns about the Cambodian government’s rights abuses and crackdown on the political opposition. If the Cambodian government improves the situation within the six-month interim period, its preferential status may be reinstated. Complete exclusion from the EBA would mark a significant hurdle for Cambodia given the relative lack of diversity in the country’s economy and the importance of the EU market. An official from the Finance Ministry recently suggested that it would lead to a US$500 million reduction in garment exports and 35,000 job losses. Besides the EBA, Cambodia, as a member of ASEAN, is party to all of the bloc’s trade agreements. Unlike many other ASEAN countries, though, Cambodia does not have additional bilateral trade agreements. Nevertheless, while Cambodia does not have any free trade agreements (FTA) outside of its ASEAN commitments, the government has entered into negotiations with several countries and economic groups in recent years. Currently, Cambodia is negotiating an FTA with China, South Korea, and the Eurasian Economic Union, and is part of the RCEP negotiations.

Special economic zones

Cambodia has 54 special economic zones (SEZs) throughout the country, though not all of these are currently active. According to the Council for the Development of Cambodia, there are currently 23 SEZs, which are collectively home to 490 factories and employ 130,000 people. As such, while Cambodia has many SEZs on paper, in practice their development is relatively limited. SEZs offer foreign investors various incentives, such as CIT exemptions of up to 100 percent and exemptions for import and export duties depending on the size of the investment. Additionally, the government plans to approve a new SEZ Law this year to increase their attractiveness to foreign investors. The law, while not finalized, will offer additional incentives, increase transparency, and promote fair competition, according to Prime Minister Hun Sen. The Cambodian government hopes for SEZs to contribute to investment in higher-value industries like electronics, but such plans have not yet borne fruit.

Business environment

Cambodia suffers from a poor business environment. According to the World Bank’s Ease of Doing Business rankings, Cambodia ranks 144 out of 190 economies. That puts Cambodia ahead of only the two most challenging markets in ASEAN – Laos and Myanmar – and significantly behind the rest, including its neighbor Vietnam, which ranks 70th. Starting a business in Cambodia is especially cumbersome. The country ranks 187th for starting a business due to complicated, costly, and time-consuming procedures. Whereas in some countries one can start a business in a single day, in Cambodia it takes on average 99 days to start one. Cambodia also struggles in a number of other categories, including acquiring construction permits, enforcing contracts, and paying taxes. One area of strength, however, is access to credit, where it ranks 25th in the world.

An industry-specific destination

Cambodia’s relatively small workforce and market potential combined with a difficult business environment means that it is not the ideal location for all China plus one investors. However, for those in the garment industry, Cambodia represents a low-cost destination to complement China operations. That being said, Cambodia is not the only alternative in the garment industry. Vietnam and Bangladesh, for example, both have sizeable garment industries, are growing rapidly, and have much larger labor markets. Even Myanmar, which is still a frontier economy, could eventually pose a challenge to Cambodia. Due to the importance of the industry to the economy, however, the Cambodian government places a high priority on meeting its needs. As such, Cambodia offers government support, low costs, and an ideal geographic location for China-based investors in the garment industry looking to diversify.

Source:  China Briefing

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EURATEX: COVID-19 Outbreak May Cause A 50% Drop In Sales And Production For The European Textile And Clothing Sector

Recent Eurostat data show that the European textile and clothing manufacturing went through a difficult year in 2019, despite good retail sales and export performances. This trend will worsen in 2020 due to the coronavirus outbreak. An ongoing EURATEX poll with its members shows that 80% of companies are already laying off workers; more than half of them expect a drop in sales and production by over 50%, creating serious financial constraints.  Data for 2019 show an economic slowdown in Europe, with manufacturing remaining under pressure from Brexit and trade frictions. Figures for the textile and clothing (T&C) industry are in line with that general situation: employment declined with over 2%, , and the EU27 turnover evolution turned negative for the first time since 2012-2013 with a -2% setback for textiles, and a -1.3% for clothing, compared to 2018. However, some positive signs are still coming from the retail sales and trade. The growth rate in the retail sales of textiles, clothing, footwear and leather goods in specialised stores remained positive in 2019 (+0.9%).. In addition, EU27 trade is now exceeding €170 bn, a +4% increase compared to the previous year. Exports grew at a higher pace than imports. The outlook for 2020 is expected to worsen due to the coronavirus’ outbreak, as in March 2020 industry confidence fell dramatically. EURATEX is conducting a survey among European companies: preliminary results indicate that more than half of the companies expect a drop in sales and production by more than 50%. Moreover, almost 9 out of 10 companies face serious constraints on their financial situation and 80% of companies is temporarily laying off workers. 1 out of 4 is considering closing down the company. EURATEX, as representative of the textile and clothing sector, is concerned about the crisis and the pressure on the functioning of the internal market. Border controls within the EU have increased sharply, leading to delays in supplies but also cancelling of orders, thus aggravating the economic impact. Many companies in the T&C sector work under strong global pressure, with limited absorption capacity for such a crisis, and this survey shows that measures need to be taken immediately. EURATEX already asked the European Commission to foresee fiscal and financial relieve, ensure a coherent approach across EU Member States and avoid limitations to the free movement of goods and of the workforce. Director General Dirk Vantyghem commented: “The EU and its Member States must do all it takes to save our industry. At the same time, this crisis is an opportunity to develop a new blueprint for our sector; the Commission’s new EU Industrial Strategy can offer a basis for rethinking our business model.”

Source: Textile World

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Pakistan: Govt refuses to compensate textile sector over Rs 15bn losses: Razak Dawood

Adviser to Prime Minister on Commerce and Industry Abdul Razak Dawood said that the government has decided against accepting the demand of top textile mills to compensate their losses of upto Rs 15 billion, ARY NEWS reported on Wednesday. He announced this on his Twitter account today. The special assistant said that they have decided not to approve an unjust bail out request from top 26 textile mills of the country. “A few firms made a commercial decision to take risk and sold forward US$. They are now asking [government] to cover their losses (Rs.15 billion),” he said in his message. Dawood said that he feel that was not fair as it was a business decision which did not work out.  “It was also discussed at highest level and my views were supported. It has therefore been decided that [government] will not compensate these firms from tax payers’ money.”  It is pertinent to mention here that on March 19, Abdul Razak Dawood announced that Ministry of Commerce has released Rs 9.37b to textile exporters under various schemes. Taking to Twitter, he said the Ministry of Commerce released duty drawback on taxes (DDT) Rs3.9 billion under 2018-21 and Rs 3.8 billion DDT under 2017-18. Abdul Razzak Dawood also announced that the government will be giving a relief package to the exporters.

Source: Ary News

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