The Synthetic & Rayon Textiles Export Promotion Council

MARKET WATCH 27 APRIL, 2020

NATIONAL

INTERNATIONAL

Tax    relief    for    recovery:    GST    concessions    can    go    a    long    way    in supportingbusinesses

The post-Covid  economic  scenario  will  be  extremely  cost-sensitive.  Seamless flow  of  ITC can  greatly  reduce  cost  stress. During  lockdown,  companies  will  still  incur  routine expenses (such as rent, IT) without revenue. Various measures have been taken by the government to tide over the Covid-19 storm. It has announced  relief  via  relaxations  in  GST  compliance. Price controls  have  been imposed  on  various  essential  commodities.  Recently,  it  also  announced  exemptions  on customs    duties    and    health    cess    for    some    products.    GST    rates    should    be suspended/reduced   on   critical   items,   including   surgical   masks,   disposable   gloves, ventilators, hand sanitisers, etc. Hospital services are exempt from output GST. However,  hospitals  routinely  incur  several  input  taxes,  including  huge  GST  outlay  on capital procurement of equipment, and recurring GST on medical devices/ items/drugs and  services  such  as  rent/marketing/R&D.  As ITC facility  is  not  available  for  exempt-supply,  these credit costs are built into the price. Hospital services can be ‘zero-rated’ allowing refund of such ITC. This would reduce the cost of service and deliver benefits to patients.  Similarly,  private  healthcare  premiums  are  currently  taxed  at  the  18%  rate. Through exemption/reduction of GST, private insurance can also be made affordable.Strong anti-profiteering mechanisms with sensitisation of end customers can ensure the transfer of benefits.Routine business activity post-recovery may encounter several hurdles under GST:i) Disruptions will lead to non-performance of contracts. Parties may commercially settle liability contractually  through  liquidated  damages  or  arbitration.  The department has typically demanded GST on settlement amounts as ‘acts of toleration’. This would delay dispute resolution. Companies have actively assisted in relief efforts in response to the government’s call to  action.  Manufacturers  of  essential  items  such  as  masks  and  FMCG  retailers  have distributed a portion of their inventory as relief. ITC on such items may not be available as a blocked credit.iii) The auto sector will be key to any post-crisis recovery. Auto entities scrapping existing inventory under newly introduced BS-VI standards may also need to reverse ITC, a double blow to this critical sector for a bona fide policy change.iv)  A  rebound  in  exports  is  also  essential.  Exporters hitherto had  the  option  of  filing applications under SEIS for FY17 until March 31. There is ambiguity if this date has also been extended till December 31. Currently, there is already a significant backlog of SEIS applications.  Delay  in  disposal  and  lapse  will  further  hurt  service  exporters.  Pro-active redressal will, thus, go a long way.The post-Covid economic scenario will be extremely cost-sensitive. Seamless flow of ITC can  greatly  reduce  cost  stress.During  lockdown,  companies  will  still  incur  routine expenses (such as rent, IT) without revenue. As business picks-up, offset of ITC against output will  be  staggered.  Stressed sectors  such as  travel  and  tourism  may  prefer  an immediate inflow of cash of ITC, rather than prolonged adjustment. Crunch in cash flow can hinder credit validity.Payments not made to suppliers within the statutory 180 days period or withholding of payment for  non-performance  can  lead  to  credit  loss.  Vendors may  default  in  filing returns or discharging tax payment even over an extended period due to genuine business difficulties. This will make reconciliation a difficult task. Deferring the statutory date for credit claim would be ideal.Thus,  rather  than  digital  signature  filing  of  applications  should  be  done  with  Aadhar-linked  electronic  verification  code  (OTP).  Exemption  from  uploading  invoices  for  GST refund should be given. Scanned copies of instead of actuals should be considered.A collaborative approach is the need of the hour. Let us all move together to ‘un-tax’ the coronavirus.

Source: Financial Express

 

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MHA issues Order to States/UTs to allow Opening of Certain Categories of Shops, except those in Single and Multi-brand Malls

Ministry of Home Affairs (MHA), on 15.04.2020, had issued an order to exempt certain activities under the consolidated revised guidelines to fight COVID-19, in certain areas not included in hotspots/containment zones. (https://www.mha.gov.in/sites/default/files/MHA%20order%20dt%2015.04.2020%2C%20with%20Revised%20Consolidated%20Guidelines_compressed%20%283%29.pdf) Giving relaxation in the category of Commercial and private establishments, MHA has issued an order to all States/UTs, to allow opening of all shops registered under Shops & Establishment Act of respective States/ UTs, including shops in residential complexes, neighborhood & standalone shops. Shops in market complexes, except those within the limits of municipal corporations and municipalities, would be allowed to open. Shops in single & multi-brand malls would not be allowed to open anywhere. It would be mandatory for all permitted shops to open only with 50% strength of workers, ensure compulsory wearing of masks and strict adherence to social distancing norms. It is important to note that these relaxations in lockdown restrictions would not applicable in hotspots/containment zones.

Source: PIB

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Rs 1 lakh crore fund soon to help clear dues to MSMEs: Gadkari

Speaking at an Assocham webinar, the minister said the fund will be used to clear dues owed to small businesses by state-run entities as well as industries. The government is weighing a proposal to set up a revolving fund of Rs one lakh crore to inject liquidity into small businesses by banks under official credit guarantee to fight the Covid-19 pandemic, MSME and transport minister Nitin Gadkari said on Friday, days after industry raised similar demand for a relief.Speaking at an Assocham webinar, the minister said the fund will be used to clear dues owed to small businesses by state-run entities as well as industries. The Centre itself and assorted agencies owned and managed by it are estimated to owe nearly Rs 5 lakh crore to corporate India and some state-run agencies like FCI. A significant portion of these dues are owed to MSMEs. Also, the big private companies owe large amounts to MSMEs. “We will insure this fund, with the government paying the premium. We will come up with a formula for sharing the interest burden…,” he said. The proposal will be sent to the Cabinet for clearance after the finance ministry gives its clearance, he said. Gadkari also said he had asked labour minister Santosh Gangwar to utilise the Rs 80,000 crore lying with the Employees State Insurance Corp (ESIC) to address the crisis faced by the MSMEs amid mounting pressure on these small businesses to pay April salaries. This proposal, too, will have to be ratified by the finance ministry and the Prime Minister’s Office (PMO), he said. In March, Gadkari had said government and private undertakings owed MSMEs almost Rs 6 lakh crore, and that the government was working on an action plan to ensure the payments were cleared in three months. MSMEs, which were already witnessing severe liquidity constraints even earlier, saw their fortune plummet further after the Covid-19 outbreak. The government is also planning to redefine MSME, based on their annual revenue by replacing the existing definition that relied on self-declared investment on plant and machinery. This will align them better with the GST regime, besides ensuring ease of doing business, he said.

Source: Financial Express

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Tie up with US, UK firms planning exit from China over coronavirus: Gadkari to industry captains

Union minister Nitin Gadkari says whatever permission required will be given on war footing; asks companies to enter into joint venture and bring them directly to IndiaExhorting industry to go the whole hog to encash the "golden opportunity," Minister for Road Transport and Highways and MSMEs Nitin Gadkari on Friday said that firms in India could enter into technical tie-up with companies from countries like the United States and the United Kingdom operating in China and set up manufacturing units in the country. The minister hoped an investment of Rs 20-25 lakh crore could come into the country's manufacturing sector. He urged industry bodies like FICCI, Assocham and CII to work together to seize the opportunity. "Can you find the data on companies from the US, the UK and other countries operating in China? Then the data about investments made by these companies can also be found. Communicating directly, you may appeal to them to come to India. I will appoint one of our joint secretaries as in-charge of that. Whatever permissions required will be given on war footing. You enter into a joint venture with them and bring them directly," the minister said. A top government official last week told BusinessToday.In that around 1,000 companies were mulling production units in India as exit China chorus grows across various countries. Of these companies, nearly 300 are actively pursuing their manufacturing plans in sectors such as mobiles, electronics, medical devices, textiles and synthetic fabric. The discussions are currently in progress at various levels -- central government departments, Indian missions abroad and state industry departments. Speaking through a video-conference organised by industry body Assocham, the minister appealed to the industry captains to explore ways to bring foreign investment into the country. He said that he would come up with two reports in next 15-20 days on exports and imports. While one booklet would be on exports and how they can be increased further, the other would suggest ways to substitute imports.

Gadkari said that there were sentiments against China in the wake of the coronavirus outbreak and many foreign companies were keen to come out and set up their units elsewhere. After the minister's suggestions on bringing in investments waiting to fly out from China, Assocham President Niranjan Hiranandani said he would organise a webinar in 30 days where international manufacturers and investors would be invited and the possibility of relocating their manufacturing to India could be explored. "We assure you that we will organise a webinar within 30 days and invite international manufacturers and investors. If needed, we can rope in other industry bodies also and these companies could be invited to India," the Assocham Chief said. He suggested constituting a panel under the chairmanship of a joint secretary (JS) to facilitate investment. "We will turn crisis into an opportunity," he stated. Gadkari offered to provide land at reasonable price, along the new highways corridor between Delhi and Mumbai, saying labour was also available cheap in these areas.

Source : Business Today

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Textile sector begins to count losses

With  losses  running  into  crores,  the  textile  business  in  the  state  (including  handloom, spinning mills and readymade garments) is one of the worst-affected sectors. Sources said cloth  merchants  in  the  state  have  already  suffered  losses  around  Rs  3,000 crore  in  the past month. “There are more than one lakh big, medium and small garment shops across the state and around five to eight lakh people depend on it. We lost sales during festivals such  as  Telugu  new  year  and  Srirama  Navami,  besides  sales  ahead  of summer,” said a garment businessman K Ramachandra Rao. “We got March salaries well in advance on March 27. We don’t know about this month. There is no work and all the owners have incurred losses due to lockdown,” said an employee at a well-known shopping mall in the city.  While  all  branches  of  CMR  Shopping  Mall  together  employ  over  15,000  people, South  India  Shopping  Mall,  KLM,  Kalaniketan  and  other  malls  support  a  workforce  of around 50,000 across the state. Greater  Visakha  city  has  more  than  3,500  garment  shops  with  a  workforce  of  around 80,000  dependent  on  it.  The association of  garment  merchants  alone  has  2,000 members. “Around Rs 50 crore business per month generally takes place in Vizag city,” owner  of  CMR  Shopping  Mall  Mavuri  Venkata  Ramana  told  TOI. “The district has lost business of around Rs 70 crore to Rs 100 crore in the last one month due to lockdown. Generally,  the  business  would  be  double  in  the  marriage  season  when  compared  to normal  months.  It  would  take  a  year  to  revive  our  business  from  this Covid effect,” he said.  Additionally,  sources  said  the  revenue  generated  by  the  state  handloom  sector  is around Rs 2,000 crore per annum while the annual income of spinning mills is between Rs 20,000 crore to Rs 30,000 crore.

Source: Times of India

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Industrial townships in Red zone, states’ denial to reopen industry, home ministry restrictions: FIEO gives feedback to government

Four days after partial lifting of the lockdown to let industrial activity resume, some states including Tamil Nadu, Madhya Pradesh, Karnataka and Delhi continue to deny industry the permission to reopen, exporters have told the government. In a communication to the department of commerce, the Federation of Indian Export Organisations (FIEO) also highlighted industry’s concerns with many restrictions and responsibilities imposed by the revised guidelines which are also coming in the way of restarting the units. The apex association of exporters said that while these have not provided any relaxation as detailed in the ministry of home affairs’ April 15 guidelines, many important industrial townships such as Mumbai, Pune, Hyderabad, Ahmedabad, Bhopal, Indore, Kanpur, Agra and Varanasi continue to be in the Red zone. This assumes significance as India’s exports contracted 34.5 % in March, the steepest monthly fall in over a decade as overseas demand remained lacklustre due to the Covid-19 pandemic. “Lack of consistency in allowing units to open and then shut is also creating problems for the industries,” said Ajay Sahai, FIEO Director General in the letter to commerce secretary Anup Wadhawan. In Karnataka, industries were all set to open but at the eleventh hour, the state government withdrew the permission. Similarly, in Mandideep industrial area in Madhya Pradesh, the permission was granted but withdrawn today. “Such inconsistencies lead to uncertainty which affects the operation of the industries,” he said and added that labour shortage is across industries and affecting the transportation sector adversely, which is also deterring units from opening. With more than 50% of export orders currently getting cancelled, the export sector is expected to see massive job losses estimated at least 15 million, unless a targeted economic relief package is announced soon, FIEO President Sharad Kumar Saraf, recently said.

Sectoral concerns

At a few places in green or rural areas, manufacturing has not started as ancillaries providing important part/ components are in the red zone, thus continuous manufacturing is not viable. In some cases, the industry already has sufficient stock of the manufactured products which should first be put into distribution before commencing production. Similarly, for many auto clusters, the manufacturing hasn’t started as the distribution channels have not been opened yet. “A lot of MSMEs are unable to open their factories as they lack the liquidity to purchase the raw materials and other inputs,” Sahai added. He highlighted that in many cases, the manufacturing units are unable to procure raw materials as factories producing them are in the Red zone and thus are unable to supply the materials. Some of the food processing units have reported that they are not getting the raw material as the village panchayats do not allow anyone to enter the village to procure such raw materials. For cashew industry, the raw material is procured through APMC but since APMC isn’t functioning, the cashew units are finding it difficult to get raw materials to start production.

Multiple restrictions

Exporters also pointed out several restrictions imposed by the home ministry's guidelines on how factories should run. These include rules mandating that companies provide transportation to employees in a dedicated vehicle or keep workers within the premises or in the adjacent buildings. “If workers are allowed to use their cycles or two-wheelers, it can solve the problem of many units. Since state buses are not generally plying, buses may be given to manufacturers for transportation on reasonable charges. It will be a win-win situation for both sides,” Sahai said. While the government now also requires businesses to provide medical insurance to workers, FIEO said contrators often supply most of the labour. Since payroll workers have Employees' State Insurance facility and contract workers may be covered by Ayushmaan Bharat scheme, this requirement needs to be relooked into, the association said. Further, provision of hand wash and sanitizer preferably with touch-free machine at entry, exit and a common area. states are interpreting the word “preferably” as mandatory asking industry to provide only touch-free machines, which are very costly and in short supply.

Source: Economic Times

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Finance Commission against RBI lending to centre

NK Singh, chairman of the 15th Finance Commission, said the Fiscal Responsibility and Budget Management (FRBM) Act allows the Reserve Bank of India (RBI) to lend to the government, but he doesn’t favour such a move. Singh said states can use the escape clause of 0.5 % over the 3% of gross state domestic product mandated target in their FRBM law for any additional spending for Covid-19 battle. Any further relaxation would need changes to the FRBM law. “Section 5 of the FRBM Act allows RBI to directly lend to the government,” Singh told reporters in a video conference on Friday after a two-day meeting of the finance commission’s economic advisory council. “In my view it (should) perhaps not be done.” On states’ demand to raise their fiscal deficit target to as much as 5% of state GDP, he said it would be easier to avail of the 0.5% cushion enshrined in their acts. A higher relaxation, he said, would require new legislation. “The advisory council also felt that the magnitude of the impact of these developments on public finances is uncertain, but will certainly be significant,” the council said in an official release.

Nuanced Fiscal Response Needed

Shortfall in tax and other revenue will be largely due to subdued economic activity and hence the fiscal response to the crisis should be much more nuanced, it said. The meeting, chaired by Singh, was attended by council members Sajjid Z Chinoy, Prachi Mishra, Neelkanth Mishra, Omkar Goswami, Arvind Virmani, Indira Rajaraman, DK Srivastava, M Govinda Rao and Sudipto Mundle. “It is important not just to look at the size of fiscal response but also carefully at its design,” the council said. Singh said the commission will wait for data from the FY20 fourth quarter and FY21 first quarter to arrive at its own growth estimate. While the first quarter will witness the sharpest shrinkage, the council had varied views on the type of recovery, with some predicting a V-shaped one and others a graph that more resembled a U or an L. Members were unanimously of the view that projections for real GDP growth made before March need to be re-examined thoroughly and revised downward. Chief economic adviser K Subramanian and Niti Aayog member Ramesh Chand made presentations to the council on the macroeconomic scenario and agriculture, respectively. The commission, Singh said, will be carrying out structural changes in its recommendations on the health sector in view of the pandemic. The commission’s advisory council suggested a partial loan guarantee scheme for the non-banking financial companies (NBFC) sector and a support mechanism for small scale enterprises in view of the disease outbreak.

Source: Economic Times

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Sri Lanka to seek $400 mn debt swap facility from RBI to meet short term financial needs

Sri Lanka is set to enter into an agreement with the Reserve Bank of India for a currency swap worth USD 400 million to boost the foreign reserves and ensure the financial stability of the country which is badly hit by the COVID-19 pandemic, a top minister has said. The Cabinet has approved a proposal made by Prime Minister Mahinda Rajapaksa as the Finance Minister to enter into an agreement with the RBI for the financing facility to meet short-term international liquidity requirements, Co-Cabinet spokesman Information and Communication Minister Bandula Gunawardena said. Sri Lanka will enter into the agreement with the RBI for a Bilateral Currency Swap Arrangement worth USD 400 million, Gunawardena said, adding the facility from the RBI is aimed at boosting the island nation's foreign reserves. The swap arrangement is a decision two countries reach while doing trade related payment. Sri Lanka has placed critical economic measures to save the resources hit badly by the COVID-19 pandemic which has infected 373 persons in the country and the death toll reached 7. Addressing the Cabinet media briefing yesterday, Gunawardena said the Cabinet meeting chaired by President Gotabaya Rajapaksa paid special attention to the control of the coronavirus pandemic, its success and the distribution of goods and relief to the people. The minister pointed out that the whole world is now experiencing the economic collapse since World War II resulted from the COVID-19 outbreak and a single country alone cannot find a solution to the crisis. So the Cabinet of Ministers has approved this proposal in order to ensure the financial stability of the country, Gunawardena said. The country has ordered imports restrictions to prevent non-essential imports. This is in view of the local rupee falling to its historical low against the US dollar. The rupee now hovers over 195 to the dollar gaining somewhat from being down to 200 mark. The government has also announced talks with Asian Development Bank and China's Asian Infrastructure Investment Bank. A USD 300 million budgetary support is anticipated from the ADB, officials said. The announcement for getting the USD 400 million financial facility from India came as the rating agency, Fitch on Wednesday warned Sri Lanka to reform its soft-peg and block the ability of its domestic operations department to inject large volumes of cash below the ceiling policy rate to stop monetary instability. Last month, during a video conference of Prime Minister Narendra Modi along with leaders and representatives from SAARC nations, Sri Lankan President Gotabaya Rajapaksa said, "Our economy has taken a severe blow due to the coronavirus, particularly in tourism... Our exports are also adversely affected." Tourism is the third-largest earner of foreign exchange in Sri Lanka. The decline in tourist arrivals has hit the island nation's tourism industry in a big way. Largely owing to the COVID-19 pandemic, the World Bank recently forecast Sri Lankan economy to contract by 3 per cent this year as against a 2.4 per cent estimated growth last year, whilst the IMF predicted the global economy to contract by 3 per cent as well.

Source: Economic Times

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Karnataka: Online permission for re-starting industries

The State government has given some relaxation during the second phase of lockdown. Hence, road and infrastructure development works could be taken up in areas excluding HDMC limits and containment zone, Minister in-charge of the district Jagadish Shettar has said. Chairing a COVID-19 second phase lockdown review meeting here on Friday, Mr. Shettar said that the relaxation provides for operation of stone crushing units and re-start industries located in rural limits by strictly following social distancing and guidelines issued by the government. The district administration would be giving permission through online for starting these operations, he said. The NHAI and the PWD are allowed to resume their work. However, they have to submit the project details through online to the district administration and get permission. They can ferry workers to the place of work only once. They should provide all basic facilities, including food and medicine, by setting up temporary shelter homes, he added. He said that as per the guidelines of the Indian Cotton Corporation, procurement of cotton should begin in the district and this information should be publicised for the benefit of farmers. Strictly adhering to the guidelines, FAQ quality cotton should be procured from farmers, he added. Mr. Shettar asked the police not to create hurdles for contractors transporting cement, iron rods, sand and other building construction material. He has cautioned against holding congregational prayers at prayer halls during Ramzan which will start on April 25. Provision should be made to set up dry fruits stalls and fresh fruits stalls near Muslim-dominant areas so that people do not venture out in the open in search of these items, he sa

Source: The Hindu

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Opinion | Reset your supply chains

Covid-19 has brought global and domestic supply chains to a halt. While all organisations are, rightfully, focused on getting back on track and preparing for the post lockdown bounce back, this is also a good opportunity to re-imagine supply chains on a clean slate. The current supply chains across industries have evolved over time and are not necessarily the best suited for the current and future scale of operation. Let’s take, for example, consumer product supply chains—fast moving goods, pharma, and durables—today. Typically, organisations have multiple layers between manufacturing and the end consumer, with many days of inventory in the chain. The reasons why such a structure evolved include poor infrastructure, a distributed geographic demand footprint and low volumes in earlier days. This was compounded by a fragmented channel structure with multiple small distributors intermediating between manufacturers and customers (modern trade and e-commerce have not made a substantial impact yet). Even as India has improved its infrastructure, adopted the goods and services tax (GST) and enhanced its IT connectivity, for organisations it has been hard to move away from thatstructure, due to the extent of change that would be needed. The covid-19 lockdown, however, has either emptied supply chains of inventory or reduced the same substantially, presenting organisations an unforeseen opportunity to completely redesign their supply chains along six dimensions. To make the best of the opportunity, this is what companies should do: One, rethink distribution and embrace direct-to- consumer systems: Organisations can use this opportunity to consolidate their distribution network, moving away from weak distributors, and to fewer bigger and more capable ones. Another necessary change would be to move the inventory of finished goods higher up the distribution chain—either to warehouses close to or within a factory, or to their own distribution centres—instead of keeping stocks with distributors, which should be shifted to a flow-through model. The lockdown has pushed consumers to adopt home delivery. Long wait times to get a BigBasket or Amazon Pantry delivery slot are reflective of that shift. The lockdown is also getting consumers used to paying delivery charges. Post-lockdown too, consumers might hesitate to get back to regular shopping, because of social distancing norms, and will continue to avoid crowded places. Delivery models will have a cascading impact on the organization’s upstream supply chain, and a big shift will be needed to re-configure it to handle smaller packs (versus the cartons that most supply chains are designed for). Two, accelerate mechanisation: Given the low labour costs in India, mechanization of the supply chain is usually hard to justify. However, social distancing norms at factories and warehouses will spur the need for it to reduce people density across the supply chain. This will call for end-of-line packaging automation, palletization, movement mechanization (conveyor belts, fork lifts, etec), the increased adoption of robotics on the manufacturing floor, adoption of AGVs, etc. Three, prioritize risk mitigation instead of cost optimization: India is a low-rice-point, large-volume market. This has made cost optimization a key objective in all supply chain design exercises. However, the current disruption requires companies to back up various nodes of their supply chains. Organizations will have to avoid single points of potential failure, be it a supplier, manufacturing site, or distribution centres. Industries like pharmaceuticals or technical textiles (used for personal protection equipment, for example), and medical equipment, which are dependent on imports for critical inputs (such as bulk ingredient drugs in pharma and fabrics in technical textiles), will need to explore raising their local capacity and/or backward integration. Four, adopt scenario planning and war gaming: The planning processes of most organizations just have a single view of the future, and take into account only the next couple of months or quarter’s sales forecast for their delivery plans to address. There is very little war gaming or simulations adopted today. Covid-19 has highlighted the importance of reviewing alternate scenarios periodically and simulating response strategies for dramatic eventualities. This would avoid having togo into firefighting mode. Also, organizations have been forced to do daily planning during this lockdown, given the deep disruption of supply chains. Five, redesign the organization: For much of the last several weeks, organizations have operated—albeit at a lower throughput levels—with their employees working from home and managing most activities via phone and video calls. There is no reason why, after this lockdown, organisations need to revert to their traditional models of managing their supply chains, which place emphasis on locating managers close to various points of action. For example, all members of a planning team need not be located at the head office, and logistics managers need not be located in specific zones and regions to carry out their tasks. Releasing management of geographical constraints will allow for a re-imagination of work spans and aid the development of a new organization model altogether. Six, digitise extensively: All information and cash flows in the supply chain will get digitised. Digitisation enables smooth functioning of this chain even during covid-like disruptions. For example, some of the recent truck stoppages were due to lack of cash available with truck drivers. So payment wallets will gain currency among truckers. Companies also need to push channel partners and suppliers who operate on cash or by cheque to embrace digital payments. Equally, the increasing need for traceability of products and assets in the supply chain will encourage organizations to evaluate and adopt technologies like blockchain. As Winston Churchill said, never let a good crisis go waste. Organizations should use this opportunity to set in motion a new supply chain for the future.

Source: Live Mint

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SAARC rolls out stimulus packages to tackle COVID-19 economic fallout

The SAARC countries have rolled out a raft of stimulus packages to boost investments, buffer private businesses and bolster growth in response to the COVID-19 pandemic that has affected the economic activity in a region inhabited by over 1.8 billion people. The World Bank recently warned that South Asia faces its worst economic performance in 40 years due to the deadly coronavirus pandemic which has been wreaking havoc worldwide.  Earlier this month, the World Bank said the coronavirus outbreak has severely disrupted the Indian economy, magnifying pre-existing risks to its outlook. In its report “South Asia Economic Update: Impact of COVID-19”, the World Bank estimated the Indian economy to decelerate to 5 per cent in 2020 and projected a sharp growth deceleration in fiscal 2021 to 2.8 per cent in a baseline scenario. The COVID-19 outbreak came at a time when India’s economy was already slowing, due to persistent financial sector weaknesses, the report said. To contain it, the government imposed a ‘lockdown’ with restrictions on mobility of goods and people. “The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21 to 2.8 percent in a baseline scenario (an estimate subject to wide confidence intervals),” the report said, adding that the services sector will be particularly impacted. It advised the governments to “ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage now for fast economic recovery”. India, a USD 2.9 trillion economy, the biggest in the 8-member SAARC grouping, responded by unveiling a Rs 1.7 lakh crore (USD 22.6 billion) economic stimulus plan, providing direct cash transfer to poor senior citizens and women and free foodgrain and cooking gas to give relief to millions hit by the lockdown. The central bank cut the key interest rate by 75 basis points to make loans cheaper and provided Rs 1 lakh crore of liquidity to the market. Also, a moratorium on repayment of loans for three months has been provided. The government has suspended the Insolvency and Bankruptcy Code for 6 to 12 months to give breathing space to companies trying to secure the necessary financing, renegotiating loans, and attempting to secure other reliefs from banks.

In Pakistan, when Prime Minister Imran Khan announced the lockdown last month, there was little resistance initially from the private sector. But, as it prolonged, unrest slowly started brewing among small businesses and shopkeepers who feared that they may not sustain the prolonged closure. To pacify their concerns, the government announced a Rs 1.2 lakh crore rescue package to help businesses and vulnerable people. Separately, the government has decided to allocate Rs 7,500 crore for small and medium enterprises. “We have given Rs 20,000 crore in tax refund to various businessmen so that they have money with them,” Khan said. Pakistan’s central bank has reduced the interest rate from 13.25 to 9 per cent since late March in response to the demand from the private sector. It has also agreed to give concessional loans at 4-5 per cent to businesses.

Bangladesh has announced a USD 11.6 billion stimulus package to support the economy, with a primary focus on supporting the manufacturing and service sectors, agriculture and social safety nets.”This support package is equivalent to 3.5 per cent of our GDP,” Prime Minister Sheikh Hasina said on Friday. The Bangladesh Garments Manufacturers and Exporters Association has said that orders worth about USD 3.2 billion were cancelled or suspended, affecting over 2.3 million workers. The textile sector, a major forex earner, directly employs more than 4.5 million people, mostly women.

Sri Lanka’s economy, hit by the COVID-19, is struggling to overcome the crisis. On March 31, the central bank announced a USD 250 million refinancing facility for banks, enabling them to expand their lending capacity by Rs 40,000 crores to businesses, offer loan repayment moratoriums and provide working capital at 4 per cent interest. Sri Lanka is also planning to enter into an agreement with the Reserve Bank of India for a currency swap worth USD 400 million to boost the foreign reserves and ensure financial stability.

Nepal’s business sector is expected to suffer a loss of around USD 1.25 billion due to the halting of economic activities during the lockdown, says Umesh Lal Shrestha, Vice President Associate, Federation of Nepalese Chamber of Commerce and Industries. Nepal’s tourism sector is the worst hit by the pandemic. The Hotel Association of Nepal has projected that the hotel business income will decline by 90 per cent in 2020 and has asked the government to adopt special measures to protect the industry. The government has cancelled the ”Visit Nepal Year 2020” that aimed to attract two million tourists, in view of the global pandemic. It has announced a relief package which includes a 25 per cent discount on electricity.

The Maldives government has announced an emergency 2.5 billion Maldivian rufiyaa (USD 161.8 million) stimulus package to shore up the local economy against the coronavirus pandemic, a local media report said. The stimulus plan includes MVR 1.55 billion (USD 100 million) in emergency loans for businesses to meet short-term working capital needs. The Bank of Maldives has announced a USD 2 million short-term financing facility for the tourism industry, which contributes to the bulk of the island nation”s state revenue and foreign reserves.

Bhutan”s economy is having its worst year in the recent history with the GDP growth projected to decline by anywhere between 1-2 per cent depending on how long the pandemic lasts, Kuensel newspaper quoted economic affairs minister Loknath Sharma as saying.The government wants to continue construction of hydropower projects to minimise the impact from COVID-19 and revive the land-locked country”s economy. Electricity constitutes about 13 per cent of Bhutan”s GDP, the report said.

Afghanistan is a heavily aid-reliant and import-dependent economy. The coronavirus outbreak has further dented an already troubled economy. The Afghan government has allocated about USD 25 million to deal with the crisis. The World Bank has approved a USD 100.4 million grant to support the war-torn country’s weak economy.

Source: Eleven myanmar

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Pakistan: Govt asks textile exporters to take benefit of emerging business opportunities

As west is slowly opening up in terms of economic activities Pakistan exports estimated to reduce by $1.86b during FY 20. The government has asked the exporter to take full advantage of these new opportunities as the west is slowly opening up in terms of economic activities. “The west is slowly opening up and there are trickles of orders coming in. These orders are in different segments and would take us to where we were prior to the coronavirus. I’m appealing to our textile industry to take full advantage of these new opportunities to enter new segments and new geography. The govt will support you completely,” said Adviser to Prime Minister on Commerce Abdul Razak Dawood on Thursday. Earlier, Pakistani exporters had faced setback after the outbreak of coronavirus and the evolving position of the global economies and its impact on the export sector of Pakistan. Pakistani exporters are facing problems and they are being told not to ship consignments till further notice. Exporters are seeking relief package from the government to offset the massive losses. Data of container traffic at Pakistan’s two major ports shows a sharp decline in export cargo handling since mid-March. This is consistent with the cancellation of export orders or requests to delay the shipments when the lockdown started in Europe. According to the International Monetary Fund (IMF)’s projection Pakistan’s exports are estimated to reduce by $1.86 billion to $23.732 billion during ongoing fiscal year (FY20). Similarly, imports are projected to decline by $4.64 billion to $48.291 billion during the present financial year. The reduction in imports would help in reducing the trade deficit of the country. The reduction in trade deficit would help in controlling the current account deficit. In a bid to help the exporters, the government had announced Rs100 billion disbursements to the exporters in shape of refunds. In order to mitigate impact of outbreak of COVID-19, the Prime Minister has approved relief package i.e. Rs70 billion for refunds related to Federal Board of Revenue (FBR), Rs30 billion DLTL related to ministry of commerce. In another tweet, the Adviser announced that DLTL refunds of Rs828 million for non-textile sector have been transferred to State Bank of Pakistan. The reimbursement will start from today (Friday), he added. Razak Dawood also said that the federal government has allowed export of textile masks. Export of masks will not apply to surgical and N95 masks, the Adviser said on his social media account. The National Command and Operation Centre (NCOC) last week allowed the export of hand sanitisers and textile masks. On January 31, a ban was imposed on the export of face masks and hand gloves as a first precautionary measure and to ensure availability of “sufficient basic first aid material” due to the coronavirus pandemic.

Source: The Nation

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China PTA supply to continue growing on good margins despite weak prices

China’s domestic supply of purified terephthalic acid (PTA) may continue growing on the back of good margins amid depressed crude values despite continued weakness in spot market prices, which hit a record low on 22 April. But producers’ inventories have been piling up amid sluggish demand as most of the world is under lockdown amid the coronavirus pandemic, hitting demand for downstream textile products. Chinese PTA plants’ average operating rate remained high at about 90%, ICIS data showed. High production is mainly supported by healthy margins following crude-driven sharper falls in prices of feedstock paraxylene (PX). The theoretical margins for PTA stood at around yuan (CNY) 72/tonne ($10/tonne) on 22 April, when domestic PTA prices fell below CNY3,000/tonne for the first time since ICIS started tracking the prices in 2007. Production of PTA has been profitable since March 2020, following the crash in crude prices due to the price war between oil giants Saudi Arabia and Russia. Domestic PTA supply will also be boosted when Xinjiang Zhongtai Chemical’s 1.2m tonne/year plant restarts in end-April after a month-long maintenance. PTA prices in both the spot and futures market tend to closely follow movement in crude prices. On 23 April, spot prices in east China rebounded along with crude, to settle at CNY3,089-3,218/tonne ex-warehouse (EXWH), up by CNY156-248/tonne from the previous day.  In the futures market, the main PTA contract closed higher at CNY3,334/tonne, up by CNY176/tonne over the same period. The May and September PTA contracts on 22 April shed 6%, hitting their maximum limit on daily movement, following a rout in crude prices. Crude prices have been depressed due to a global supply glut and slumping demand amid the coronavirus pandemic, which started in China late last year. On 20 April, the WTI May contract settled below zero for the first time ever, with the lowest level in the session at minus $40.32/bbl on heightened concerns over lack of oil storage space in the US.

Source:  ICIS China

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Taiwan Textile Industry Actively Helping The United States And Global Partners To Combat COVID-19 Pandemic

Taiwan Textile Federation (TTF), by integrating upstream, midstream, and downstream textile industries and with the help of textile manufacturers such as Formosa Plastic Group, Formosa Chemicals & Fibre Corporation, Far Eastern New Century Corporation, KNH Enterprise Co., Ltd., China Surgical Dressings Center Co., Ltd. and Chang Hong Machinery Co., Ltd. etc., a complete surgical mask supply chain was formed. Taiwan has transformed from importing country for surgical mask to the second-largest surgical mask producer worldwide with daily production capacity of 15 million units. Taiwan plays an important role as the “Silicon Valley” for textiles industry globally and is a long-term trusted partner of international brands. With years of research and development efforts in functional textiles, Taiwan textile industry has accumulated experience and technology that allows Taiwan government to form a national epidemic prevention team in the fight against COVID-19 at short notice. Through the efforts by manufacturers like WEB-PRO Corp., Nan Liu Enterprise Co., Ltd, Eclat Textile Co., Ltd. and Makalot Industrial Co., Ltd. on the “National Team for Hazmat and Protective Clothing”, Taiwan successfully develops and produced the level 3 protective suit in just one month. In the period from March to April, over one million units of isolation gown and 100 thousand units of protective suits were manufactured. Thanks to the joint efforts of the Taiwan’s textile industry and the government, Taiwan’s performance on epidemic prevention has been recognized internationally. Taiwan is contributing its experience and capabilities, fulfill its international responsibilities, and actively strengthen anti-epidemic cooperation with other countries. Taiwan has donated 15 million surgical masks to support medical staffs in countries with severe coronavirus outbreak, and will continue to provide support to the international community. Under the Taiwan-US epidemic prevention cooperation framework and in the spirit of “Taiwan can help!”, Taiwan has donated 2 million surgical masks to the U.S. and will continue to help strengthening protection for frontline medical personnel by providing 100 thousand urgently needed surgical masks every week. In response to these kind acts, The United States White House National Security Council (NSC) thanked Taiwan for their support and collaboration via a tweet while the EU representative in Taiwan, Mr. Filip Grzegorzewski, posted a tweet thanking Taiwan for its swift delivery of masks to countries hardest hit by the pandemic. Furthermore, Microsoft founder Bill Gates also publicly praised Taiwan’s swift action to fight off Coronavirus as  “exemplary”. Even the phrase “TaiwansHelping” is turning into a hashtag keyword on Twitter. Taiwan Textile Federation (TTF), a non-profit organization, plays an important role in Taiwan’s textile industry. In order to assist the textile industry to cope with the competition of globalization, TTF, as commissioned by the Bureau of Foreign Trade, Ministry of Economic Affairs, implements the “Textile Export Promotion Project” (TEPP) by selecting premium textile exporters and promoting their exports through the measures under this project. As the severe impact of the COVID-19 pandemic continues to spread across the textile and apparel sector, TTF quickly took actions to assist companies in receiving government relief. TTF asking brands to maintain supply-chain partnerships with Taiwan’s textile industry and to regard suppliers as important business partners. Taiwanese textile manufacturers’ quick action to integrate the resources and capabilities of all parties to combat the COVID-19 pandemic and the ability to assemble a mask and protective clothing production line in a short period of time, has echoed the long recognized traits “quick response”, “reliability”, “sustainable innovation”, and “profound professional knowledge and experience” of Taiwan textile industry. The brands’ trust is precisely why Taiwan has become the first choice for international brand cooperation. At this critical moment, Taiwan’s textile industry is ready to support its partners to weather out this epidemic and work together to focus on the future of medical fabrics and garment market.

Source: Textile World

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Ghana: Local textile companies can produce specific fabrics for face masks

The Textile Garment and Leather Employees Union (TGLEU) says local Ghanaian textile companies are capable of producing international standard fabrics purposely for nose mask. The nose mask has become a hot commodity globally in the wake of the COVID-19 pandemic as health experts encourage its use to avoid contracting the virus. In Ghana, many people are now going into the sewing of cloth masks due to the scarcity of the disposable ones and the quest to provide the public with some protection that could also suit their pockets. Mr Abraham Koomson, General Secretary of the Union and the Ghana Federation of Labour (GFL) in an interview with the Ghana News Agency on the new trend, said the Ghana Standard Authority (GSA), Ministry of Health (MOH) and other relevant agencies must ensure that cloths used for such masks met some specifications. Mr. Koomson said the local textiles companies must be given the necessary specifications for cloths or fabric that could be used for the masks to ensure the health safety of users. According to him, the use of cloths manufactured for fashion purposes was not suitable for the production of nose masks as they may have some health implications due to the dyes and other chemicals used in producing such cloths. “There are health implications because of the chemicals and dyes used. Even more dangerous if the fabrics originate from China. People have become fashionable with these masks and therefore are defeating the purpose of its use if specifications are not considered”. He said to ensure the safety of the people, only cloths with specifications produced by local textiles companies should be approved for use for the production of nose masks. Mr. Koomson also appealed to government to consider producing such masks in large quantities so as to be able to distribute freely to everyone or have certified agents to sell approved nose masks to the public.

Source: Myjoyonline

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International aid plan for the world textile industry

The International Labour Organization (ILO), an agency of the United Nations, has called on retailers, producers, governments, banks, associations, trade unions and leading brand suppliers to work together to support workers in the garment industry affected by the Covid 19 pandemic worldwide. The ILO intends to convene an international working group, coordinated by the International Organization of Employers (IOE) and the International Trade Union Confederation (ITUC). The aim is to develop a sustainable system to guide the textile industry worldwide through the Corona crisis and to safeguard the health, income and jobs of workers. These plans require the immediate commitment of all those involved, the ILO emphasizes. Governments and banks should be called upon to provide loans and income support, as well as tax breaks and the like. Brands and retailers should commit themselves, among other things, to pay manufacturers for goods already produced and to plan new orders on a binding basis. In addition, social, environmental and safety standards are to continue to be observed. Particularly in countries with inadequate health and social systems, millions of people could be rapidly impoverished as a result of the pandemic, so the continued payment of wages and job security would be extremely important. H&M, Primark, Bestseller, C&A, Adidas, Inditex, PVH, Tchibo, VF, Zalando, Under Armour and others have committed themselves to the initiative. "The importance of this ILO-led initiative cannot be overestimated. Manufacturers and their workers in the apparel industry supply chains urgently need financial support from international financial institutions and governments to protect jobs and get through this crisis," said Katharine Stewart, director of ethical trade and environmental sustainability at Primark. In the longer term, she hopes that this initiative will also support the introduction or strengthening of social benefits. Primark has committed to paying £370 million for additional orders, in addition to the £1.5 billion of goods already in stores, depots and in transit, even though stores will remain closed. Independently of this, the discounter has set up a wage fund to ensure that workers in Bangladesh, Cambodia, India, Myanmar, Pakistan, Sri Lanka and Vietnam are paid as quickly as possible for their work on primary goods already in production.

Source:  Sportwear International

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Indonesia’s Textile and Garment Industry: Opportunities for Foreign Investors

Indonesia’s textile and garment industry enjoyed positive growth throughout 2019 with exports valued at US$13.8 billion, an increase from US$10 billion in 2018 and making the country one of the largest textile producers in the world. Despite this upward trajectory, the industry has been severely impacted by the US-China trade war, and now, the COVID-19 outbreak. Vietnam, although also affected by the trade war, still recorded some US$35 billion in textile exports in 2019. Currently, 30 percent of Indonesia’s total production is to meet domestic demand with the remainder for exports to mainly the US (36 percent), Middle East (23 percent), EU (13 percent), and China (5 percent). These are dominated by large manufacturers producing for global apparel brands. Before the onset of the virus, the Indonesian Textile Association (API) stated that the country’s textile and garment industry is expected to grow at a compound annual growth rate (CAGR) of 5 percent. The government, through its Industry 4.0 Masterplan, aims to propel the country into the top five largest textile producers in the world by 2030. This presents unique opportunities for foreign investors to enter and assist in this revitalization program, in particular, supply expertise on sophisticated production techniques.

Constraints remain

Internal constraints still plague Indonesia’s textile industry and have hindered its export potential. Electricity and gas prices are high compared to other textile producing countries, which has reduced Indonesia’s competitivity in the international market. Labor costs have also increased annually; the minimum wage in Indonesia has been increased by 8.5 percent for 2020. The country’s minimum wage is also fixed based on the sector. ‘Leading sectors or industries’ in a province, like textiles and garment manufacturing, can determine their own minimum wage rate, also known as UMSP. The UMSP must be higher than the provincial minimum wage (usually by 5 percent and above). Another issue has been ageing machinery, which results in overall lower productivity and efficiency for the country. This undermines one of the sector’s key strengths – the presence of both an upstream and downstream industry – although only the largest players can afford to invest in new plants and machinery to complement these operations. Furthermore, increasing regional integration has resulted in an influx of cheaper textile products into Indonesia (legal and illegally), especially from China, which has placed pressure on smaller domestic manufacturers. For many smaller, local companies, turning to the production of ‘Batik’ has been a way to distinguish themselves, but this is a very niche market in the global textile industry. Batik is a centuries-old technique of using wax and dye to decorate cloth and garments developed in Indonesia. The artform has been designated as an Indonesian cultural contribution to the world by UNESCO, with many manufacturers still utilizing hand-drawn designs. An increasing number of manufacturers are moving away from the manual technique and using modern machinery to produce printed Batik. External constraints include the depreciating Rupiah, which has increased production costs. This is because raw materials, such as cotton, are bought with US dollars from the US, Brazil, and Australia – amounting between US$300 to US$600 million per year – and impacting the profitability of companies that cater to the domestic market. Larger companies with the capacity to export their products are benefiting from the stronger dollar as it increases their revenues.

Opportunities for foreign investors and industry diversification

Despite the aforementioned challenges, the overhaul of this lucrative industry requires local companies to access much-needed funding. Foreign investors with the expertise to facilitate more value-added production techniques are in high demand. Further, as international competition becomes fiercer, textile companies that lack the capital to compete could be takeover targets through partnerships, joint ventures, and private equity investment. The Indonesian government is looking to enhance its support for the textile industry. The current administration has improved the country’s logistics by building new highways and ports. It is also curbing the import of illegal textiles and tightening import rules for textiles and textile products. More vocational institutions catering to the sector are being developed in cooperation with local companies, aiming to produce skilled human capital who can use the latest technology in production, such as 3D printing. Industry players must also diversify their export market – considering that its biggest market, the US, could impose tariffs on a variety of Indonesian products, including textiles at any time. New potential international markets could include Australia – both countries ratified the IA-CEPA trade agreement in February 2020 – as well as New Zealand, South Korea, and Japan. Additionally, Indonesia’s Muslim fashionwear is finding an increasing market in the Middle East and North Africa as the region now represents more than half of the country’s overseas missions and trade negotiations.

Source: ASEAN Briefing

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