Rieter - TMMA. Textile Machinery Manufacturers` Association

Report
Vision for the sustained growth of Indian Textile Engineering
Industry under XIIth Five Year Plan
Working Group on Capital Goods & Engineering Sector
Sub Group
for
Textile Engineering Industry
August 2011
Working group TEI
Page 1
Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan
Contents of the document
1
Introduction
2
Results
3
Annexes
Working group TEI
Page 2
1
Introduction
This presentation takes into consideration the following aspects:
1
Current status
2
Goals
3
Critical Factors
4
1.1 Base lining of sub-
2.1 Priority segments
3.1 Key success factors
4.1 Strategies to secure
sector
and target positioning of
India in global supply
chain
to be adopted
target size and growth
3.2 Constraining factors
to be addressed
4.2 Strategies for import
substitution, export
enhancement and
increasing value addition
in India
• Size and growth rates
• Export & import levels
• Technology status
• India’s position in
global value chain
• Other aspects
• Policy and
incentives
• Sectoral
constraints
2.2 Target parametres for
sub-sector
• Target size & growth
• Target export levels
• Target employment
levels
• Target technologies to
be developed
• Other aspects
5
Strategy
4.3 Strategies for
technology enhancement
4.4 Strategies for job
creation and skill
development
Actions
Budget &
Policies
5.1 Action plan for
12th five year
manufacturing plan
for capital goods
•
Key milestones
for 12th plan
5.2 Policies,
projects and
schemes required
5.3 Budget required
to support 12th plan
agenda
4.5 Role of Private sector,
Government and PSEs
2.1 Benchmarking with
China and other major
countries
Working group TEI
Page 3
1
Introduction
TEI Vision is to grow an internationally competitive industry with
technology upgradation, meeting 75% of local demand
 A strong TEI with a potential to grow, compete, and export
 Provide strong support to the Indian textile industry to make it vibrant and competitive
 Acquire technological strength in all sectors, as it is in spinning machinery
 Aggressive pursuit of FDI to acquire key technologies and R&D
 Increase market share from existing 50% to 75% to satisfy local demand for textile machinery
 Capacity scale-up commensurate with increased demand
 India to become a manufacturing hub for textile machinery, parts/components and accessories, contributing
further to employment generation, skill development & GDP
Working group TEI
Page 4
1
Introduction
TEI – An Overview
 The Textile Engineering Industry (TEI) in India is one of the five key engineering sectors
 Consists of over 1400 units, with a total investment of Rs.6,900 crores*
 More than 80% of the units are SMEs*
 Installed production capacity - Rs. 8048 crores* and capacity utilization at 75%
 Provides direct/indirect employment to > 250,000 people*
 TEI contributes significantly to the competitiveness of the Indian Textile Industry (TI)
 Meets 50% demand of the Indian textile industry*
Source : TMMA / Textiles Committee
Working group TEI
Page 5
Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan
Contents of the document
1
Introduction
2
3
Results
2.1
Current status
2.2
Goals
2.3
Strategy
2.4
Critical factors
Annexes
Working group TEI
Page 6
2
Current status
TEI production grew at a CAGR of 4.21% during XIth Plan due to global
recession which adversely affected the textile industry
Growth trends – TEI (XIth Plan)
12000
10000
8000
Actual
6000
Target
4000
2000
0
2007-08
2008-09
2009-10
2010-11
2011-2012 (P)
Projection
Source : TMMA
Working group TEI
Page 7
2.1
Current status
Total world wide demand for textile machinery1 estimated at about 30 bn
USD in 2010
2010 Total Textile Machinery demand
Ginning
1%
17%
14%
[1$=1.28CHF, 1€=1.4$]
17%
~ 30 bn $
14%
1%
11%
2%
11%
250 mn $
= 1%
Short staple spinning
5‘200 mn $
= 17%
Synthetic
4‘000 mn $
= 14%
Jute
250 mn $ = 1%
Testing equipment
550 mn $ = 2%
Weaving
3‘300 mn $
= 11%
Knitting
3‘500 mn $
= 12%
Finishing
3‘200 mn $
= 11%
Industrial stitching
4‘000 mn $
= 14%
Msc2
5‘000 mn $
= 17%
12%
1
not including spares, consumables and accessories as well as second hand machinery
2
including nonwoven, webforming, longstaple, embroidery, braiding, trimming and other
garmenting equipment (cutting, engraving, fusing, quilting, ironing, folding), other
synthetic machinery (other than extrusion & texturizing), etc
Source: Gherzi
Working group TEI
Page 8
2.1
Current status
Indian based production of textile machinery is still minor in most
segments
2010 – Repartition of major textile machinery producing regions [1$=1.28CHF, 1€=1.4$]
Produced in China
Produced in India
Spinning
5.2 bn $
Produced in EU & Japan
Jute
250 mn $
Weaving
3.3 bn $
Not specified (e.g. Brazil. Taiwan, S. Korea, Turkey)
Processing
3.2 bn $
100 %
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
Ginning
250 mn $
Synthetics
4 bn $
Testing
550 mn $
Knitting
3.5 bn $
Industrial Stitching
4 bn $
Source: Gherzi
Working group TEI
Page 9
Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan
Contents of the document
1
Introduction
2
3
Results
2.1
Current status
2.2
Goals
2.3
Strategy
2.4
Critical factors
Annexes
Working group TEI
Page 10
2.2
Goals
India has the potential to improve its position (reflecting on market
shares) in all segments of TEI:
Criteria
Size of sector
(international)
2010 - bn $
Estimated India
market share1
2010/11 [value]
Estimated China
market share2
Knitting
Processing
Industrial
stitching
3.3
3.5
3.5
4
10-14%
2-4%
0-1%
3-5%
0-2%
20-30%
20-30%
40-50%
30-35%
20-30%
20-30%
+
+
-
+
+
+
+
high
medium
high
medium
(but mainly
powerlooms)
medium
medium
low
+
+
+
+
=
+
+
+
+
high
high
medium
high
medium
medium
medium
high
medium
>40%
> 20%
>10%
> 5%
>20%
>10%
> 5%
>10%
>5%
Ginning
Spinning
Synthetics
Testing
Jute
0.25
5.2
4
0.55
0.25
25-30%
8-12%
3-5%
1-3%
25-30%
35-45%
30-40%
=
+
high
Weaving
(incl. prep)
2010 [value based]
Growth of sector
(international)
Presence of
Indian textile
industry
Growth of sector
(India)
Export
Opportunities
high
(machinery related)
Market share Goal
(until 2020)
for TEI
1
Market share of the textile machinery produced in India
2
Market share of the textile machinery produced in India
Working group TEI
Source: Gherzi Report
Page 11
2.2
Goals
TEI is projected to grow from Rs 8000 crores to Rs 14300 crores during
XIIth Plan at CAGR of 15.1% based on commensurate growth of Indian
textile industry and expected policy interventions:
Projected Growth trends – TEI (XIIth Plan)
16000
14000
12000
10000
8000
Exports Rs. Cr
Domestic Rs. Cr
6000
Production Rs. Cr
4000
2000
0
2012-13
2013-14
2014-15
2015-16
2016-17
Exports Rs. Cr
800
900
1000
1100
1200
Domestic Rs. Cr
7200
8500
10000
11900
13100
Production Rs. Cr
8000
9400
11000
13000
14300
Source: TMMA
Working group TEI
Page 12
2.2
Goals
Existing employment (Direct & Indirect) in TEI is expected to grow from
2.85 lakhs to 4.27 lakhs during XIIth Plan however being a capital and
technology intensive sector the principal gains will be in value addition &
import substitution:
Projected employment growth – TEI (XIIth Plan)
450000
400000
350000
300000
250000
Indirect
200000
Direct
150000
100000
50000
0
2007-08
2011-12
2016-17
Source: Textile committee census & TMMA
Working group TEI
Page 13
Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan
Contents of the document
1
Introduction
2
3
Results
2.1
Current status
2.2
Goals
2.3
Strategy
2.4
Critical factors
Annexes
Working group TEI
Page 14
2.3
Strategy
The Sub group suggests a strategy based on short & long term measures
2011/12
2012/13
1
2013/14
2014/15
“Short term measures” (responsibility: GOI / TEI)




Encourage FDI on top priority through joint ventures and 100% foreign ownership
Establish Technology Upgradation Fund for TEI
Discourage import of second hand textile machinery
Address fiscal policy constraints and anomalies
2
“Long term measures” (responsibility: GOI / TEI)





Sustain FDI in Hi-tech segments
Strengthening TEI infrastructure through clusters development and SEZ’s
R& D – Institutional capacity building and private sector incentives
HRD through vocational training institutes
Export promotion
Working group TEI
Page 15
2.3
Strategy
Action 1: Encourage FDI for capacity expansion and technology upgradation (1
of 2)
Sector
Required know how
Ways to acquire know how / brands
Ginning
Indian OEM’s are well positioned,
since they have know how regarding
all 3 ginning technologies
 Evaluate a take over of the Continental brand
 Explore opportunities with Lummus
Spinning
Acquire know how related to:
 High end compact spinning
 High speed OE
 High speed winders
 High speed woolen / worsted frames
 Air Jet technology
 Invest in internal R&D
 Evaluate to work with western Universities (Aachen,
Dresden, etc)
 Winders: Attract investments of Savio, Muratec and
Schlafhorst into India as an alternative to China
Acquire know how related to:
 Extruders
 Spinning beams
 Godets
 Winders
 Attract major EU OEM’s (Oerlikon (Barmag, Neumag) to
produce / assemble in India (as alternative to China)
 Contact medium sized EU OEM’s (Swisstex, SML, Sahm,
Giudici) in order to explore J&V’s or attract them to assemble
/ produce in India
Acquire know how related to:
 Indian OEM’s should proactively contact the major EU OEM’s
(Schlumberger, Gaudino, Bonino, Finlane, etc) in order to
explore JV / M&A opportunities
 Attract EU OEM’s (Schlumberger, Trützschler, Gaudino,
Bonino, Finlane) to produce / assemble in India
Synthetics
Jute
Testing
 Opening, Cleaning, Blending
 Spinning
Acquire know how related to:
 Filament yarn testing (on / offline)
Build up
and / or
strengthen
dedicated
R&D cells
at
universities
 Explore M&A or JV activities (e.g. with Sensoptics) on the
filament sector
Source: Gherzi Report
Working group TEI
Page 16
2.3
Strategy
Action 1: Encourage FDI for capacity expansion and technology upgradation (2 of 2)
Sector
Weaving
Knitting
Area of intervention
Strategy to attract FDI in know how / brands
Acquire know how related to:
 Shuttleless looms (rapier >400 rpm;
air jet > 800 rpm; water jet > 800
rpm)
 Attract FDI (Picanol, ITEMA) regarding air jet, rapier (and ev.
Projectile) technology to be produced competitively in India
 Indian OEM’s should initiate JV / M&A discussions with
Panter, SMIT & ITEMA
Acquire know how related to:
 High speed circular knitting
machinery (Microprocessors)
 Warp knitting
 Indian players should evaluate M&A and/or JV’s with EU
OEM’s (mainly Italian & German OEM’s)
Processing
Acquire know how related to:
 Environmentally sustainable
processing
 High speed wide width processing
 Special purpose processing and
finishing machinery (e.g. plasmafinishing)
Industrial
Stitching
Acquire know how related to:
 Hi-tech industrial stitching/sewing
machinery (lockstitch, overlock,
coverstitch, bar tacking, pocketset,
button holes, etc)
 Explore opportunities with Ningbo Yuren (who is expanding
fast ) about manufacturing in India
 Gherzi foresees also here several opportunities for Indian
OEM’s to tie up with or take over EU producers (mainly
Italian – there are more than 50 SME’s)
Build up
and / or
strengthen
dedicated
R&D cells
at
universities
 Attract FDI (e.g. the remaining EU OEM’s: Dürrkop, Pfaff;
Necchi)
Working group TEI
Page 17
2.3
Strategy
Action 1: Encourage FDI for capacity expansion and technology upgradation
Investment incentive
Today
Proposed


So far, no local textile machinery enjoys a
preferential tariff even for a certain period until
their production is stabilized

India offers generous tariff protection to pioneer
industries such as the automotive industry

Even China has been gradually raising tariff on hitech items of textile machinery (e.g.,automatic
winders) as local capacity increases
In order to attract foreign investment to close the
gap in the Indian textile machinery value chain for
the state of the art manufacture of:

Rotor spinning machines

Automatic winders

Shuttleless looms

A preferential tariff, closer to the highest import
duty rate of 10% should be considered during at
least for first 5 years of production to potential
foreign investors, since the market for the above
machines is relatively small.

The producers of above machines should also
enjoy 0% tariff on accessories, parts and
components used as inputs
Working group TEI
Page 18
2.3
Strategy
Action 2: Address fiscal policy constraints and anomalies
Fiscal policy issues
Today

Proposed
Imbalance in customs duty between complete
machines at 7.5% (5% on 178 specified items of
machinery) and 7.5% for accessories, parts and
components (tariff 8448)

Harmonise customs duty on all types of textile
machinery including parts, components and
accessories at a uniform rate of 7.5%

Shuttleless looms are imported under a
concessional customs duty of 5%. There is an
infant industry producing shuttleless looms,
compact ring spinning frames and automatic cone
winding machines for which dedicated components
not made in India are imported with a duty of 5%

Reduce customs duty from 5% to nil on 15
imported dedicated parts, components and
accessories needed for the production of
shuttleless looms, compact ring spinning machines
and cone winding machines, this would help to
make the local industry more competitive

Excise duty ranges between 10% (General items)
and 5% (Specific list items)

Reduce excise duty from 10% to 8% to improve
the competitiveness of local industry

Local suppliers of textile machineries under EPCG
scheme face cumbersome procedure for refund of
terminal excise duty unlike in EOU scheme
enjoying duty exemption

Supply of local textile machinery under EPCG and
EOU status to be treated at par

200% weighted deduction on R & D expenditure
incurred by all companies and partnership /
proprietary units

200% weighted deduction on R & D expenditure is
allowed only to companies
Working group TEI
Page 19
2.3
Strategy
Action 3: Discourage import of second hand textile machinery
Second hand machinery
Today
Proposed

Large scale imports of 2nd hand machinery stood at Rs 700
crores in 2009 / 2010

The focus of imports has been the weaving sector





Second hand looms are eligible for benefit under TUFS.
Advocates of the scheme justify this measure to replace
obsolete powerlooms by highly competitively priced second
hand shuttleless looms with proven technology
The import of second hand machines
should be prohibited or restricted by
stipulating a specified minimum residual
life of 10 years and further, subject to the
condition that the second hand machinery
should not be older than 5 years

The textile machinery industry regards this as a retrograde
step which perpetuates the technological obsolescence of
the weaving sector in India
Threshold criteria relating to technical
parameters, such as a minimum machine
speed may also be imposed

As per TUFS policy import of second hand looms should
satisfy an age criteria whereby the looms should be of
maximum 10 years’ vintage. A significant number of second
hand imported looms are with old, low speed technology
having a weft insertion rate below 750 meters per minutes.
This should be certified by a designated
authority based in India

In any case no incentives, such as TUFS
should be applicable to second hand
machinery

Channelize imports via 2 designated ports
It should be noted that China does not allow the import of
second hand machines

Impose “actual user” condition on
importers
Working group TEI
Page 20
2.3
Strategy
Action 4: Establish Technology Upgradation Fund
Second hand machinery
Today
Proposed

There is no special fund for the textile machinery industry
per se. However, the industry only indirectly benefits from
the TUFS available to the textile industry.
It’s recommended to launch a TUF dedicated
to the Indian textile machinery industry. The
fund should have an interest reimbursement
outlay of Rs 250 crores for XIIth Plan and
based on similar principles as TUFS and
cover the following major areas:

TUFS encourages new investment in the textile industry by
providing 5% interest reimbursement and a 20% capital
subsidy (credit linked capital subsidy – CLCS)

An outlay of Rs. 11,315 crores was earmarked for the
TUFS under the 11th Five Year Plan

A provision for a Plan outlay of Rs. 750 was made for TEI
under the 11th Five Year Plan however no details of
utilization were available
Working group TEI

Expansion and modernization of existing textile
machinery manufacturing companies

Acquisition of technical knowhow from overseas

Industry segments regarded as weak or non
existing (rotors spinning, automatic winding,
weaving, processing, knitting and industrial
sewing equipment) should be eligible for 10%
capital subsidy in addition to interest
reimbursement
Page 21
2.3
Strategy
Action 5: Strengthen TEI infrastructure through cluster development and SEZ
Cluster development
Today

Proposed
•
Strengthen existing TEI clusters in five
important cities by establishment of five
Common Facility Centers (CFC)
•
CFC shall be set up on PPP mode and
provide the following services
There are five important clusters where textile engineering
units are located – Ahmedabad, Coimbatore, Kolkata,
Panipat & Surat
•
R&D
•
Product development

80% of the TEI units are MSMEs
•
Design facilities

There is little institutional support and capacity building is
largely at the firm level through private initiative
•
Testing facilities
•
Skill development
•
Enterprise management
development
•
Working group TEI
Encourage establishment of new TEI units
under SEZ especially for FDI promotion
Page 22
2.3
Strategy
Action 6: R& D – Institutional capacity building and private sector incentives
R & D promotion
Today
Proposed
Following measures are proposed to foster
R & D culture through specific initiatives

There is low level of R & D in the industry particularly in
non spinning areas

Limited proprietary technology

Resource constraints as 80% of TEI units are MSMEs

As majority of TEI caters to the decentralised sector such
as weaving and processing with low end applications there
is little incentive for R & D
Working group TEI
•
Focus of R & D shall be at institutional
and private firm level, selected textile
engineering institutes (IITs and NITs)
•
An apex R & D promotion cell should be
set up at TMMA and comprise key stake
holders from institutions, private and
public sector
•
Capital subsidy up to 50% for viable R &
D projects
•
Incentive for innovative design and
product development
•
Institutional collaboration between Indian
and foreign institutes
•
Inter disciplinary collaboration between
TEI and other institutions such as DRDO
and automotive industry
Page 23
2.3
Strategy
Action 7: HRD through vocational training institutes
HRD & skill development
Today
Proposed
Undertake capacity building programmes at
textile engineering institutes and vocational
institutes

TMMA collaborated with IIT Bombay for setting up an R&D
center for the Indian textile machinery. Spinning and other
equipment was provided by TMMA initially. However the
initiative has not been effective due to fund constraints and
lukewarm government support

There is lack of skill development specially in MSMEs

Inability of the sector to attract and retain talent
Working group TEI
•
Training the trainer
•
Scholarships for students from rural areas
and small towns
•
Review of existing curriculum for
certificate, diploma and graduate courses
•
Exchange programmes with foreign textile
technology institutes such as Aachen
University Germany
•
Explore partnership with Swiss Indian
chamber of commerce under Swiss
government vocational training
programme already initiated in other
sectors
•
Encourage regular interaction between
the industry and academia
Page 24
2.3
Strategy
Action 8: Export promotion
Export promotion for Indian TEI
Today
Proposed

Exports represent about 10% of the total TEI production at
Rs 650 crores
•
Encourage project exports through EXIM
bank facilities particularly to Africa

Main products – Spinning, weaving preparations,
processing & accessories
•

Main markets – Bangladesh, Malaysia, Far East, Middle
East, Africa & Latin America
Undertake market visits and buyer seller
meets in less developed textile countries
to promote export of textile machinery and
spares

TEI exports enjoy following incentives under generic export
promotion scheme
•
Easy availability of MDA through EEPC
•
Creation of a new EPC for textile
machinery exports to be set up by TMMA
through Ministry of Commerce
•
Special assistance for participation in
international textile machinery exhibitions


DEPB

Focus market
Exports are monitored by EEPC
Working group TEI
Page 25
2.3
Strategy
Textile engineering industry vision & policies: India vs China
Vision for Five Year Plan
China(2010-15)
India(2012-17)
To be the No. 1 textile machinery producer in the world by 2015
To meet 70% of the local demand for textile m/c’s by 2015
 Current size of the industry(2010): US$ 13 bn of which exports
US$1.7 bn(13%)
 Current size of the industry(2010): US$ 1.4 bn of which exports
Rs.140 mn(10%) . TEI meets 50% of local demand
Level of integration : Presence in all segments
Share of technical textiles to be increased from 20% (2010) to
25%(2015),with focus on non-wovens
 Level of integration : Current dominant in spinning mainly
 Share of man-made fibres in total processed fibres to be
increased from 70%(2010) to 76%(2015) with
 For the textile machinery sector an annual growth target of 15%
is envisaged
 Increase in production of knitted fabrics envisaged
Focus to attract FDI in hi-tech areas to expand capacity and
upgrade technology , particularly weaving and processing
 Overall, by the end of the 12th Five Year Plan period(2015),key
processes, technology and machinery of Chinese textile industry
are expected to occupy a leading rank in the world with CAGR of
10%
 Industry is cotton dominant(70%)
Industry is private sector driven with 80% MSME ownership
 Strong presence of state owned giant enterprises across textile
engineering segments
Working group TEI
Page 26
2.3
Strategy
Textile engineering industry vision & policies : India vs China (1 of 2)
Thurst Areas
China(2010-15)
1)
India(2012-17)
Intensifying fundamental research in textiles to play a leading
role in proprietary high and new technology


core technology in hi-tech fiber development and
application
advanced textile equipment R&D and manufacturing
2)
Catching up with leading level in key processes,technology
and equipment;
3)
Meeting statutory standards in energy saving and effluent
reduction;enabling large scale implementation of clean
production and establishing low carbon,green,re-cycling
1) Upgrade local capacity in weak areas such as weaving,
processing and knitting machinery
2) Forward and lateral integration of missing segments in
spinning viz rotor spinning and automatic winding
3) Technology upgradation to improve machine productivity
quality and energy efficiency
4) Formulate policies to attract FDI
4)
5)
6)
Ensuring that key enterprises(top one-third of above-scale
enterprises) with strong capacity in proprietary innovation will
have complete technology and product R&D and test centres
as well as staff teams of highly qualified professional and
innovative employees.
R&D expenditure allocation representing 3-5% of revenues is
envisaged
5) Forge linkages with local and international institutions for R&D
6) Establishment of textile engineering clusters/centres of
excellence
7) Removal of fiscal policy constraints
8) Withdrawal on (TUFS) incentive on import of second hand
machinery
Modernization of management and production methods
Working group TEI
Page 27
2.3
Strategy
Textile engineering industry vision & policies : India vs China (2 of 2)
Special Initiative
China(2010-15) “50+110” Project
India(2012-17)
 Technological up-gradation of the textile industry by adopting
“50+110” project
To achieve breakthrough in 50 key technologies for hi-tech
new fibres,spinning and weaving,printing and dyeing,highperformance technical fabrics,energy-saving,modern
apparels,new textile machinery,IT for textile industry and
research on relevant standards
Textile Up gradation Fund
Setting up of three textile engineering clusters
FDI Promotion drive
To promote application of 110 advanced technologies of
high performance,high efficiency and energy saving
To encourage innovation and forge linkages between R&D
and application,as well as between the enterprises and
institutions
Notably in 1999 China had launched a major campaign to scrap
10 million obsolete spindles which helped in modernisation of its
spinning capacity
Working group TEI
Page 28
2.3
Strategy
Proposed plan allocation for various interventions for TEI
Sub group recommends a Plan Outlay for Rs.1800 crores towards various capital budget,
cluster development and capacity building programs for the TEI to be undertaken during the
12th Plan period :
Description
•Technology upgradation
•R&D centre(IIT-B) / NITs
•Existing cluster dev
•Five CFC’s
•Business & market dev
•Skill development
•Capacity building / Export
Promotion
Total
Amount Rs. Cr.
250
150
750
500
50
50
50
1800
Source: TMMA
Working group TEI
Page 29
2.3
Strategy
In Gherzi view there is a significant long term potential to double TEI
production in the XIIth Five Year Plan if bold policy interventions are made
Projected Indian production of textile machinery and spares [Rs. Crore]
If strategy is not implemented
(neither by TEI nor by the Government)
If strategy is implemented
(by TEI and by the Government)
Indian production for domestic demand
Indian production for export
25,000
25,000
20,000
20,000
15,000
10,000
5,000
-
Foreseen
worldwide
decline of
demand
15,000
10,000
Strategy to be implemented starting from
2012/13
• FDI
• Acquisition of knowhow
• Change in policy frame work
Foreseen
worldwide
decline of
demand
5,000
-
Source: Gherzi Report
Working group TEI
Page 30
Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan
Contents of the document
1
Introduction
2
3
Results
2.1
Current status
2.2
Goals
2.3
Strategy
2.4
Critical factors
Annexes
Working group TEI
Page 31
2.4
Critical factors
Goals* can only be achieved if Indian TEI and the Government work
together to overcome the critical factors:
Government
related
Indian OEM
related
Critical factors for achieving the goals
1
People:
Not dedicating the right personnel effort to address the issue of lacking know how
2
People:
Not improving the capability to understand, absorb and integrate the know how into India
3
Cash:
Lack of CAPEX (e.g. Chinese are actively taking over EU companies / know how)
4
Timing:
Not approaching EU companies as fast as possible
5
Fiscal policy issue:
6
Import of second hand machines: Not reviewing policy and not introducing new criteria
7
Incentives:
Not removing constraints and anomalies
Not considering new incentives for local and foreign investments
in areas of identified high technology segments (including capital
subsidies in addition to interest re-imbursement)
Working group TEI
Page 32
Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan
Contents of the document
1
Introduction
2
Results
3
Annexes
Working group TEI
Page 33
3
Annex
1
Comparative analysis of India Vs China : Fiscal incentives
China

Preferential tax treatment for ForeignInvested Enterprises (FIE)
o
o
o
o
Two years of 100 % income tax holiday
and 50% income tax reduction for
subsequent three years for productionoriented FIE’s from the first year of
making a profit
Refund of 40% of income tax paid on
reinvestment for the purpose of increasing
the registered capital of the existing
enterprise or establishment of a new
enterprise
Full refund of income tax paid on
reinvestment in China for organization and
expansion of an EOU or advancedtechnology enterprise
Income tax on the royalty received for the
supply of technical know-how in scientific
research, and the development of
important technologies may be levied at
the reduced rate of ten per cent
India
Today
There is no policy for differential treatment for
FDI enterprises in India however following
are the key schemes under which fiscal
incentives such as tax exemptions are
offered :
Special Economic Zones Act 2005 provides
following incentives for attracting investments
into the SEZs-both local and FDI.
• Duty free import/domestic procurement of
goods for development and maintenance
of SEZ
• 100% exemption on export income for
SEZ for first 5 years;50% for next 5 years
and thereafter 50% of the ploughed back
profits for next 5 years (total 15 years)
• Exemption from minimum alternate tax
• External commercial borrowings by SEZ
units up to $ 500 million in a year
• Exemption from CST
Proposed
 Textile machinery
manufactured by an SEZ unit
and supplied to a unit in DTA
or an EOU or an EPCG
license holder should be
exempt from customs and
excise duty
 This special provision should
be available for a period of 5
years
 The proposed benefit should
be given to identified hi-tech
machines (such as rotor
spinning machines,
automatic winders and
shuttle-less weaving
machines)
• Exemption from Service Tax
• Exemption from State Sales Tax and other
levies
Source: Gherzi Report
Working group TEI
Page 34
3
Annex
1
Comparative analysis of India Vs China : Fiscal incentives
China

Preferential tax treatment for FIE EOU’s
o
o

After the expiration of the normal tax holiday,
the FIE’s may pay only 50% tax provided
they export 70% of the output
However, EOU’s located in an SEZ and
economic or technological development
zone may pay 10% income tax only
India
Today
Export Oriented Units (EOU)
• 100% Income tax exemption-10 years
• 100% FDI permitted through direct
route without any special approval
A reduced income tax of 15% is applicable to
FIE’s which are engaged in manufacture of
products listed under “ Catalogue of High
and New Technology Products of China” and
provided that at least 15% of the company’s
sales come from such products . Notably this
catalogue includes over 700 such products
No further intervention required
Consider following incentives
for local and foreign investment
in areas of identified hitechnology for manufacture of
textile machinery:
Preferential tax treatment for FIE’s which
are technology intensive and knowledge
intensive
o
Proposed
Special provisions apply only to export
oriented Electronics Hardware Technology
Parks
a) 10 years of tax holiday
along the lines of SEZ Policy
b) Exemption from excise and
customs duty on capital
goods supplied from a textile
m/c manufacturer located in
SEZ to a textile
manufacturer located in DTA
Source: Gherzi Report
Working group TEI
Page 35
3
Annex
1
Comparative analysis of India Vs China : Fiscal incentives
China

Preferential tax treatment for enterprises
recognized as high or new technology
established in the State high or new
technology industrial development zones
o

India
Today
No special provisions exist
For such companies the applicable benefit is
complete tax holiday for first two years of
production and thereafter a reduced income
tax rate of 15% only
Proposed
Separately addressed by way of
allowing establishment of new
hi-tech companies in SEZs
Preferential tax treatment for Western
regions
o
o
Income tax on enterprises, domestic and
foreign-invested, established in the western
regions which are engaged in industries
encouraged by the State shall be levied at
the reduced rate of fifteen per cent from the
year 2001 to 2010,provided that at least 70%
of their sales turnover comes from eligible
products
India has a policy for industrially backward
states which allow tax holidays and other
benefits to encourage set up of new
industries. These include:
The domestic and the foreign-invested
enterprises established in the western
regions and engaged in the encouraged
industries are exempt from the tariff and
import VAT for the imported equipments for
self uses within the total amount of the
capital invested
 CST at concessional rate of 1%
 Exemption from general sales tax(GST)
for 8 years
No further intervention required
 Electricity duty exemption
 Facilitation in land allotment
Source: Gherzi Report
Working group TEI
Page 36
3
Annex
1
Comparative analysis of India Vs China : Fiscal incentives
China

Deduction equal to 40% of the capital
expenditure may be claimed from taxable
income for the particular year, as an
‘accelerated depreciation’
Exemption from import duty and VAT on
imported technologies and equipment
o

150% of the actual expenditure on R&D may
be deducted from taxable income subject to
an annual increase in 10% in such
expenditure incurred on development of new
products, technologies and crafts
Proposed
200% weighted deduction on R&D
expenditure allowed to companies
however partnership firm are excluded
200 % weighted average
deduction on R&D expenditure
by textile engineering
companies should be increased
allowed to all firms
No special provision
No intervention recommended
Duty exemption applicable under EPCG
and EOU Scheme. However in case of
EPCG supplies, buyers have to apply for a
refund of duty or treat under MODVAT
scheme which adds to transaction cost
Supply of textile m/c from local
industry to EPCG and EOU’s
should be treated at par as both
are ‘deemed exports’
India has a policy for Duty Entitlement
Passbook (DEPB) scheme which is
however likely to expire during 2011-12
due non-compliance with WTO Agreement
on Subsidies & Countervailing Measures
Consider replacement by an
alternative mechanism to
neutralize the incidence of taxes
entering export production
Preferential tax treatment for procurement
of locally produced equipment
o

Today
Preferential tax treatment for R&D
expenditure
o

India
This is applicable to foreign invested projects
listed as encouraged category in the
“Catalogue for the Guidance of the Foreign
Investment Industries”
VAT refund for exported textile machinery
o
17%
Source: Gherzi Report
Working group TEI
Page 37
3
Annex
2
Comparative analysis of India Vs China : Grants and interest subsidy
China

India
Today
Funds for supporting technological
innovation by SME’s
o
o
Science and technology oriented SME’s are
eligible for financial appropriation or loan
interest discount. In the projects of financial
appropriations, the SMEs of science and
technology nature receive firstly seventy per
cent of the total assisting amount approved
to be granted to the enterprises. In the
projects of interest discount, the SMEs of
science and technology nature receive firstly
eighty per cent of the assisting fund for
interest discount in accordance with the
interest settlement document provided by the
enterprises. The rest of the grant or
assisting fund for interest discount shall be
paid after the projects being completed as
well as checked and accepted. Each project
shall receive no more than RMB 1 million
and in particular cases no more than RMB 2
million
 There is no special fund for the textile
machinery industry per se. However,the
industry only indirectly benefits from the
TUFS available to the textile industry.
 TUFS encourages new investment in the
textile industry by providing 5% interest
reimbursement and a 20% capital
subsidy (credit linked capital subsidy –
CLCS)
 An outlay of Rs. 11,315 crores was
earmarked for the TUFS under the 11th
Five Year Plan
 A provision for a Plan outlay of Rs. 750
was made for TEI under the 11th Five
Year Plan however no details of
utilization were available
For such projects, the government makes an
annual budgetary allocation
Proposed
It’s recommended to launch a
Technology Upgradation Fund
dedicated to the Indian textile
machinery industry. The fund
should be based on similar
principles as TUFS and cover
the following major areas:
• Expansion and modernization
of existing textile machinery
manufacturing companies
• Acquisition of technical
knowhow from overseas
• Industry segments regarded
as weak or non existing (rotors
spinning, automatic winding,
weaving, processing, knitting
and industrial sewing
equipment) should be eligible
for 10% capital subsidy in
addition to interest
reimbursement
Source: Gherzi Report
Working group TEI
Page 38
3
Annex
3
Comparative analysis of India Vs China : Other support measures
China

India
Today
Brand building – Several state and local governments
started a scheme called “Famous Export Brand”,
”China’s Renowned Label” and “China World Top
Brand” which were given to promote indigenous brands
and were given in the form of grants, preferential
funding for R&D projects contingent upon export
performance. However China was compelled to
withdraw such type of incentive when challenged by the
US at WTO

Interest rate subvention- This incentive is typically
offered by the state and local governments to subsidize
loan interest for upgrading technologies and equipment
across industries. A project could receive subsidy equal
to about one-third of the interest amount in a year

Besides above a number of local levies such as land
lease fees, VAT and administrative charges may be
negotiated with the local industrial park administration

As per China Textile Machinery Association(CTMA),the
state governments launch and fund special projects for
up-gradation of technological standards in the selected
textile machinery enterprises in their region. Cross
functional projects teams are set up and consist of
experts from textile engineering institutes and machine
manufacturers and user. They alluded to a project
adopted by Zhejiang State government aimed at
“increasing the life span of rings by reduction of friction
during spinning”
TMMA collaborated with IIT Bombay for
setting up an R&D center for the Indian
textile machinery. Spinning and other
equipment was provided by TMMA initially.
However the initiative has not been
effective due to fund constraints and
lukewarm government support
Proposed
To review the policy on import
of second hand machinery and
withdraw incentive support such
as TUFS to send right signals to
the industry and prospective
investors
TMMA has suggested a Plan
Outlay for Rs.1800 crores
towards various capital budget,
cluster development and
capacity building programs for
the TEI to be undertaken during
the 12th Plan period :
Rs. Cr
•Technology upgradation
•R&D centre(IIT-B) / NITs
•Existing cluster dev
•Five CFC’s
•Business & market dev
•Skill development
•Capacity building / Export
250
150
750
500
50
50
50
Promotion
-----1800
Source: Gherzi Report
Working group TEI
Page 39

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