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GST, lack of govt support prompt exodus of Tamil Nadu's textile firms

T E Narasimhan/Chennai 18 Jul 17 | 01:33 AM

Tamil Nadu’s textile cluster has long been the envy of its neighbours, given its potential to create jobs for both skilled and unskilled workers. But many states are now actively courting manufacturers and wooing them with the promise of incentives.

Odisha and Telangana have lined up lucrative packages for textile units making investments in their states. “In both the states, whatever we invest, we will be able to recover in four years," says T R Vijaya Kumar, managing director of CBC Fashions and general secretary of Tamil Nadu Exporters Association. 

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“The benefits are enough to help the industry compete in the global market," he adds.

Tirupur’s textile business is worth Rs 50,000 crore, and employs over one million people. But dissatisfaction is growing among manufacturers owing to the lack of support from the state government in terms of subsidies in the wake of the implementation of the Goods and Services Tax (GST). The industry feels the tax rate of 5-18 per cent on textile products under GST would hurt its ability to stay competitive in the global market.

There are already signs India is losing its edge as an exporter of garments to emerging manufacturing hubs like Bangladesh and Vietnam. Despite India being one of the early movers in garment manufacturing, the late entrants have managed to overtake the country due to their low cost of production. A T-shirt produced in India is costlier by $5-$20 compared to other Southeast Asian countries. Bangladesh’s ready-made garment export is worth $33.5 billion and Vietnam is around $24 billion, as against India’s $17 billion. Even Cambodia is coming close with around $10 billion. 

K Selvaraju, secretary general, the Southern India Mills’ Association, says: “Unlike India, these countries don’t even have raw material resources. The two things lending them an edge are government subsidies and tax concession from the developed markets."

With India achieving $1,000 per capita for three years in a row, it can no longer provide export subsidy under the World Trade Organization rules. Exporters have so far received a drawback of 7.6 per cent, a rebate on state levy and service tax to the tune of 3.5 per cent and 0.21 per cent, respectively.

“Now, the duty drawbacks need to be withdrawn, which means product prices will go up further," says an exporter.

While the Union ministry of textiles rolled out a special package worth Rs 6,000 crore, which includes overtime caps, fixed-term employment, among other things, Tamil Nadu exporters want the state government to come up with its own package. 

A C Eswaran, owner of Viking Textiles, says: “The textile industry in the state has grown only because of entrepreneurship." Tirupur Exporters Association President Raja M Shanmugam says, “Tamil Nadu does not even have a textile policy, but other states have realised that we are a growing sector with potential to create jobs and they are creating better environment for us to do business."

Six units have shown interest in setting up factories in Odisha already, says Kumar. “From chief secretary to textile secretary, pollution board head, industry representatives, everybody spent hours with us to understand our needs and said they would clear things and give all supports immediately."

Odisha has indeed rolled out the red carpet for Tamil Nadu’s textile industry with incentives such as  subsidy of  Rs 15,00 per month per employee for three years for a unit with more than 200 workers and 20 per cent subsidy on infrastructure cost. The state has also kept the minimum wage at Rs 200 per day for unskilled workers and Rs 240-260 for skilled workers, as against Rs 320 and Rs 600, respectively, in Tamil Nadu.

Telegana has promised a centralised effluent treatment plant for the industry and single-window clearance for proposals to entice manufacturers. .

R Rajkumar, managing director, Best Corporation, plans to to invest around Rs 50 crore in Odisha to set up a 1,000 machines factory. The factory will create jobs for 2,500 people. “In Tamil Nadu there is no incentive to set up a plant," he says.

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