Download pptx - Page 1 Working group TEI Vision for the sustained growth of Indian Textile Engineering Industry under XIIth Five Year Plan Working Group on Capital Goods

Page 1Working group TEI

Vision for the sustained growth of Indian Textile Engineering Industry under XIIth Five Year Plan

Working Group on Capital Goods & Engineering SectorSub Group

for

Textile Engineering Industry

August 2011


Contents of the document

Introduction

Results

Vision for the sustained growth of Indian Textile Engineering Industry (TEI) under XIIth Plan

Annexes

1

2

3


This presentation takes into consideration the following aspects:

Introduction

1.1 Base lining of sub-sector

• Size and growth rates

• Export & import levels

• Technology status

• India’s position in global value chain

• Other aspects

• Policy and incentives

• Sectoral constraints

2.1 Benchmarking with China and other major countries

1 Current status 5Actions

Budget & Policies

2 Goals

1

5.1 Action plan for 12th five year manufacturing plan for capital goods

• Key milestones for 12th plan

5.2 Policies, projects and schemes required5.3 Budget required to support 12th plan agenda

2.1 Priority segments and target positioning of India in global supply chain

2.2 Target parametres for sub-sector

• Target size & growth• Target export levels• Target employment

levels• Target technologies to

be developed• Other aspects

3.1 Key success factors to be adopted

3.2 Constraining factors to be addressed

4.1 Strategies to secure target size and growth

4.2 Strategies for import substitution, export enhancement and increasing value addition in India

4.3 Strategies for technology enhancement

4.4 Strategies for job creation and skill development

4.5 Role of Private sector, Government and PSEs

3 Critical Factors 4 Strategy


TEI Vision is to grow an internationally competitive industry with technology upgradation, meeting 75% of local demand

1

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

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

Aggressive pursuit of FDI to acquire key technologies and R&D

Introduction


TEI – An Overview

1

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

Introduction



Introduction

Results

Annexes

1

2

3

2.1 Current status

2.2 Goals

2.3 Strategy

2.4 Critical factors



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)

2007-08 2008-09 2009-10 2010-11 2011-2012 (P)0

2000

4000

6000

8000

10000

12000

Actual

Target

2

Projection

Source : TMMA

Current status


Current status 2.1

Total world wide demand for textile machinery1 estimated at about 30 bn USD in 2010

2010 Total Textile Machinery demand [1$=1.28CHF, 1€=1.4$]

Source: Gherzi

Ginning 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%

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

1%

17%

14%

1%2%

11%

12%

11%

14%

17%

~ 30 bn $


2.1

Indian based production of textile machinery is still minor in most segments

2010 – Repartition of major textile machinery producing regions [1$=1.28CHF, 1€=1.4$]

Current status

Produced in China Produced in India Produced in EU & Japan Not specified (e.g. Brazil. Taiwan, S. Korea, Turkey)

Ginning250 mn $

Spinning5.2 bn $

Synthetics4 bn $

Jute250 mn $

Testing550 mn $

Weaving 3.3 bn $

Knitting3.5 bn $

Processing3.2 bn $

Industrial Stitching4 bn $

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

Source: Gherzi



Introduction

Results

Annexes

1

2

3

2.1 Current status

2.2 Goals

2.3 Strategy




2.2

India has the potential to improve its position (reflecting on market shares) in all segments of TEI:

Goals

Source: Gherzi Report

Criteria

Size of sector(international) 2010 - bn $

Growth of sector(international)

Presence of Indian textile industry

Estimated India market share12010/11 [value]

Growth of sector(India)

ExportOpportunities(machinery related)

Ginning

0.25

Spinning

5.2

Synthetics

4

Jute

0.25

Weaving(incl. prep)

3.3

Knitting

3.5

Processing

3.5

Testing

0.55

Industrialstitching

4

= + + - + + ++ +

25-30%

+

high

high

8-12% 3-5% 10-14% 2-4% 0-1% 3-5%1-3% 0-2%

+ + = + + ++ +

high medium mediumhigh

(but mainly powerlooms)

medium mediumhigh low

high medium medium medium medium highhigh medium

1 Market share of the textile machinery produced in India 2 Market share of the textile machinery produced in India

Estimated Chinamarket share2

2010 [value based]25-30% 35-45% 20-30% 40-50% 30-35% 20-30%20-30% 20-30%30-40%

Market share Goal(until 2020)

for TEI>40% > 20% >10% >20% >10% > 5% >10%> 5% >5%


2.2

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:

Goals

Source: TMMA

Projected Growth trends – TEI (XIIth Plan)

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

1000

3000

5000

7000

9000

11000

13000

15000

Exports Rs. CrDomestic Rs. CrProduction Rs. Cr


2.2

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:

Goals

Source: Textile committee census & TMMA

Projected employment growth – TEI (XIIth Plan)

2007-08 2011-12 2016-170

50000

100000

150000

200000

250000

300000

350000

400000

450000

Indirect

Direct



Introduction

Results

Annexes

1

2

3

2.1 Current status

2.2 Goals

2.3 Strategy




Strategy 2.3

The Sub group suggests a strategy based on short & long term measures

2011/12 2012/13 2013/14 2014/15

“Short term measures” (responsibility: GOI / TEI)1

“Long term measures” (responsibility: GOI / TEI)2

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

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


Strategy 2.3

Action 1: Encourage FDI for capacity expansion and technology upgradation (1 of 2)

Ginning

Sector Required know how

Indian OEM’s are well positioned, since they have know how regarding all 3 ginning technologies

Spinning

Acquire know how related to: High end compact spinning High speed OE High speed winders High speed woolen / worsted frames Air Jet technology

Synthetics

Acquire know how related to: Extruders Spinning beams Godets Winders

Testing

Ways to acquire know how / brands

Evaluate a take over of the Continental brand Explore opportunities with Lummus

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

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

Jute

Acquire know how related to:

Opening, Cleaning, Blending

Spinning

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

Acquire know how related to:

Filament yarn testing (on / offline)

Explore M&A or JV activities (e.g. with Sensoptics) on the filament sector

Build up and / or

strengthen dedicated R&D cells

at universitie

s



Strategy 2.3

Action 1: Encourage FDI for capacity expansion and technology upgradation (2 of 2)

Sector Area of intervention

Weaving

Acquire know how related to: Shuttleless looms (rapier >400 rpm;

air jet > 800 rpm; water jet > 800 rpm)

Knitting

Processing

Acquire know how related to: Environmentally sustainable

processing High speed wide width processing Special purpose processing and

finishing machinery (e.g. plasma-finishing)

Acquire know how related to: High speed circular knitting

machinery (Microprocessors) Warp knitting

Industrial Stitching

Acquire know how related to: Hi-tech industrial stitching/sewing

machinery (lockstitch, overlock, coverstitch, bar tacking, pocketset, button holes, etc)

Strategy to attract FDI in know how / brands 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

Build up and / or

strengthen dedicated R&D cells

at universitie

s

Indian players should evaluate M&A and/or JV’s with EU OEM’s (mainly Italian & German OEM’s)

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)

Attract FDI (e.g. the remaining EU OEM’s: Dürrkop, Pfaff; Necchi)


Strategy 2.3

Action 1: Encourage FDI for capacity expansion and technology upgradation

Investment incentive

Today Proposed

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

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 hi-tech items of textile machinery (e.g.,automatic winders) as local capacity increases


Strategy 2.3

Action 2: Address fiscal policy constraints and anomalies

Fiscal policy issues

Today ProposedToday 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)

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%

Excise duty ranges between 10% (General items) and 5% (Specific list items)

Local suppliers of textile machineries under EPCG scheme face cumbersome procedure for refund of terminal excise duty unlike in EOU scheme enjoying duty exemption

200% weighted deduction on R & D expenditure is allowed only to companies

Harmonise customs duty on all types of textile machinery including parts, components and accessories at a uniform rate of 7.5%

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

Reduce excise duty from 10% to 8% to improve the competitiveness of local industry

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


Strategy 2.3

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 textile machinery industry regards this as a retrograde step which perpetuates the technological obsolescence of the weaving sector in India

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.

It should be noted that China does not allow the import of second hand machines

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

Threshold criteria relating to technical parameters, such as a minimum machine speed may also be imposed

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 Impose “actual user” condition on

importers


Strategy 2.3

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.

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

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:

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


Strategy 2.3

Action 5: Strengthen TEI infrastructure through cluster development and SEZ

Cluster development

Today Proposed

There are five important clusters where textile engineering units are located – Ahmedabad, Coimbatore, Kolkata, Panipat & Surat

80% of the TEI units are MSMEs There is little institutional support and capacity building is

largely at the firm level through private initiative

• 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

• R&D

• Product development

• Design facilities

• Testing facilities

• Skill development

• Enterprise management development

• Encourage establishment of new TEI units under SEZ especially for FDI promotion


Strategy 2.3

Action 6: R& D – Institutional capacity building and private sector incentives

R & D promotion

Today Proposed

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

Following measures are proposed to foster

R & D culture through specific initiatives

• 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


Strategy 2.3

Action 7: HRD through vocational training institutes

HRD & skill development

Today Proposed

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

Undertake capacity building programmes at textile engineering institutes and vocational institutes

• 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


Strategy 2.3

Action 8: Export promotion

Export promotion for Indian TEI

Today Proposed

Exports represent about 10% of the total TEI production at Rs 650 crores

Main products – Spinning, weaving preparations, processing & accessories

Main markets – Bangladesh, Malaysia, Far East, Middle East, Africa & Latin America

TEI exports enjoy following incentives under generic export promotion scheme

DEPB Focus market

Exports are monitored by EEPC

• Encourage project exports through EXIM bank facilities particularly to Africa

• Undertake market visits and buyer seller meets in less developed textile countries to promote export of textile machinery and spares

• 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


Strategy 2.3

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

Current size of the industry(2010): US$ 13 bn of which exports US$1.7 bn(13%)

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

Share of man-made fibres in total processed fibres to be increased from 70%(2010) to 76%(2015) with

Increase in production of knitted fabrics envisaged

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%

Strong presence of state owned giant enterprises across textile engineering segments

To meet 70% of the local demand for textile m/c’s by 2015

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 : Current dominant in spinning mainly

Industry is cotton dominant(70%)

For the textile machinery sector an annual growth target of 15% is envisaged

Focus to attract FDI in hi-tech areas to expand capacity and upgrade technology , particularly weaving and processing

Industry is private sector driven with 80% MSME ownership


Strategy 2.3

Textile engineering industry vision & policies : India vs China (1 of 2)

Thurst Areas

China(2010-15) India(2012-17)

1) 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

4) 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.

5) R&D expenditure allocation representing 3-5% of revenues is envisaged

6) Modernization of management and production methods

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

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 constraints8) Withdrawal on (TUFS) incentive on import of second hand

machinery


Strategy 2.3

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,high-performance technical fabrics,energy-saving,modern apparels,new textile machinery,IT for textile industry and research on relevant standards

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

Textile Up gradation Fund

Setting up of three textile engineering clusters

FDI Promotion drive


Strategy 2.3

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 Amount Rs. Cr.•Technology upgradation 250•R&D centre(IIT-B) / NITs 150•Existing cluster dev 750•Five CFC’s 500•Business & market dev 50•Skill development 50•Capacity building / Export 50 Promotion Total 1800

Source: TMMA


Strategy 2.3

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]

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

-

5,000

10,000

15,000

20,000

25,000

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

-

5,000

10,000

15,000

20,000

25,000

Indian production for domestic demandIndian production for export

Foreseen worldwide decline of demand

If strategy is not implemented(neither by TEI nor by the Government)

If strategy is implemented(by TEI and by the Government)

Foreseen worldwide decline of demand

Strategy to be implemented starting from 2012/13• FDI• Acquisition of knowhow• Change in policy frame work




Introduction

Results

Annexes

1

2

3

2.1 Current status

2.2 Goals

2.3 Strategy




2.4

Goals* can only be achieved if Indian TEI and the Government work together to overcome the critical factors:

Critical factorsIn

dia

n O

EM

rela

ted

1

Critical factors for achieving the goals

People: Not dedicating the right personnel effort to address the issue of lacking know how

2

3

Go

vern

men

tre

late

d

6

7

Timing: Not approaching EU companies as fast as possible

Cash: Lack of CAPEX (e.g. Chinese are actively taking over EU companies / know how)

4

5

People: Not improving the capability to understand, absorb and integrate the know how into India

Fiscal policy issue: Not removing constraints and anomalies

Import of second hand machines: Not reviewing policy and not introducing new criteria

Incentives: 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)



Introduction

Results

Annexes

1

2

3



Comparative analysis of India Vs China : Fiscal incentives

China

Preferential tax treatment for Foreign-Invested Enterprises (FIE)o Two years of 100 % income tax holiday

and 50% income tax reduction for subsequent three years for production-oriented FIE’s from the first year of making a profit

o 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

o Full refund of income tax paid on reinvestment in China for organization and expansion of an EOU or advanced-technology enterprise

o 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

1

IndiaToday Proposed

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

• Exemption from Service Tax

• Exemption from State Sales Tax and other levies

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)

Annex 3



China

Preferential tax treatment for FIE EOU’so After the expiration of the normal tax holiday,

the FIE’s may pay only 50% tax provided they export 70% of the output

o However, EOU’s located in an SEZ and economic or technological development zone may pay 10% income tax only

1

IndiaToday Proposed

Export Oriented Units (EOU)

• 100% Income tax exemption-10 years

• 100% FDI permitted through direct route without any special approval

No further intervention required

Preferential tax treatment for FIE’s which are technology intensive and knowledge intensiveo 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

Special provisions apply only to export oriented Electronics Hardware Technology Parks

Consider following incentives for local and foreign investment in areas of identified hi-technology for manufacture of textile machinery:

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

Annex 3




China

Preferential tax treatment for enterprises recognized as high or new technology established in the State high or new technology industrial development zoneso 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

1

IndiaToday Proposed

No special provisions exist

Separately addressed by way of allowing establishment of new hi-tech companies in SEZs

Preferential tax treatment for Western regionso 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

o 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

India has a policy for industrially backward states which allow tax holidays and other benefits to encourage set up of new industries. These include:

Exemption from general sales tax(GST) for 8 years

CST at concessional rate of 1%

Electricity duty exemption

Facilitation in land allotment

No further intervention required

Annex 3




China

Preferential tax treatment for R&D expenditureo 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

1

IndiaToday 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

Preferential tax treatment for procurement of locally produced equipmento Deduction equal to 40% of the capital

expenditure may be claimed from taxable income for the particular year, as an ‘accelerated depreciation’

No special provision No intervention recommended

Exemption from import duty and VAT on imported technologies and equipmento This is applicable to foreign invested

projects listed as encouraged category in the “Catalogue for the Guidance of the Foreign Investment Industries”

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’

VAT refund for exported textile machineryo 17%

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

Annex 3




Comparative analysis of India Vs China : Grants and interest subsidy

China

Funds for supporting technological innovation by SME’so 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

o For such projects, the government makes an annual budgetary allocation

2

IndiaToday 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.

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

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

Annex 3



Comparative analysis of India Vs China : Other support measures

China

- 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”

3

IndiaToday Proposed

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

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

250• R&D centre(IIT-B) / NITs

150• Existing cluster dev

750• Five CFC’s

500• Business & market dev

50• Skill development

50• Capacity building / Export

50 Promotion

------ 1800

Annex 3
