Union Budget benefits MSME-based textile Industry and leather exports
The Indian government has increased the Budget allocation for textile sector schemes by 28 per cent to Rs 4,417.03 crore for the fiscal year 2024-25. Union Finance Minister Nirmala Sitharaman announced a significant increase in funding for cotton procurement, the National Technical Textile Mission, the Integrated Scheme for Skill Development, and several other schemes. The proposed Budget includes Rs 4,373 crore for revenue expenditure and Rs 43.65 crore for capital expenditure, totalling Rs 4,417.03 crore.
Focus on export promotion
To give a much-needed push to exports in the leather and textile sectors, the Finance Minister announced a reduction in the basic customs duty (BCD) on real down filling material. This move is expected to lower input costs for manufacturers, making Indian products more price-competitive in the global market.
Additionally, the government has expanded the list of exempted goods for the manufacture of leather and textile garments, footwear, and other leather articles. This is seen as a strategic step to encourage value-added exports and reduce the export burden on these sectors.
A simplification and rationalization of the export duty structure on raw hides, skins, and leather were also announced. Industry experts believe this will promote value-added exports and discourage the raw material outflow from the country. Under the Central scheme, the Budget announced Rs 600 crore for the procurement of cotton by Cotton Corporation of India (CCI) under price support scheme.
Reacting to the budget Rahul Mehta, Chief Mentor, Clothing Manufacturers Association of India (CMAI) says, “This Budget is extremely pragmatic and innovative in some of the bold decisions and directions it has taken to encourage employment directly. The steps include an internship scheme, the decision to reimburse one month's wages for new employees, and subsidies for employees earning over a lakh of rupees. These are excellent steps being taken. However, there are many open-ended areas at this point, and we await the details before making specific suggestions.”
Skill development and employment generation
Recognizing the crucial role of skilled manpower in the growth of the textile and leather sectors, the government has introduced a new centrally sponsored scheme to train 20 lakh youth over the next five years. This initiative, in collaboration with state governments and industry, aims to bridge the skill gap and create ample employment opportunities.
Furthermore, the upgrade of 1,000 Industrial Training Institutes (ITIs) with a focus on industry-relevant courses is expected to enhance the employability of young people. The Budget has proposed to allocate Rs 635 for Amended Technology Upgradation Fund Scheme (ATUFS) for the current fiscal. And doubled budget allocation to Rs 375 crore for National Technical Textiles Mission (NTTM) from Rs 170 crore of last fiscal (revised budget). The FM also proposed to increase funding for PM MITRA to Rs 300 crore from Rs 52.30 crore of last fiscal.
Sudhir Sekhri, Chairman Apparel Export Promotion Council has welcomed the Union Budget and said, “The garment industry hails the acceptance of the demand of AEPC by expanding the list of trims and embellishment under IGCR, which will help the RMG industry thrust exports.”
Support for MSMEs
The Budget has accorded special attention to the MSME sector, particularly labor-intensive manufacturing. The government has introduced a Credit Guarantee Scheme to facilitate term loans for MSMEs without the need for collateral or third-party guarantees. This is expected to improve access to finance for small businesses and boost investment in machinery and equipment.
To streamline the credit assessment process for MSMEs, public sector banks will be building in-house capabilities and developing a new credit assessment model based on digital footprints. This move is aimed at expanding credit access to MSMEs, including those without formal accounting systems.
A new mechanism has also been announced to provide continued bank credit to MSMEs during stress periods. This will help prevent MSMEs from slipping into the non-performing asset (NPA) category due to temporary financial difficulties.
To facilitate exports by MSMEs and traditional artisans, the government will set up E-Commerce Export Hubs in a public-private partnership model. These hubs will provide a platform for MSMEs to showcase their products globally and overcome trade-related challenges.
Rakesh Mehra, Chairman of the Confederation of Indian Textile Industry (CITI) sees the budget as a forward-thinking one that addresses several key issues for the overall growth of the Indian economy. However, the stagnation in the textile and apparel industry needed some bold measures for capacity building, modernisation and cost competitiveness. “MSME accounts for about 80 per cent of the Indian textile industry. The credit assurance schemes announced today will provide the much-needed impetus to the growth of large number of textile and garment MSMEs and enable them to expand their operations and innovate.” The increased focus of government towards skilling and the announcement of the Employment Linked Incentive scheme coupled with the decision of easing the FDI norms will facilitate new investments in the textile industry. Moreover, the financial support for clean energy transition, energy initiatives, and energy audits underscores the government's commitment to sustainable development.
Infrastructure development
The Budget emphasizes infrastructure development to support industrial growth. The government will facilitate the development of investment-ready "plug and play" industrial parks in 100 cities, in partnership with states and the private sector. This is expected to attract investments and create jobs.
Additionally, the development of rental housing for industrial workers in a public-private partnership mode will address the housing needs of the workforce in industrial areas.
FDI and investment facilitation
The government has committed to simplifying rules and regulations for Foreign Direct Investment (FDI) and overseas investments to attract more foreign capital and promote the use of the Indian rupee for international transactions.
Kumar Rajagopalan, CEO, Retailers Association of India (RAI), says “The government has tried to strike a balance between populist and policy measures. Initiatives such as monetary support for farmers, higher exemption limits in personal income tax, and increased standard deductions will provide higher disposable income, leading to increased spending. We believe this will stimulate consumption growth, thereby boosting the overall economy.” Rai says the emphasis on MSMEs and startups, including enabling more lending and abolishing angel tax, is a positive step towards realizing their potential. Tax simplification and compliance, which are crucial needs of the hour, have also been addressed.
The Southern India Mills’ Association (SIMA) chairman S K Sundararaman has welcomed the announcement of reducing the BCD on Methylene diphenyl diisocyanate (MDI) used for the manufacture of spandex yarn from 7.5 per cent to 5 per cent to address the duty inversion, enhancing the global competitiveness of textile goods manufacturers using such yarn. He has said that use of spandex yarn has been increasing exponentially and hoped that the domestic manufacturers of spandex yarn would pass on the benefit to the downstream sectors. He welcomed the allocations granted by the Finance Ministry for exports i.e., RoDTEP and RoSCTL with an increase of 5.8 per cent and 10 per cent for the year 2024-24 as compared to 2023-24, a much-needed boost when the textile exports are on the downward trend due to various external factors.
