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Cenvat dilemma rolls over
The first headache for the new government has started. The textile minister,
Mr Shankar Sinh Vaghela, is facing a dilemma. On one hand, the small players
and powerloom weavers are pressing him to remove the Cenvat applicable on them,
on the other, the big players want him to continue with the Cenvat chain. Obviously,
he does not want to displease any segment on such a sensitive matter for the
contribution of both the sectors is vital for the textile economy. But, when
the two sides pull the same issue on diagonally opposite directions, the plight
of Mr Vaghela is, indeed, pitiable. All the same, each side has its own reasons
for its point of view and many a time, the ministers concerned have appreciated
the view point. That is causing all the more confusion to the textile industry
as a whole. One does not know which side the government would fall finally.
Take the finance minister, Mr P Chidambaram, for instance. He has been repeatedly
told both before the elections that the Cenvat in its present form is injurious
to the interests of small players and powerloom weavers. During the election
canvassing, a situation arose whereby he had to promise to the textile segments
in Tamil Nadu that on getting elected, he and the Congress would ensure that
the Cenvat issue is resolved. The minister of state for commerce, Mr EVS Elangovan,
is another victim of powerloom pressure. On his first visit to the home state
of Tamil Nadu after swearing in as minister, he had to promise positive steps
to kill Cenvat. This, he said, was in line with the principles of his party.
If so, the Congress is determined to do away with the Cenvat and the finance
minister, Mr Chidambaram, has only to finalise the same. That’s what is
worrying the big players. Last week, they called on the textile minister to
impress on him the need to continue with the Cenvat. And, these players cannot
be ignored either. For, they carry big names - Mr Onkar S Kanwar, senior vice
president, Federation of Indian Chambers of Commerce and Industry (FICCI), Mr
O P Lohia, managing director of Indo Rama Synthetics and chairman of the FICCI
task force on textiles. The minister held an interactive session to hear their
view point. Based on this, Mr Vaghela is likely to call on Mr Chidambaram and
impress on him the need to consider the other side of the coin before finalising
the issue. But, already, the weavers are upset. “We want the government
to stick to its promise and reintroduce the excise duty scheme on an optional
basis,” a leading powerloom industrialist in Erode told this columnist.
Even as the issue is fighting for recognition, the government is wondering what
action it should take. One prominent suggestion doing round is to leave the
matter as it is for the present. “We should focus on augmenting the export
earnings in the emerging post-quota regime. This is not the time when we should
experiment with the controversies concerning the Cenvat. We could perhaps give
more thought to this after some time,” an official told this columnist.
This is clearly a bureaucratic approach trying to be good to both the parties,
by just deferring decision rather than hurting any particular section. Then,
individual sessions would be held to study the issue. If need be, the government
would also constitute a committee with an open agenda to come out with recommendations,
and a hidden agenda to delay the submission of its final report. Meanwhile,
the government would expect the industry to work in its usual pace, keeping
the matter in abeyance. This is the typical way in which the government functions
when it has to please both sides of warring segments of the industry. In fact,
the very introduction of the Cenvat chain in the 2003-04 Union Budget was at
the insistence of the organised segment of the industry or the big players.
So, it makes sense for them to press for its continuance in the wake of some
promises given by the ministers coinciding with the election gala. And, the
ministers need not stick to pre-election promises, after all, seems to be their
unsaid logic right now. Meanwhile, the uncertainty over the Cenvat issue is
said to have caused some upset in the trade. Industry sources point out that
in the last fortnight, ever since the Cenvat issue raised, there has been some
confusion in finalising the trade orders. “The movement of material has
come to a standstill. It is not a case of pleasing the powerloom weavers, but
a question of continuing with the production. Some of us have slowed down our
production,” a mill owner said. But, the powerloom weavers had already
done that before the elections. They cut production and extracted a promise
from the contestants that their interests would be protected through the removal
of the Cenvat chain. Protection is a word which the textile ministry does not
want to support any more. The textile secretary, Mr S B Mohapatra, earlier went
on record that protection applies to inefficient segments and that they should
never be protected. In the long-term interest of the nation, such approach should
be discarded, he stressed. Put in his explanation, this means that India should
think big to fight a greater power like China and for this, protecting inefficient
units is injurious.
- P S Sundar
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