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DEPB debacle

The sharp reduction in DEPB rates on textiles has created a significant doubt in industry’s mind about government’s policy intention to help it prepare for the global challenges in the post-MFA regime. Most importantly, the move is quite untimely as the industry is at the threshold of entering a new trade regime which calls for production of highly competitive textile goods. During this transition phase, such sudden changes in fiscal policies are no way warranted as this will unnecessarily discourage the players in taking a long term decision. What is required in such a critical phase when the industry is in an adoption mode, is a long term policy framework. This is at a time when most of our competitors are busy providing incentives to their industry in more than one way. Even if the government wanted to pass on some of the burden, incurred recently on account of zero duty excise regime, it should be gradual in its approach so that the shocks could be absorbed without much of turbulence. For the manmade industry, the reduction in DEPB rates has been quite severe as it has not been the beneficiary of the Budget’s zero excise duty. On the backdrop of rise in crude oil prices and subsequent firming up of raw material prices, such a sharp decrease in DEPB rates may not augur well for the industry which for the first time in three years is witnessing decline of 12 per cent in exports.

According to SRTEPC sources, synthetic textile exporters are likely to incur losses to the tune of around Rs 50 crore per month if the reduced DEPB rates continue. And this will lead to closure of units in the medium to long term. Moreover, this will go a long way in hampering the entire efforts towards hastening the ongoing technology upgradation process. Already the whole exercise has been moving at a very slow pace. Now with such a subdued sentiment, it is really hard to expect any capital investment in the industry. All these years, units have been sceptical about making any fresh investment despite the fact that a slew of opportunities are going to emerge in the changing trade order. Most importantly, the overall trade and industry sentiment will receive a severe beating at this crucial juncture when there is need to stimulate the investment environment. Keeping all this in mind, the authorities must device an amicable mechanism to deal such an issue. Since the government is keen to shun its role as a regulator and play a role of a facilitator, it would be imperative to take industry in confidence before introducing any policy related changes.