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India:Textile companies worst affected due to more DTA curbs |
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2004-9-16
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Export-oriented units (EOUs) looking for de-bonding have another reason for exiting the scheme. They would no longer be able to sell any goods worth 50% of their export turnover in the Domestic Tariff Area (DTA).
The government has restricted the EOUs’ freedom to sell in DTA, by considerably limiting the flexibility of broad-banding of products.
As per a finance ministry notification meant to give effect to a provision in the foreign trade policy, the EOU can now sell only those products which they export, or “similar” products in the domestic market. There was no such restriction on products sold in DTA earlier as long as the total sales did not exceed 50% of the EOUs export turnover.
For example, an EOU in the composite textile industry that makes cotton, filament, blended yarns and grey and processed fabrics for export markets and manufactures some categories of garments for domestic sales, is likely to be disallowed to sell garments in DTA.
However, the new stipulation would be lenient enough to allow a cotton yarn EOU to sell blended yarn in the DTA up to 50% of export turnover.
While the new restriction may pose difficulties to EOUs in many sectors, those in the textile industry may be hit harder. This is because Budget 2004 had put the EOUs in the textile and garment sector on a weak wicket as compared to the DTA units in the sector.
The budget had given domestic manufacturers the benefit of "optional" zero excise duty, which eventually resulted in a comparatively higher incidence of excise duty on the EOUs.
EOUs have to pay 4.08% levy on cotton yarn and 12.24% on cotton woven/knitted fabrics sold in the domestic market, whereas the DTA units can opt for the duty exemption. As a result, EOUs'' products have become more expensive to the consumer. |
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