The zero excise duty on cotton textiles at fibre, yarn, fabric and garment stages announced in the Union Budget 2013-14 will help reduce prices of end products, according to India Ratings & Research (IRR), a Fitch Group Company.
The removal of excise duty will boost demand for apparels amid weak consumer sentiment, low real wage growth and high inflation, the company said in a statement.
The boost in clothing demand is, in turn, expected to promote revenue growth in 2013 and improve operating profit and cash flows of the companies operating in the textile sector, it adds.
The Union Budget, presented by India’s Finance Minister earlier this week, proposes 12 percent excise duty on synthetic spun yarn at the fibre stage, but reduces the duty to zero from yarn to garment stage.
It has also extended the Technology Upgradation Fund Scheme (TUFS) for the Twelfth Five Year Plan (2012-17) period and allots Rs. 24 billion for technology upgradation. This is likely to encourage investments in powerloom modernization. However, the benefits of the same would only be reflected in the medium term, upon completion of uprgradation.
Overall, the policy measures announced in the Budget will together boost cash flows of textile companies in 2013.
But, broader concerns over volatility in raw material prices and sluggish export demand would remain, the statement said.
