This article on the labour law amendments in the development of textile industry is written by Shubham Aparajita, pursuing Diploma in Entrepreneurship Administrative and Business Law from NUJS, Kolkata.
Highlights of the amendment
- Focus of package mainly on employment generation in garment sector, given its high labour intensity
- Additional fiscal incentives by way of refund of state levies for improvement in competitiveness
- Benefits under package available for next three years, i.e. till FY2019
- Refund of state levies can improve the competitiveness of India’s export by ~1.5%
- Sharing of EPF burden can reduce the burden of employee expenses by up to 3.7% and manufacturing cost by 1%
- Increased overtime cap will improve flexibility of units to increase production with same labour count as well increase earnings of labour
- NPV benefits under A-TUFS for a garment unit with an investment of Rs 200 crore, will increase by Rs 15 crore
- Slowing global consumption and structural inefficiencies will continue to pose a challenge for achieving the target of US$ 43 Bn garment exports by CY2018
- Additional fiscal incentives under A-TUFS
- Relaxed labour norms-increase in capping of overtime, will increase working hours and earnings for labour
Fixed term employment
Fixed term employment means that a garment factory can flexible in hiring contractual worker for a fixed period of time and the workers can even do overtime to meet the supply commitments. The overtime work limit has been raised to 8 hours as compared to earlier i.e now it is 100 hours a quarter where earlier it was 50 hours only. These additional eight hours are to be compensated at the rate of pay for overtime, which shall be not less than 125% times the regular rate. However, as per Factories Act 1948, the overtime is capped at 50 hours in a quarter, overtime hours of 4 hours per week. In ICRA’s view, this will provide flexibility to units to increase production with the same number of workers as well allow increased earnings for the labours.
Employee’s Provident Fund
Employee’s Provident Fund has been made optional for employees who earns less than 15,000 a month. In this manner now the employee will get more money. For certain employees who fall under specific category, it was decided that the government will bear the entire 12% of the employers contribution to the EPF scheme where earlier it was 8.33%.
Addition to that incentives under amended Textile Upgradation Fund Scheme on Increasing subsidy under A-TUFS from 15% to 25% for the garment sector. Subsidy to be disbursed only after the expected jobs are created. Enhanced duty drawback coverage of Scheme to refund the state levies of Indian garment exports with outlay of Rs 5,500 crores for the next 3years.
Enhancing scope of Section 80JJAA of Income Tax Act
Amendment to Section 80JJAA of Income Tax Act for garment industry, whereby employment days reduced from 240 days to 150 days for garment industry to claim deduction benefits. Under section 80 JJA, a manufacturing unit is eligible for additional deduction equivalent to 30% of emoluments of new employee (with emoluments of less than Rs 25000 per month) which are employed for a period of atleast 240 days in a year.
Incentivise garment capacities and labour addition and benefits (ICRA’s view)
Refund the state levies
If a garment industry accounted for Rs 1.15 lakh crore of exports in 2016, a refund of state levels of Rs 1600 crore, on an annual basis, will result in a benefit of almost 1.5% for garment exporters which is significant in relation to the operating profit margins of 9% for the industry. However rather than an improvement on operating profitability for the industry, the benefits are likely to be passed on to the buyers by way of lower prices, which will improve the volume growth that has slowed down in 2016. Many states levy a VAT on cotton yarn, dyes and chemicals etc, which are not available as input credit for the fabric or garment manufacturers.
- The Technology Upgradation Fund Scheme (TUFS) was introduced by the govt in 1999 and the scheme facilitates new and appropriate technology for making the textile industry globally competitive.
- It also seeks to reduce the capital cost for the textile industry.
- The amendments in the scheme are expected to plug the loopholes in the earlier scheme and improve Ease of Doing Business.
- It will also give a boost to employment generation and exports in the textile sector in a big way.
Additional incentives under A-TUFS
The Technology Upgradation Fund Scheme (A-TUFS) for the textile industry was introduced and Rs.21,347 crore has been provided as assistance between 1999 and 2015.The ATUFS is expected to attract Rs. 1 lakh crore investment in the next seven years. The new scheme does not cover the spinning sector as there is excess capacity now.
The new sanctions under TUFS were kept pending since April 2014 for want of funds and the ATUFS would ease the financial position for the industry and encourage investments. With the announcement of capital subsidy instead of the existing combination of interest subsidy and capital subsidy, the industry will get the assistance on time. The scheme will trigger growth and exports for the textile industry and it will aid the ‘Make in India’ initiative.
The capital subsidy for the garment sector currently is 15% of the eligible investments which is the highest in the entire textile value chain. With additional incentives the capital subsidy will further increase to 25% as against existing NPV benefits Rs 21 crore, and currently, the subsidy cap of Rs 30 crore per unit is applicable under A-TUFS accordingly the maximum investment by a single unit will reduce to Rs 120 crore as against Rs 200 crore earlier; hence revision in this subsidy cap per unit will also be required under A-TUFS to undertake investments in large units.
Sharing of EPF burden:
As per ICRA’s estimates the maximum benefit by reduction in employee expenses will be 3.7% of the total employee expenses. ICRA’s estimates says that the shares of employee expenses are 30% for the garment manufacturing costs and the overall benefit will be 1%. In addition this shall also encourage the employers as well as employees to opt for the scheme.
As per ILO the maximum standard working time of 48 hours per week and eight hours per day; subject to a daily working time not exceeding ten hours and weekly working time not higher than 56 hours.
Textile sector- a global scenario
- Though India was the leader from the years 1995 to 2000, Bangladesh’s apparel exports exceeded that of India in 2003, while Vietnam surpassed India in 201
- This is leading to garment sector firms shifting to countries including Bangladesh and Vietnam
- China is gradually relinquishing its leadership spot in the garment sector due to its increasing wages and production shifting to high technology sectors
- Economies of scale can happen in India & through changes in schemes and regulations, we can realise full potential of the sector in India
- Originally introduced by the government in 1999, the scheme aims to help the industry upgrade operational technology and provides fixed subsidies to entrepreneurs who invest in this regard.
- Replacing the Revised Restructured Technology Upgradation Fund Scheme the new scheme will be implemented across 2 categories. For the sub sectors of apparel, garment and technical textiles,
- Upto 15% subsidy would be provided on capital investment, subject to a ceiling of Rs 30 crore for entrepreneurs over a period of five years.The remaining sub-sectors would be eligible for subsidy at a rate of 10%, subject to a upper limit of Rs 20 crore on similar lines.
- The textile industry is largest employer, accounting for 14% of India’s exports, but has lost ground to Bangladesh and Vietnam in the global market as the preferred supplier for readymade garments
- The amended scheme would give a boost to Make in India in the textiles sector.
- The Cabinet Committee on Economic Affairs (CCEA) cleared the Amended Technology Upgradation Fund Scheme.
- The remaining sub-sectors will be eligible for 10% subsidy, subject to a ceiling of Rs.20 crore.
- Under the new scheme, apparel, garment and technical textiles will get 15% subsidy on capital investment.
- The amended scheme will replace the existing Revised Restructured Technology Upgradation Fund Scheme.
- The textile sector is to receive much needed assistance with the Cabinet Committee on Economic Affairs (CCEA) approving the Amended Technology Upgradation Fund Scheme (ATUFS).