Burning issues concerning Indian Handmade Carpet Industry

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Interim Budget 2009 | 12 Feb, 2009
1. Coverage of Handmade Carpets and other floor coverings under Focus Product Scheme (Special Status) for entitlement of Duty Credit Scrip @ 6.25% of FOB Value of exports as applicable to Sports Goods - We request to have a positive consideration on the Coverage of our Industry under Table 2 of Appendix 370 where Duty Credit Scrip equivalent to 6.25% of FOB Value of exports granted to Exporters under Focus Product Scheme. This provision is made in the current Policy specifically for Toys and Sports Goods. We do emphasize that the products of our industry are most deserving as these are manufactured - in Villages & rural areas belonging to poor sections of the Society. Further, our items are produced in the Cottage Sector - the most labour intensive. Therefore, we seek your kind help in its implementation w.e.f. 01.04.2008.

2. Applicability of Global Interest Rates up to 365 days period both on Post and Pre shipment Credit be given for the carpet industry as this industry has to face stiff competition from the competing manufacturing countries like Pakistan, China, Iran & Nepal. More over, the time taken in manufacturing is too long and at the same time the exports are also made on longer credit basis, as such, our industry needs longer period of advance both for pre-shipment and post shipment at interest rates not exceeding 6% annually- it is worth noting that our competing countries are offering goods on even one year consignment basis, therefore, Post Shipment concessional credit upto 365 days is a must for survival of Handmade carpet manufacturing in India. We earnestly request for refund of Post Shipment Interest beyond 90 days up to 365 days for our industry effective from 01.04.2007.

3. Restoration of Duty Drawback Rates as was effective before 0,1.9.2008 - the Carpet Industry is one of the rural cottage based Industry providing employment to lakhs of rural artisans and their families. The Industry is making efforts in increasing the exports as well as generating more employment opportunities for the rural youth. We earnestly, request for considering increase in the Duty Drawback rates as per the data submitted by the Council. The Carpet Industry needs help from the Government as it is facing stiff competition from competing countries like China, Pakistan, Nepal etc. Moreover, in view of appreciation of Indian Rupees, our Duty Drawback rates were increased maximum up to 1 % and now on depreciation, these rates are decreased by 3%, i.e. 3 times of increase. It is not a justice to our labour oriented Industry where survival otherwise is under question-mark due to recession in U.S. where nearly 50% of our total exports are made from India. Another big market - Europe is not doing well for the last 5-6 years. Therefore, a special consideration has to be given by the Government for our Industry where downward exports will lead to unemployment and chaos in the cottage based & labour oriented Industry. Keeping in view the urgency of situation, we humbly request your goodself to provide relief to the cottage based employment oriented industry of Handmade Carpets and other floor coverings by restoration of Duty Drawback rates as was before 01-09-2008.

4. Income Tax Exemption under Section 80 HHC of Income Tax Act - Handmade Carpet Industry is totally labour oriented and is a part of cottage industry involving over 2.5 million workers belonging to poorer section of the society. This relief under Income Tax will encourage more entrepreneurs to join this industry and engage more and more workers, thus creating huge employment opportunities for weaker section of the society.

5. Exemption from VAT & Sales Tax as this item is almost 100% exported out of country. - The manufacturers and exporters of Handmade Carpets are facing problems in interstate movement of their goods because of imposition of Sales Tax/VAT by the State Governments whereas in some States, the Handmade Carpets have been exempted from the levy of Sales Tax/VAT. Handmade Carpet Industry is almost 100% export oriented, the Sales Tax/VAT on Handmade Carpets in the States have created huge problem to the manufacturers/ artisans for movement of their products outside the states for export of their products through the exporters located in other parts of the country.

The manufacturing of carpets passes amongst different hands not only within the State but between other States too, which includes tiny weavers, small manufacturers and contractors etc before it reaches in the hand of exporters. These small poor artisans and traders do not have the resources to pay VAT and will be compelled to leave this traditional occupation. The time and energy of exporters is wasted in collecting the refund of VAT in which their capital will be blocked for considerable period. Thus, it is unnecessarily increasing in their transitional cost.

Keeping in view the above facts and in the interest of poor artisans, small manufacturers, we would request the Government to consider total exemption from the purview of Sales Tax/VAT on movement of Handmade Carpets for export purposes i.e. on self declaration of exporters. However, goods sold in the local market for consumption purposes can continue to have the VAT but movement for exports should be totally hassle-free. Cost incurred by the Govt. for controlling this is much more than the revenue generated from this, therefore, this industry can increase its manufacturing as well as exports if this exemption is granted to the manufacturers and exporters who are having movement of goods within the country for export purposes. It is worth noting that the High Powered Committee on VAT has already taken out "Handicrafts" from the purview of VAT and our Handmade Carpets are very much a part of it, thus only a clarification is needed from High Powered Committee in this regard.

6. Losses on Forward Contracts - Export industries have been further impacted by losses arising out of derivative contracts taken to protect against currency fluctuations. In the year 2007 the rupee appreciated against the dollar by more than 12% resulting in significant losses to most of the exporters. To protect against further losses the carpet exporters booked forward contracts based on expert advice received from their bankers/ consultants. However, in the current year due to unexpected huge (20%) depreciation of the rupee against the US Dollar the carpet exporters have incurred hefty losses again on forward contracts and cancellation of forward contracts due to reduction/cancellation of orders during the current financial year. These losses will wipe out the entire operating profit of the carpet exporters resulting in significant losses, which will cripple the operations of carpet exports and further lead to hundreds of thousands artisans unemployed. We understand that Ministry of Commerce is considering a proposal that domestic banks should share 50% of the losses arising out of derivative contracts that exporters have taken to protect against currency fluctuation. We therefore request the Govt. to grant approval to this proposal at the earliest so that Carpet Industry is saved from the worst ever financial crises being faced by it.

7. Mega Cluster for Carpets needs to be set up at Bhadohi and Srinagar.