01st July 2021

Cotton and Yarn Futures Cotlook A Index - Cents/lb (Change ZCE - Daily Data MCX (Change from previous day) from previous day) (Change from 29-06-2021 96.60 (+0.25) previous day) Jul 2021 24660 (-80) 29-06-2020 67.95 Cotton 15840 (-25) Aug 2021 24830 (-130) 25-06-2019 76.40 Yarn 22040 (-20)

Cabinet clears Covid relief stimulus package New York Cotton Futures (Cents/lb) As on 01.07.2021 (Change from Small savings rates left unchanged previous day) Jul 2021 85.20 (-1.29) Companies told to pay GST on license fee for government schemes Oct 2021 85.70 (-2.44)

Finmin reimposes spending curbs on ministries, depts for Dec 2021 85.16 (-2.42) Q2 of FY22

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------Cabinet clears Covid relief stimulus package NATIONAL Small savings rates left unchanged

Companies told to pay GST on license fee for government schemes

Finmin reimposes spending curbs on ministries, depts for Q2 of FY22 Shri says will be playing a much greater role in the post pandemic world in creating resilient supply chains

Monthly Review of Accounts of Union Government of India for the month of May 2021 for the Financial Year 2021-22

Fiscal deficit reined in at 8.2% of Budget Estimate

Cabinet approves Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS) and to enhance the corpus of Emergency Credit Line Guarantee Scheme (ECLGS)

CBIC to honour taxpayers' contribution to GST success

EPF subsidy extension to aid generation of 13.3 lakh jobs: Govt

Consultations on FTAs planned with UK, EU to start in July

India’s 1991 liberalisation leap and lessons for today: Montek Singh Ahluwalia

Big potential for Indian apparels in Polish markets: Indian diplomat

India's solar power efforts an example to world, says Prince Charles

What Indian MSMEs need

Shipping ministry launches corridor from Cochin port to improve coastal connectivity

Textile industry awaits policy initiatives to boost growth Minister invites textile industry to invest in

India launches 'enforcing contracts portal'

------COVID-19 crisis causes dramatic fall in FDI: UNCTAD GLOBAL UK launches business rates revaluations consultation; BRC lauds step Brexit’s broken promises heap more pain on fashion retail

Gov’t starts ninth round of cash aid

SA's clothing industry trying to stitch itself together following worst decline to date

FY22 budget: textile sector’s perspective ------

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NATIONAL:

Cabinet clears Covid relief stimulus package

(Source: Economic Times, July 01, 2021)

The Union Cabinet on Wednesday approved the Covid-relief stimulus package announced by finance minister two days ago, information and broadcasting minister Prakash Javadekar said. The approved schemes include a Rs 3.03 lakh revamped scheme for the power distribution sector, Rs 1.5 lakh crore additional credit for small and medium businesses, and export insurance cover of Rs 1.22 lakh crore. They also include more funds for the healthcare sector, loans to tourism agencies and guides, and waiver of visa fees for foreign tourists.

Under the power distribution scheme state power distribution companies will receive grants each year when they achieve the milestones agreed for the previous fiscal. As per the five-year programme, reforms-based, result-linked scheme for financial assistance to discoms if a utility is found ineligible any year, then the gap in funding to complete its projects will have to be met by the discom or its state government. However, the unmet targets for one year get added to the targets for the next year. Power and renewable energy minister R K Singh said the five-year scheme aims at zero gaps in revenue of discoms and reduction of commercial losses across India to 12-15%. Singh said this scheme is different from the previous schemes as it imposes conditions before disbursement of grant. The scheme is expected to install 25 crore smart meters, 10,000 feeders and 4 lakh km of low tension overhead lines.

Under the loan guarantee scheme for Covid-affected sectors, Rs 50,000 crore financial guarantee cover will be offered for brownfield expansion and greenfield projects related to health/ medical infrastructure.

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Small savings rates left unchanged

(Source: Times of India, July 01, 2021)

The government left small savings rates unchanged for the July-September quarter after an uproar over a sharp cut in April had forced it to reverse the decision. This is the fifth straight quarter where rates have been left unchanged, providing respite to middle class investors who park their savings in Public Provident Fund, Senior Citizen Savings Scheme and National Savings Certificate, among other instruments.

However, the status quo will make interest rates stickier for banks, which will not be able to reduce deposit rates, fearing a flight of funds to higherearning products such as PPF that also offer tax benefits. It will make it difficult for banks to significantly lower home loan and other lending rates.

Currently, State Bank of India offers the highest rate of 5.4% on fixed deposits with a tenure of five to 10 years. In contrast, PPF deposits will offer 7.1% and will be tax-free. So, an investor in the 30% income-tax bracket can hope to earn over 9% on these funds.

The last round of rate cuts, which came in the middle of elections in West Bengal and other states, had to be reversed within hours. Given the weak economic sentiment and concerns over price rise, especially in the wake of petrol and diesel rates crossing the Rs 100-a-litre mark in several parts of the country, the government may not have wanted to upset the middle class further.

Besides, in the past, the money, which are government borrowings that flow into the National Small Savings Fund, also came handy in meeting off-budget funding requirements, such as paying for food subsidy or lending to Air India. In the last budget, finance minister Nirmala Sitharaman had, however, cleaned up the books by clearing dues of FCI and others directly.

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Companies told to pay GST on license fee for government schemes

(Source: Sachin Dave, Economic Times, July 01, 2021)

Companies have to take licenses to avail the benefits to government schemes such as advance authorisation and export promotion for capital goods (EPCG), among others.

The indirect tax department has started demanding goods and services tax (GST) on licence fees paid by companies to the government for availing certain benefits, people aware of the development said. Companies have to take licences to avail the benefits to government schemes such as Advance Authorisation and Export Promotion for Capital

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Goods (EPCG) among others. In most these cases, the tax department is asking companies and exporters to cough up the GST on the licence amount, industry experts said.

Many companies claim that these fees are essentially statutory levies and should be outside the gamut of taxation. The tax department is arguing that these are licences and hence should be taxable under the GST. Under Advance Authorisation, a company can import raw materials without paying duties on that if it can demonstrate that these raw materials are to be used in a final product that will eventually be exported. EPCG is a similar scheme, but it has certain different conditions to be fulfilled by the companies.

“There is a clear distinction between supply of service and the sovereign function of the government. When various such payments are made, there is no ‘quid pro quo’ and hence no applicability of GST,” said Abhishek A Rastogi, partner at law firm Khaitan NSE 0.26 % & Co, who is advising some of the companies on the issue.

Legal experts said this could lead to additional litigation. Directorate of Revenue Intelligence (DRI), the investigative agency for customs law matters, had begun issuing notices to exporters for GST exemptions where exports preceded imports. Some companies have approached the Gujarat High Court in this regard. Tax demands on some other licences and schemes are also under litigation, people in the know said. The indirect tax department had started questioning several importers on a few transactions and is looking to put additional duty on certain imports that were done under some schemes that were prevalent in the erstwhile tax regime. This comes at a time when the government is facing some flak from the World Trade Organisation (WTO) and the US for promoting these schemes for improving its exports. The government has brought in a new scheme, Remission of Duties or Taxes on Export Products (RoDTEP) to replace some old export promotion schemes such as Advance Authorisation following a dispute with the US at WTO. Many companies and exporters had sought that the government extend some of the existing scheme till there is more clarity around RoDTEP.

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Finmin reimposes spending curbs on ministries, depts for Q2 of FY22

(Source: Shrimi Choudhary, Business Standard, July 01, 2021)

Move made keeping in mind cash position ahead of likely third wave; health, MSME and rural development spared restrictions

The finance ministry on Wednesday reimposed expenditure curbs on ministries and government departments for July-September quarter. There will be no spending restrictions on the ministries of health, rural development, agriculture, MSME (micro, small and medium enterprises) and railways as part of a two-pronged strategy.

“The existing guidelines for expenditure control have been reviewed. Keeping in view the evolving situation arising out of Covid-19 and anticipated cash position of the government, it is felt essential to regulate Quarterly Expenditure Plan (QEP)/Monthly Expenditure Plan (MEP) of specific ministries/departments for July- September, 2021,” the Department of Economic Affairs in the finance ministry said in a notification.

Spending curbs were imposed on ministries and departments last April following a nationwide lockdown to contain the first wave of the pandemic and the subsequent hit to the economy. These were relaxed later and then removed in December.

Earlier this month, the finance ministry had even asked all departments to cut “controllable expenditure” such as advertisement and publicity by a fifth.

The latest measure to cut expenditure comes within days of the government announcing a Rs 6.29-trillion economic relief package to support the pandemic-hit economy.

Finance Minister Nirmala Sitharaman had on Monday announced Rs 1.5 trillion of additional credit for small and medium businesses, more funds for the healthcare sector, loans to tourism agencies and guides, and waiver of visa fee for foreign tourists.

The Centre has been facing higher expenditure on account of centralised procurement of Covid vaccines and the free food ration programme that’s been extended till November.

Under the new notification, demands/appropriations related to various central ministries and departments have been grouped into two. In the first category, health and family welfare, pharmaceuticals, fertiliser, agriculture, railways, MSME and rural development can spend as per existing guidelines and no restrictions have been put on them.

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Expenditure heads in the second category include 81 demands/appropriations related to ministries and departments such as civil aviation, home, labour, mines, power, telecom and post, consumer affairs, fisheries and heavy industries among others. They will be required to “restrict the overall expenditure within 20 per cent of BE 2020-21 in Quarter 2 (July to September, 2021)”.

Last year, ministries were divided into three categories based on demands/appropriations approved in the Budget. The first category was in line with the recent rule where there is no monthly or quarterly capping. However, every expenditure proposal had to adhere to the existing guidelines and vetted by the finance ministry.

The second category had 31 demands/appropriations related to fertilizers, posts, defence pension, oil and road transport among others, with a quarterly limit of 20 per cent of the Budget estimate and different monthly limit. The third category had 52 items with 15 per cent limit for the quarter and 5 per cent for each of the three months.

According to the 2017 guidelines, normally there is no monthly or quarterly capping for the first nine months. However, for the last quarter, there is a quarterly cap of 33 per cent and a monthly cap of 15 per cent.

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Shri Piyush Goyal says India will be playing a much greater role in the post pandemic world in creating resilient supply chains

(Source: Press Information Bureau, June 30, 2021)

Minister of Railways, Commerce & Industry, Consumer Affairs and Food & Public Distribution Shri Piyush Goyal today said that India will be playing a much greater role in the post pandemic world in creating resilient supply chains. Speaking at the India Global forum today, he said that we are looking at a greater degree of engagement with countries that are democratic in their political system with which we can relate& trust as a partner. He added that India is working towards greater engagement with countries with which we have a shared ecosystem, countries which believe in transparent rules based trading mechanisms. He said that India is talking to UK, Australia, Canada and EU for trade related matters, and is keen to speed them up.

Shri Goyal said that our trusted partners can look for a greater role for India, and we are opening our doors wider. The Minister said that we are looking at investments, technology, high quality goods, equipment, machinery. “We will be looking at providing high quality technology support to our services & IT sector”.

Shri Goyal said that India has tried in WTO to promote a waiver on TRIPS so that vaccines & other medicines can be available to everyone across the world. He said that it is

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unfortunate that some European countries are not supporting the initiative and have preferred profit over prudence.

Shri Goyal said that we are confident that India will continue to maintain precautions & COVID protocols. He said that we are going to maintain our safeguards & masks. The Minister highlighted that despite being a developing nation, India has already crossed about 340 million vaccines. “We are currently doing 5 million a day which we hope to ramp up further in the days to come. We are happy to share our learnings with other countries. Our COWIN app through which we have done the vaccination programme has been a remarkable success & now large parts of the world are asking us for the COWIN app to be implemented in their countries.”

Shri Goyal said that India has done a record growth in exports in our first quarter despite the second wave of COVID. Similarly, the Railway freight from April-June 2021 is the highest ever in the history of Indian Railways.

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Monthly Review of Accounts of Union Government of India for the month of May 2021 for the Financial Year 2021-22

(Source: Press Information Bureau, June 30, 2021)

The Monthly Account of the Union Government of India upto the month of May 2021 has been consolidated and reports published. The highlights are given below:-

The Government of India has received Rs.3,54,787 crore (17.95% of corresponding BE 21- 22 of Total Receipts) for May 2021 comprising Rs. 2,33,565 crore Tax Revenue (Net to Centre), Rs. 1,16,412 crore of Non Tax Revenue and Rs.4,810 crore of Non Debt Capital Receipts. Non Debt Capital Receipts consists of Recovery of Loans Rs 815 crore and Disinvestment Proceeds of Rs 3,995 crore.

Rs.78,349 crore has been transferred to State Governments as Devolution of Share of Taxes by Government of India upto this period which is Rs. 13,728 crore lower than the previous year.

Total Expenditure incurred by Government of India is Rs.4,77,961 crore (13.72% of corresponding BE 21-22), out of which Rs.4,15,000 crore is on Revenue Account and Rs.62,961 crore is on Capital Account. Out of the Total Revenue Expenditure, Rs.88,573 crore is on account of Interest Payments and Rs.62,664 crore is on account of Major Subsidies.

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Fiscal deficit reined in at 8.2% of Budget Estimate

(Source: Financial Express, June 30, 2021)

At Rs 15,835 crore, the capex in May crashed by 41%, partly mirroring the impact of the second Covid wave, even though the April-May data showed a rise of 14%.

Nomura now estimates FY22 fiscal deficit to rise to 7.1% of GDP from the budgetted 6.8%.

At Rs 15,835 crore, the capex in May crashed by 41%, partly mirroring the impact of the second Covid wave, even though the April-May data showed a rise of 14%. The Centre’s spending in May rose 23% on year, after a 26% drop in April, and against a marginal decrease in the budgetted expenditure for full FY22…………..

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Cabinet approves Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS) and to enhance the corpus of Emergency Credit Line Guarantee Scheme (ECLGS)

(Source: Press Information Bureau, June 30, 2021)

On account of the disruptions caused by the second wave of COVID 19 specially on healthcare sector, the Union Cabinet, chaired by the Prime Minister Shri has approved Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS) enabling funding to the tune of Rs. 50,000 crore to provide financial guarantee cover for brownfield expansion and greenfield projects related to health/ medical infrastructure.

The Cabinet has also approved introduction of a scheme for other sectors/lenders including those allied to better healthcare. Detailed modalities would be finalized in due course depending upon the evolving situation.

In addition, the Cabinet has also approved additional funding up to Rs. 1,50,000 crore under Emergency Credit Line Guarantee Scheme (ECLGS).

Targets:

LGSCAS:The Scheme would be applicable to all eligible loans sanctioned up to 31.03.2022, or till an amount of Rs. 50,000 crore is sanctioned, whichever is earlier.

ECLGS: It is a continuing scheme. The Scheme would be applicable to all eligible loans sanctioned under Guaranteed Emergency Credit Line (GECL)till 30.09.2021, or till an amount of rupees four lakh fifty thousand crore is sanctioned under the GECL, whichever is earlier.

Impact:

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LGSCAS:The LGSCAS has been formulated as a specific response to an exceptional situation the country has witnessed due to lack of adequate health infrastructure in the light of second wave of Covid-19. The approved scheme is expected to help the country in shoring up its much-needed healthcare infrastructure along with creating more employment opportunities. The main objective of LGSCAS is to partially mitigate credit risk (primarily construction risk) and facilitate bank credit at lower rates of interest.

ECLGS:lt is a continuing scheme and recently, on account of the disruptions caused by the second wave of COVID 19 pandemic to businesses across various sectors of the economy, Government has further enlarged the scope of ECLGS. The enhancement is expected to provide much needed relief to various sectors of the economy by incentivizing lending institutions to provide additional credit of up to Rs. 1.5 lakh crore at low cost, thereby enabling business enterprises to meet their operational liabilities and continue their businesses. Besides supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.

Background:

LGSCAS: Government has taken various measures to combat the crisis caused due to Covid-19 pandemic which has been upended by the second wave of COVID-19. This wave has placed enormous stress on health facilities as well as livelihoods and business enterprises in many sectors. This wave has sharply brought out the need to enhance public and private investments in the health sector. This is necessary across the country, from metro cities to tier V and VI towns as well as rural areas. The requirements include additional hospital beds, ICUs, diagnostic centres, oxygen facilities, telephone or internet based medical advice and supervision, testing facilities and supplies, cold chain facilities for vaccines, modem warehousing for medicines and vaccines, isolation facilities for triage, ramping up of production of ancillary supplies such as syringes and vials etc. The proposed LGSCAS is aimed at upscaling the medical infrastructure in the country, specifically targeting underserved areas. LGSCAS would provide a guarantee of 50 percent for brownfield projects and 75 per cent to greenfield projects for loans sanctioned up to Rs.100 crore, set up at urban or rural locations other than 8 Metropolitan Tier 1 cities (Class X cities). For aspirational districts, the guarantee cover for both brownfield expansion and greenfield projects shall be 75%.

ECLGS: The resurgence of COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. In this environment the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs, for which, ECLGS, as a targeted policy response was introduced by Gol. The design of ECGLS provides flexibility to quickly respond to emerging needs, as

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has been evidenced by the introduction of ECLGS 2.0, 3.0 and 4.0 as well as changes announced on 30.05.2021, all of which were within available headroom of Rs 3 lakh crore. Currently, about Rs. 2.6 lakh crore of loans have been sanctioned under ECLGS. A further uptick is expected due to changes announced recently, extension of limit of one time restructuring to Rs. 50 crore by RBI on 04.06.2021 and the continuing adverse impact of COVID on businesses.

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CBIC to honour taxpayers' contribution to GST success

(Source: Gulveen Aulakh, Economic Times, July 01, 2021)

“On the eve of completion of 4 years of the GST, it has been decided to honour the tax payers who have been a part of the GST success story… this step marks the first effort by the government to directly communicate to the GST taxpayers for their contribution,” the Board said in a statement Wednesday

The Central Board of Indirect Taxes and Customs (CBIC) will issue certificates of appreciation to honour contributions of tax payers on the success of four years of the goods and service tax (GST) regime, even as the government reaffirmed its commitment to continuous improvement in taxpayer services.

On the eve of completion of 4 years of the GST, it has been decided to honour……………

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EPF subsidy extension to aid generation of 13.3 lakh jobs: Govt

(Source: Financial Express, July 01, 2021)

The government, however, lowered the overall scheme expenditure by Rs 712 crore to Rs 22,098 crore from Rs 22,810 crore approved earlier.

The government on Wednesday said the extension of the provident fund subsidy scheme — Atmanirbhar Bharat Rojgar Yojana (ABRY) — till the end of the current fiscal may lead to an additional 13.3 lakh employment generation in the formal sector. “Consequent upon this extension, it is expected that 71.8 lakh employment will be generated in the formal sector as against the earlier projection of 58.5 lakh,” according to an official statement.

As on June 18, 2021, benefits amounting to Rs 902 crore have been given to 21.42 lakh beneficiaries through 79,577 establishments under ABRY.

The government, however, lowered the overall scheme expenditure by Rs 712 crore to Rs 22,098 crore from Rs 22,810 crore approved earlier.

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Under ABRY scheme, first announced on November 12, 2020 as part of the Atmanirbhar Bharat Package 3.0, the Centre provides provident fund subsidy for two years in respect of new employees engaged on or after October 1, 2020. The window was earlier open till June 30; now it will remain open till March 30, 2022.

Under ABRY, the Centre is crediting for a period of two years both the employees’ and employers share’ (24% of wages) or only the employees’ share (12% of wages), depending on the strength of EPFO registered establishments.

The government aims to incentivise new recruitment by businesses with the scheme and aims to arrest the rise in unemployment rate. Finance minister Nirmala Sitharaman made the announcement on the extension on June 28; the Cabinet approved the proposal on Wednesday.

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Consultations on FTAs planned with UK, EU to start in July

(Source: Amiti Sen, The Hindu Business line, June 30, 2021)

A careful balance needs to be struck between offensive, defensive interests to ensure the talks don’t get stalled, say officials

The Commerce Ministry is ready to kick-off its consultation process for the free trade agreements (FTAs), which it proposes to enter into with the EU and the UK, with all stakeholders including the industry and other Ministries………………

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India’s 1991 liberalisation leap and lessons for today: Montek Singh Ahluwalia

(Source: The Hindu, July 01, 2021)

The reforms were hugely successful but a lot remains to be done, says one of the architects of the transition……………………………………

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Big potential for Indian apparels in Polish markets: Indian diplomat

(Source: KNN India, June 30, 2021)

There is a massive potential for Indian apparel exporters to increase their presence in the Polish supermarkets and hypermarkets, said SK Ray, Chargé d'Affaires, Embassy of India to Poland (Warsaw).

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Addressing a large gathering of Polish buyers and Indian apparel exporters at a virtual B2B meeting on ‘India-Poland Synergies in Apparel & Textiles’, jointly organized by Apparel Export Promotion Council (AEPC) and the Indian Embassy in Poland, Ray highlighted the significance of the textile sector in Poland.

Saying that Poland serves as a textile hub for export to other European Union countries, Ray said, “Indian exporters should keep in mind that Polish consumers are not very brand loyal. They don’t stick to a particular brand. They often tend to switch brands and also, they prefer to do shopping in hypermarkets and supermarkets. Though price is a deciding factor, now they are more conscious about design, quality and style.

“Fashion and style are main factors and there is reduced concern about the price tags. There is another growing trend that the clothing has to be sustainable and eco-friendly. Indian exporters should focus more on the latest textile technology and research,” he added.

Further, the envoy said, “There is a huge potential for enhancing our engagements in the textile sector. Poland can serve as a major hub for textiles and Indian companies can supply in a large way to the Polish supermarkets and hypermarkets.”

AEPC Chairman Dr A Sakthivel said, “India is focusing on high value and specialized products like MMF apparels, medical textiles and technical textiles. Foreign investors can set up a manufacturing base in India directly or through JVs. Come and partner with us in building R&D, design, innovation and incubation centres in India. Foreign brands can expand in Indian retail market also. Top brands like Zara, H&M, Mango, GAP, Marks & Spencer, Uniqlo and Calvin Klein are already sourcing from India.”

Sudhir Sekhri, Chairman, Export Promotion Sub Committee, AEPC, said, “Key advantages of buying from India or for Polish manufacturers setting up manufacturing base in India are lower labour cost, increased ease of doing business, stable economy and the slew of economic measures being taken up by the government – not only for sourcing but also as a manufacturing hub.

“There are large manufacturing companies in India who have the potential to collaborate with Polish companies that wish to set up manufacturing bases in India. India also has the capability to execute smaller orders of any kind of fabric. Besides, India has strong, innovative and creative design capabilities which are amongst the best in the world.”

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India's solar power efforts an example to world, says Prince Charles

(Source: Business Standard, July 01, 2021)

India, whose solar power efforts are an example to the world, has a vital role to play to accelerate the move towards a zero carbon future, Britain's Prince Charles said on Wednesday.

India, whose solar power efforts are an example to the world, has a vital role to play in the global search for nature-based and technology-driven solutions which are critical to accelerating the move towards a zero carbon future, Britain's Prince Charles said on Wednesday.

The 72-year-old heir to the British throne and environmental campaigner, in a special address at the India Global Forum session on Climate Action, called upon Indian entrepreneurs and CEOs to join the Sustainable Markets India Council, launched to seek out sustainable investments to influence an acceleration towards climate action goals.

With India's global reach and robust private sector, I believe there are some key ways we can work together to accelerate our efforts and build a more sustainable future. Firstly, we need to focus on accelerating the flow of private capital to support the transition, said Prince Charles.

I know that renewable energy, particularly solar power, is rapidly gaining ground in India and is an excellent example to the rest of the world, he said.

The royal laid out the vision behind his Sustainable Markets Initiative, which he launched in January 2020, to get CEOs from almost every sector together with the express aim of identifying obstacles to progress and finding game-changing ways to accelerate the transition to a zero carbon future.

The efforts have identified large financing gaps around sustainable initiatives, in the areas of green energy, water, sanitation, transport and other critical infrastructure.

In January this year, I launched the Terra Carta as the mandate of my Sustainable Markets Initiative and the basis of a recovery plan for nature, people and planet. At this historic tipping point, the Terra Carta offers a roadmap for acceleration towards a genuinely sustainable future, one that harnesses the power of nature combined with the transformative innovation and resources of the private sector, he said.

Prince Charles focussed specifically on the need for a clear set of "global farm metrics" to create sustainable supply chains.

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With agriculture being so critical to the Indian economy, there is a real opportunity to explore how such metrics could support the lives and livelihoods of farmers in India as well as wider supply chains and markets, he said.

With India being a global centre of technology and innovation, combined with a deep connection to nature and harmony, you have an absolutely vital role to play in this effort. Particularly, in view of India's wealth of entrepreneurial talent, he said, adding that India would play an essential part as these efforts are further developed at the COP26 UN climate summit, to be hosted by the UK in Glasgow in November.

The Climate Action session of the India Global Forum, a two-day hybrid conference organised by UK-headquartered India Inc. Group on Wednesday and Thursday, also included a discussion with Michael Bloomberg, former New York Mayor and Founder of Bloomberg Ltd.

I am a believer that the private sector is the one that can deliver climate action, said Bloomberg.

The India Global Forum, pegged around the theme of Future. Now. Radical Actions for the Post Pandemic Era, will bring together a range of worldwide experts.

They include World Health Organisation (WHO) Director-General Dr Tedros Adhanom Ghebreyesus, External Affairs Minister S Jaishankar, Finance Minister Nirmala Sitharaman, Commerce and Industry Minister Piyush Goyal and Women and Textiles Minister across sessions covering India's role in vaccine and medicine manufacturing as well as cooperation in crucial areas of climate change and an equitable global economic recovery.

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What Indian MSMEs need

(Source: Aditya Sinha & Amrit Panda, Financial Express, July 01, 2021)

MSMEs must be recognised for their job-creation potential than for their efficiency

A major problem MSMEs in India face is their very definition. More than 95% are not legally identifiable as SMEs and that prevents proper allocation of institutional support. Since MSMEs are not registered separately under statutes such as the Companies Act, there is no mechanism to distinguish them from other corporate entities. This fails to acknowledge the heterogeneity among enterprises.

With Atmanirbhar Bharat, the Centre has taken several steps—redefining MSMEs, credit access, subordinate debt, preference in government tenders—towards ‘energising the MSME sector’. It has also launched the MSME Udyam portal for registration, though this

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is not mandatory. Information asymmetry on government schemes and incentives on registration must be addressed. Some other gaps remain, needing urgent attention:

– A primary one is the regulatory framework for SMEs that prevents a growth-oriented mindset. – The concessions awarded to SMEs in terms of tax-breaks and low interest rates must be extended beyond what is currently provided if they are to target higher growth rate. – Credit access to SMEs as well as the mechanism to seek payment from buyers needs bettering to ensure financially viable.

– The present redressal system on recovery of payments, particularly from organisations with influence such as PSUs, may discourage SMEs from pursuing formal action against defaulters. – SMEs may find it difficult to choose grievance redressal over building business relationships with large buyers who may falter on timely payments. – Priority ought to be given to scaling up economies with state support as the gains from such support in generating employment and overall economic prosperity outweigh the economic costs.

With SMEs’ operational challenges exacerbated by Covid-19, it is all the more important to focus on this sector. A recently conducted survey finds that production in SMEs has fallen from an average of 75% to 13%. With 110 million employed by Indian SMEs, it is crucial to ensure adequate institutional support, failing which we might see an even larger impact on livelihoods. SMEs also account for a third of India’s GDP, 45% of manufacturing output and 48% of exports and hence are crucial to manufacturing and export competitiveness.

SMEs will be vital in absorbing a significant proportion of the 600 million entrants to the labour market in EMEs by 2030. With a large proportion of these entrants bound to be from India, it is imperative that the Union and state governments ensure financial and institutional support for SMEs.

In terms of location, SMEs are relatively evenly distributed in comparison to larger organisations. Rural areas account for 45%, while the remaining are in urban areas. Hence, SMEs are well-poised to address poverty in both the cities and villages. Although the proportion of urban poverty has declined over the years, it has increased in absolute terms. In 2018, Kolkata, Delhi, and Mumbai had anywhere between 42-55% of their population living in slums. This number is certain to have increased in the pandemic. By providing employment and income, SMEs can raise income, living standards and consumer spending.

SMEs can aiding the atmanirbharta vision, especially in the manufacturing sector. This pattern is observed in countries with strong manufacturing sectors such as Germany and

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China. China’s pattern is more relevant to India due to a similarity in size and population as well as its recency. SMEs make up over 99% of all enterprises in China today, with an output value of at least 60% of its GDP; they generate more than 82% of employment opportunities. As per China’s national economic census, manufacturing SMEs accounted for nearly 53% of its total incorporated SMEs and 65% of the total employment in SMEs. With global manufacturing moving out of China, our SMEs can play a key role in sustaining the manufacturing that is shifted to India.

Sinha is with the office of the chairman, PMEAC, and Panda is a Mumbai-based HR professional

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Shipping ministry launches corridor from Cochin port to improve coastal connectivity

(Source: Indian Express, July 01, 2021)

MoS Mansukh Mandaviya inaugurated the first voyage under the service, which is operated by Mumbai-based Round the Coast Pvt Ltd.

The Ministry of Ports, Shipping and Waterways Wednesday launched the maiden voyage under the Green Freight Corridor-2, a coastal shipping service, from Cochin port to Beypore and Azhikkal ports located in northern Kerala.

The ministry plans to improve the connectivity and synergies between the major and non- major ports by promoting such coastal trading. This move is also aimed at creating intermodal and sustainable customer solutions, improving use of waterways, cutting road and rail traffic and logistical expenditures.

MoS Mansukh Mandaviya inaugurated the first voyage under the service, which is operated by Mumbai-based Round the Coast Pvt Ltd.

The newly launched service will connect Cochin with Beypore-Azhikkal and later Kollam ports in Kerala. Vessels shall ferry load from Cochin to Beypore and Azhikkal twice a week. Commodities like rice, wheat, salt, construction material, cement and others will be sent from Gujarat to Cochin port, from where further transportation using waterways will be carried to other Kerala ports. On its return voyage, commodities like plywood, textiles, coffee, footwear will be ferried.

Both Cochin port and Kerala government have offered operational incentives so that a larger number of containers are shipped via waterways.

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Textile industry awaits policy initiatives to boost growth

(Source: M Soundariya Preetha, The Hindu, June 30, 2021)

Seeks attention on technical textiles, mega textile parks, textile processing, and energy

The textile and clothing industry here is looking at policy initiatives from the State government to boost growth of the sector in Tamil Nadu……….

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Minister invites textile industry to invest in Bihar

(Source: Times of India, July 01, 2021)

State industries minister Syed Shahnawaz Hussain on Wednesday invited entrepreneurs from textile industry to come and invest in Bihar and together take the country ahead of Bangladesh in garmenting. Hussain held a discussion on draft textile policy for Bihar with the Synthetic Rayon Textile Export Promotion Council (SRTEPC) at its head office in Mumbai. He emphasised the strategic location of Bihar for both domestic and export markets and explained that most of its districts were connected via nearby airports in Bihar and adjoining states.

He said the state has implemented the online filing of Common Application Form (CAF) to make the single-window system really effective. The minister spoke about recent investment intentions that the state has received from JSW, Essar and Micromax.

The meeting was attended by the executive council of SRTEPC, including its chairman Dhiraj Raichand Shah. Additional chief secretary (industries) Brijesh Mehrotra and investment commissioner R S Srivastav also attended the meeting. The industry showed promising response to the draft policy applauding the progressive approach of the government and said that further suggestions if any shall be forwarded to the government.

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India launches 'enforcing contracts portal'

(Source: Fibre2Fashion, June 30, 2021)

The Indian department of justice recently launched an exclusive ‘enforcing contracts portal’, a comprehensive source of information related to the legislative and policy reforms being undertaken on the ‘enforcing contracts’ parameters laid down by the World Bank, which ranks ease of doing business (EoDB) in 191 nations. Currently, only Delhi and Mumbai in India are under the purview of the EoDB survey by the World Bank.

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During this World Bank evaluation, the ‘enforcing contracts’ indicator is an essential indicator that measures time and cost to resolve a standardised commercial dispute as well as a series of good practices in the judiciary.

The EoDB index is a ranking system that indicates an economy’s position relative to that of other economies across 11 areas of business regulation.

The department of justice under the ministry of law and justice has been monitoring an array of legislative and policy reforms to strengthen the ‘enforcing contracts’ regime for EoDB in India in coordination with the e-committee of the Supreme Court and the high courts of Delhi, Bombay, Kolkata and Bengaluru.

In close collaboration with all these, the department has been aggressively pursuing various reform measures to create an effective, efficient, transparent and robust contract enforcement eegime, according to a press release from the department.

The portal contains features like links of dedicated commercial courts in Delhi, Mumbai, Bengaluru and Kolkata; instructive videos related to e-filing, advocate registration; manuals on using electronic case management tools (ECMTs) like JustIS app for judicial officers and e-courts services app for use by lawyers; and a repository of all related commercial laws.

The portal also hosts online reporting by all high courts regarding the mediation and arbitration centres annexed to commercial courts to monitor and promote institutional mediation and arbitration.

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GLOBAL

COVID-19 crisis causes dramatic fall in FDI: UNCTAD

(Source: Fibre2Fashion, June 30, 2021)

Global foreign direct investment (FDI) flows fell by 35 per cent in 2020 to $1 trillion from $1.5 trillion the previous year, according to the World Investment Report 2021 by the United Nations Conference on Trade and Development (UNCTAD), which recently said pandemic-induced lockdowns around the world slowed down existing investment projects, and the prospects of a recession led multinational firms to re-assess fresh projects.

The fall was heavily skewed towards developed economies, where FDI fell by 58 per cent, in part due to corporate restructuring and intrafirm financial flows. FDI in developing economies decreased by 8 per cent, primarily because of resilient flows in Asia. As a result, developing economies accounted for two thirds of global FDI, up from just under half in 2019.

FDI patterns contrasted sharply with those in new project activity, where developing countries are bearing the brunt of the investment downturn. In those countries, the number of newly announced greenfield projects fell by 42 per cent and the number of international project finance deals–important for infrastructure–by 14 per cent.

This compares to a 19 per cent decline in greenfield investment and an 8 per cent increase in international project finance in developed economies. Greenfield and project finance investments are crucial for productive capacity and infrastructure development, and thus for sustainable recovery prospects, the UNCTAD report said.

All components of FDI were down. The overall contraction in new project activity, combined with a slowdown in cross-border mergers and acquisitions (M&As), led to a drop in equity investment flows of more than 50 per cent. With profits of multinational corporations down by 36 per cent on an average, reinvested earnings of foreign affiliates– an important part of FDI in normal years–were also down.

The impact of the pandemic on global FDI was concentrated in the first half of 2020. In the second half, cross-border M&As and international project finance deals largely recovered. But greenfield investment–more important for developing countries– continued its negative trend throughout 2020 and into the first quarter of 2021.

Developing economies weathered the storm better than developed ones. However, in developing regions and transition economies, FDI inflows were relatively more affected by the impact of the pandemic on investment in tourism and resource-based activities.

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Asymmetries in fiscal space available for the rollout of economic support measures also drove regional differences, the UNCTAD report said.

The fall in FDI flows across developing regions was uneven, at minus 45 per cent in Latin America and the Caribbean, and minus 16 per cent in Africa. In contrast, flows to Asia rose by 4 per cent, leaving the region accounting for half of global FDI in 2020. FDI to the transition economies plunged by 58 per cent.

The pandemic further deteriorated FDI in structurally weak and vulnerable economies. Although inflows in the least developed countries (LDCs) remained stable, greenfield announcements fell by half and international project finance deals by one third.

FDI flows to small island developing States (SIDS) also fell, by 40 per cent, as did those to landlocked developing countries (LLDCs), by 31 per cent. FDI flows to Europe dropped by 80 per cent while those to North America fell less sharply (minus 42 per cent).

The United States remained the largest host country for FDI, followed by China.

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UK launches business rates revaluations consultation; BRC lauds step

(Source: Fibre2Fashion, June 30, 2021)

The UK government yesterday unveiled proposals to make the businesses rates system in England fairer and more streamlined with more frequent property revaluations. Under the plans, revaluations of non-domestic properties would take place every three years instead of the current system of five, ensuring they better reflect changing economic conditions.

The proposals were set out in a government consultation that will form one part of its Fundamental Review of Business Rates, which will be published later this Autumn.

“Proposals set out in this consultation would mean that valuations more quickly reflect how the economy is performing, making the business rates system more accurate and responsive, while balancing the burden for ratepayers,” financial secretary to the treasury Jesse Norman was quoted as saying in a government press release.

Hailing the announcement, the British Retail Consortium (BRC) said as retail emerges from the pandemic, a return to ‘business rates-as-usual’ could derail the industry’s recovery, with unnecessary shop closures and job losses the result. “It is vital that the Government builds on this first step on the road to reform and stands by its commitment to reduce the overall rates burden on businesses and ensures there are no further delays

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to the outcome of the fundamental review,” BRC chief executive Helen Dickinson said in a statement.

The Local Government Finance Act 1988 introduced 5-yearly revaluations. The first modern revaluation was implemented in 1990. The revaluations since then have been implemented in 1995, 2000, 2005, 2010, and 2017.

The British government had previously undertaken to move to more frequent revaluations, having introduced legislation to bring forward the next revaluations to 2021, based on 2019 property values. Due to the pandemic and to help reduce uncertainty for firms, this was delayed, with the next revaluation set to take effect in 2023, based on 2021 values.

The Fundamental Review of Business rates, launched in July 2020, conducted a call for evidence which found more frequent revaluations to be a priority for respondents. The government has therefore set out specific proposals through this consultation on how a sustainable system of revaluations every 3-years might be achieved.

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Brexit’s broken promises heap more pain on fashion retail

(Source: Caroline Wadham, Drapers Online, June 30, 2021)

Six months since the UK reached a post-Brexit trade deal with the EU, Drapers explores how fashion retailers are dealing with added administrative costs, paperwork and protocols.

More than six months have passed since the UK and European Union wrapped up a Christmas Eve deal on post-Brexit trade, amid fanfares of provisions for zero tariffs and zero quotas on goods. Yet retailers are only just starting to bear the brunt of its impact, and the worst is apparently yet to come.

Fashion businesses are grappling with a raft of Brexit-related challenges, suggests data from industry body UK Fashion and Textile Association (UKFT), seen exclusively by Drapers. The UKFT's Brexit Survey, due to be published in July, found that 74% of 128 fashion businesses surveyed in May 2021 have experienced increased costs associated with Brexit since the start of the year.

Meanwhile, 83% have faced increased costs and bureaucracy around customs clearance, 44% have been affected by unexpected duties when re-exporting goods, and 41% have been hit by double duties).

UKFT’S BREXIT SURVEY

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The UK Fashion and Textile Association’s (UKFT) Brexit Survey, which surveyed 138 businesses, including leading UK fashion brands, UK textile manufacturers, wholesalers, fashion agencies, garment manufacturers and retailers in May 2021, and due to be published in July, found:

• 98% are experiencing increased bureaucracy as a result of Brexit

• 92% are experiencing increased freight costs as a result of Brexit (Covid may also be a contributory factor here)

• 83% are experiencing increased costs and bureaucracy around customs clearance

• 74% are experiencing increased costs generally associated with Brexit. The vast majority of them are looking to pass these costs on to consumers in the next six to 12 months

• 71% currently import from the EU

• 53% are experiencing cancelled orders as a result of Brexit

• 44% have experienced rejected or returned goods where the costs of duty, clearance and VAT are the main reason

• 44% had been affected by unexpected duties when re-exporting goods (this is the free circulation issue)

• 41% had been hit by double duties

• 7.5% said they plan to relocate production from the EU to the UK in the next 12 months

• 6% said they have relocated production from the EU to the UK as a result of Brexit

“Many fashion businesses have been suffering in silence and beating themselves up because they believe they have ‘failed’ to prepare for Brexit,” Paul Alger, UKFT director of international business, tells Drapers. “But as we’re now finding out, the agreement is not what most people were expecting. Changes are required and businesses are having to make those changes.”

The administrative burden [prompted by] moving goods into mainland Europe or Ireland via the Northern Irish Protocol is horrific

Steve Rowe, CEO, Marks & Spencer

Marks & Spencer CEO Steve Rowe agrees: “This has not been a free trade deal [as businesses were led to believe]. The terrible costs that were expected through tariffs have

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not been as bad as we thought, but the administrative burden [prompted by] moving goods into mainland Europe or Ireland via the Northern Irish Protocol is horrific [read more below]. We have worked very hard to mitigate them. But they are complex, and not necessarily clearly defined. We are continuing to look at reshaping our European business, and we have already [closed our stores in] the Czech Republic [in January].”

David Gallimore, managing director of Bradford-based textiles mill John Foster, explains: “All our fabric going into Europe is duty free, but our [EU retailer] customers have to pay an administration charge of €15-€25 (£13-£21) per shipment. In addition, they have to pay local VAT to their authorities. As a result, EU businesses have decided that they don’t wish to order from the UK, and have found alternatives in the EU. Business has dropped off a cliff.”

Lucy Reece-Raybould, CEO of the British Footwear Association, says: “Although issues with supply chains appear to be easing in the six months since the changes came into effect, there’s still a sense of frustration among our members about the lack of support and guidance from government, and, indeed, EU countries themselves. Today, general and ad hoc issues remain, such as incorrect or excessive charges, increased administration and bureaucracy, and carriers with inconsistent terms and conditions that vary wildly, even within the same country.”

The biggest Brexit-related problem we have is navigating is Northern Ireland with all the paperwork

CEO, clothing etailer

Northern Ireland Protocol

Another unexpected administrative burden from Brexit has been the Northern Ireland Protocol. Northern Ireland has remained part of the EU's single market for goods, so deliveries from the UK to Northern Ireland and Republic of Ireland have required EU export documentation since 1 January. An initial grace period of three months waiving the requirement for documentation for goods entering Northern Ireland from the UK was extended in March until October.

“It’s not working well for Northern Irish businesses or British businesses that want to export to Northern Ireland and has become a political issue in the province,” the director of one fashion organisation says. “In many cases, it is now easier to import goods from Southern Ireland into Northern Ireland rather than from Great Britain.”

The CEO of one clothing etailer tells Drapers that, despite being shielded from much of the impact of Brexit so far – apart from new EU VAT changes that will come into force from July – it has had to cope with mounting paperwork caused by the protocol: “The biggest Brexit-related problem we have is navigating is Northern Ireland with all the

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paperwork. We’ve got the system changes done, but now commodity codes will need to be picked up and put through. In essence we’ve got to export to Northern Ireland.”

In January there was a suggestion that it was a soft exit, but the devil was in the detail

Managing director, footwear retailer

The managing director of a footwear retailer said it has decided to open an Irish distribution centre to manage the impact the protocol is having on sales in the country: “In January there was a suggestion that it was a soft exit, but the devil was in the detail. When we ship products to our Irish stores, they usually pass through the UK, which incurs tariffs that we cannot pass on to the customer. We are in the process of setting up an Irish distribution centre [the opening date has not been decided].”

He also explained that aside from the logistical difficulties, the protocol has prompted a nose-dive in consumer confidence in Ireland: “There is unease over there – people are worried about getting a pint of milk, so buying clothing and footwear will be much lower down on their list of priorities. Our Republic of Ireland sales haven’t been too bad, but we have had to battle with consumer confidence and uncertainty.”

o soften the Brexit blow, and to allow the economy more time to recover from impact of the coronavirus pandemic, the government granted a six-month delay of the second and third stages of the border operating model in March this year. The border-operating model, which focused on a phased introduction of full customs and regulatory checks on imports from the EU to the UK, was set to be introduced across three stages concluding in July 2021. The delay has meant that several administrative changes, including the completion of customs declarations, have been postponed until January 2022.

The fashion industry has welcomed the delay while it recovers from the fallout from Covid. However, UKFT’s Alger says it means fashion businesses must brace themselves, as the worst is yet to come: “During this grace period, a lot of customs declarations are being made and companies have not been asked to back up their [rules of] origin statements. In some cases, large shipments handled by a customs broker may find that duties have been deferred but will still need to be paid.

“Conversely, most SMEs are bringing in goods through fast parcel services or the Royal Mail, and they are more likely to have paid their VAT and any duties already. So, I would expect to see in the second half of the year and next year customs officials paying more attention to some of the documents to back up their statements on origin.”

Alger warns that the deadline to pay duty and VAT on large shipments will decrease from January: “Larger consignments through a broker will attract any duty and VAT more quickly after the grace period, and there could be more attention to paperwork.”

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The fashion industry has called for further guidance and support from government on how it can mitigate the impact of these changes and decrease the administrative burden it has had to – and will continue to – deal with.

M&S’s Rowe says: "There is a whole list of things that could be made easier, such as digital [import] tracking.”

One footwear director notes that "transitional [financial] relief" would be beneficial, while many have called for the government to sit down with Irish government and the EU to agree on how to ensure that UK companies can resume selling into Northern Ireland without being hit by additional administration costs.

A government spokeswoman said: “The government is aware of the challenges the fashion and textiles industry has raised around specific aspects of our new trading relationship with the EU, and we are working closely with the sector to ensure businesses get the support they need.

“To support businesses facing challenges with specific aspects of trading with the EU, we are operating export helplines, running webinars with policy experts and offering businesses support via our network of 300 international trade advisers. We have also invested millions to expand the customs intermediaries sector.”

Six months into the UK’s trade deal with the EU, the industry has continued to struggle with administrative and cost challenges. Despite delays to the implementation of the border-operating model, which will bring further administrative work in January, the impact of Brexit on the UK fashion industry is far from over.

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Gov’t starts ninth round of cash aid

(Source: Khmertimeskh, July 01, 2021)

For the ninth time, the government has come forward to help cushion the impact of the pandemic on the country’s labour force and the poor.

This time around the government, in a statement released on Tuesday, said it has extended its financial support programmes for another three months to help the garment and textile industry, tourism sector and poor people from July to September 2021.

It said that the spread of Covid-19 continues to evolve alarmingly with the recent mutations of the virus, which has increased socio-economic pressures in many parts of the world, including Cambodia.

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The February 20 Community Event, it added, continues to prolong the pandemic and has prompted the government to constantly pay close attention to the implementation of decisive action.

“Key sectors such as garments, textiles, aviation and tourism continue to be hardest hit by the Covid-19 crisis. In addition, people at all levels, especially poor and vulnerable families, continue to face various difficulties in their daily lives,” the statement said.

It added that the government has decided to continue providing $40 per month for workers in the garment, textile, footwear and travel product sectors for an additional three months from July to September 2021. Factory owners in this sector also have to pay an additional $30 per worker (a total of $70 per worker per month).

It said that the government will also continue to provide $40 per month to workers in the tourism sector, such as hotels, guesthouses, restaurants and travel agencies for an additional three months. Enterprise and business owners in the tourism sector must contribute on a voluntary and practical basis in addition.

It added that the government will also continue to exempt all types of monthly taxes for hotels, guesthouses, restaurants and travel agencies registered with the General Department of Taxation besides for businesses in Phnom Penh, Siem Reap, Preah Sihanouk, Kep, Kampot provinces, Bavet and Poipet cities for an additional three months from July to September 2021.

It said that the IDPoor scheme will also continue over this period of three months.

On June 26, the Ministry of Economy and Finance Secretary of State, Vongsey Vissoth said the government has so far spent $350 million in cash assistance subsidy programmes for more than 600,000 people who hail from poor and vulnerable families.

He said the government has also spent quite a substantial sum of money for the purchase of vaccines to ensure that people are vaccinated against the deadly disease and also to reach herd immunity.

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SA's clothing industry trying to stitch itself together following worst decline to date

(Source: Carin Smith, News24, July 01, 2021)

South Africa's clothing industry has not escaped the impact of the Covid-19 pandemic on heavily burdened consumers, with retail sales in the SA clothing and textile industry reaching the worst decline ever recorded in 2020.

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But, say local manufacturers, they are pulling out all the stops to snatch back market share from imports, as they continue to face supply chain disruptions brought on by the pandemic.

Graham Choice, managing director of merchandise supply chain at clothing retailer TFG (formerly The Foschini Group), says some of the country's leading apparel retailers have tried to tackle the problem by localising and shortening lead times.

But, he says, there has been little on offer from the local manufacturing sector, which he describes as "decimated".

"Overall, the local CTFL [clothing, textile, footwear and leather] value chain in SA has come under extreme pressure as the Covid-19 pandemic significantly constrained demand for retail goods," says Choice.

"Retail sales in the SA clothing and textile industry fell 6.9% overall during 2020. This is the worst decline ever recorded and the only year of contraction apart from 2009 at the height of the global financial crisis when sales declined 3.2%, according to StatsSA."

There have long been calls to revitalise garment manufacturing in South Africa, which has battled to compete with China and other cheap importers. The Retail Clothing, Textile, Footwear and Leather Master Plan, which was signed by government and local retailers in 2019, is also expected to give local manufacturers a leg up.

But the CTFL sector has seen several plant closures and associated job losses in the past year, reducing local capacity to produce.

And, in the meantime, retailers continue to face logistical hurdles.

"Retailers continue to face a range of operational challenges, most notably supply chain disruptions causing huge delays and further losses due to shipping challenges, port congestion and rising logistical costs.

"This pressure on local retail demand has had a trickle-down effect on local suppliers where contracting order books placed significant strain on cash flow and financial sustainability of many businesses in the local supply chain," says Choice.

According to Choice, TFG responded with a "quick response" retail model that would allow for popular clothing items to be made or adjusted quickly, in-season.

But that doesn't solve the problem of local manufacturing capacity.

This is where the Retail CTFL masterplan comes in. Its implementation kicked off in 2020, and it aims to increase the proportion of locally manufactured products sold in- store from 44% (in 2018) to 65% by 2030.

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The plan also aims to create jobs.

Thandi Phele, acting deputy director-general of the division for industrial competitiveness and growth of the Department of Trade, Industry and Competition (dtic) says the masterplan was based on extensive consultation with stakeholders including including government, representative associations, large retailers, manufacturers and the organised labour.

According to Phele, manufacturers have committed to ramp up productivity and invest in production, while organised labour has agreed to adaptable working hours.

"Even though the industry was under pressure, clothing imports took bigger hit than locally manufactured clothing as retailers are buying goods more locally and local manufacturers are benefiting from this.

"[I]t is important to keep working on this to make sure factories are ready and tooled when demand increases again," explains Etienne Vlok, national industrial policy officer of the Southern African Clothing and Textile Workers' Union (SACTWU).

"Government has also committed to creating an enabling environment for investment in the South African clothing, textile, footwear and leather industry, through strategic tariff support, appropriate manufacturing incentives, and clamping down on illegal imports," Phele adds.

Meanwhile, the SA Revenue Service – which has vowed to crack down on illicit trade – has its hands full levelling the playing field as part of the masterplan.

Phele explains: "Often CTFL goods imported to South Africa are declared at a much lower value than their production value at source. This has the impact of reducing tax receipts for the fiscus and unfairly pricing imported goods below the local production cost, thereby driving out the local industry."

It is estimated that in 2019, clothing with an export value of R35.9 billion was imported into South Africa at a declared cost of R27.8 billion - an under-declaration of 23%.

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FY22 budget: textile sector’s perspective

(Source: Business Recorder, June 30, 2021)

The Federal Budget for FY22 was announced on June 11th, 2021. The new economic team has accordingly set goals for the next two years, with an agenda characterized by two points: (i) inflation and (ii) revenue generations to fund social programmes for the masses. Out of the current expenditures, the major portion of 72.34% will be spent upon

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general public services that include debt repayments, pensions, salaries and perks among other things.

Textile exports have served as the mainstay of the economy, comprising the majority of Pakistan’s total exports and generating a substantial amount of revenue in the form of taxes, and foreign exchange support for the Balance of Payments. The TERF scheme has led to a substantial increase in investment levels at a time where capacity was already full, presenting a golden opportunity for expansion. In the sector’s recent leap towards capacity development, policy support from the government should play a critical role, as it is imperative to support textiles in order to achieve sustainable export-led economic growth.

The government has, despite challenges, successfully progressed from “recovery to stabilization to sustainable growth” (PIDE). While there remains a need to continue these efforts for sustained growth in the long-term, the debt indicators are improving overall as the current Public Debt-GDP ratio is being sustained at the present level and Debt Service-Revenue ratio is showing a downward trajectory. The government aims to sustain these trends particularly through revenue mobilization, and supporting the export- oriented sectors is one highly effective method of doing so.

There are several positives in this budget, particularly with respect to continuation of duty-free import of cotton, concessional financing under Long Term Financing Facility (LTFF) & Export Finance Scheme (EFS), and bringing retailers into the tax bracket. However, like every year, the budget leaves several pressing issues unaddressed, particularly those aspects which have potential to adversely affect the export-oriented sectors of Pakistan. Exporting sectors have the ability to lift Pakistan out of its debt cycle, and supporting them to remain profitable and productive should be one of the government’s primary concerns. Yet issues of custom duties, sales tax, energy and logistics continue to create hurdles for these sectors, thereby contributing to an anti- export bias which has kept Pakistan behind its regional competitors in exports.

First off, the adverse change in customs duties on Polyester / MMF value chain is a matter of concern. The items of direct immediate concern are those that involve polyester yarns and acrylic yarns. In the case of polyester yarn 5509.2200/2100 where the applicable duty was 11% + 2% ADD + 2% a total of 15% R.D. this has now been reduced to 10+2 for a total of 12%, while the duty on PSF remains at 7% despite the textile industry’s repeated submissions and reports on the negative fallout of continued protection. There are also antidumping duties of up to 12% which make matters much worse. With these duties in place the textile sector of Pakistan which is already uncompetitive will face some additional stress. Meanwhile, in the case of acrylic spun yarns 5509.3100/3200 produced with acrylic staple fibers, the duty is proposed at 0% which is against the basic principle of cascading whereby the duty differential should be a minimum of 5%.

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Sales tax rate has been increased to 17% from 10% on both cotton and import of machinery and plant. This increase will unnecessarily hike the quantum of Working Capital required for operations and increase the capital cost on new projects. The point to note on cotton sales tax is that refund can only be cleared on consumption while cotton has to be bought in bulk tying up the Working Capital for a long period of time. The increase in Sales Tax on plant and machinery increases the cost of putting up new plants as the refund cycle of the Sale Tax will have to await commercial operations which in some cases for many years. Sales Tax Refund on import of plant and machinery by operating units is despite the passage of 2 years is still not streamlined as the Faster System rejects any claims above arbitrary percentage which does not take into account the extraordinary high claims in a particular month on account of machinery imports. These changes in Sales Tax regime will have a negative impact on new investment in the sector as funds that could have been spent on plants and machinery will unnecessarily be blocked. The feasibility of new projects in particular will be severely impacted.

Moving forward, a fundamental concern is the need for regionally competitive energy pricing/tariffs. Our country’s energy tariffs have not been commensurate with regionally prevailing tariffs, as shown in the table below:

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Regional Energy Tariffs

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Region Electricity Tariff (Cents / kwh Gas/RLNG Tariff ($/ mmbtu

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Pakistan 9 Sindh 5.9

General 6.5

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Bangladesh 9 4.05

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India Maharashtra 7.8 4.06

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Punjab 7.1

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Vietnam 7.3 The PM has the authority to

decide which project is

charged what tariff rates

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Source: Calculation based on World Integrated Trade Solution (WITS) database.

Despite unreliable energy supply and higher tariffs, the textile sector has been operating at full capacity and receiving increased orders, leading to the revival of non-operational units, and the creation of new jobs. Textiles have been heavily supporting the economy, yet the industry’s profitability is being hampered by illogical energy tariff hikes and policies. The export-oriented sector has given detailed reasons time and time again for the provision of a fixed electricity tariff at 7.5cents/KWh and $ 6.5 per MMbtu for RLNG/gas across the value chain to ensure competitive export pricing. Competing countries are already poised to combat highly competitive market conditions through cheaper electricity and gas rates. Energy accounts for 35% of conversion costs in the textile value chain and therefore competitive pricing of exports is highly sensitive to energy pricing. Therefore, the provision of regionally competitive energy tariffs is critical, and any deviation from these rates will derail export targets.

The allocation on account of regionally competitive energy tariffs and the differential for domestic tariffs falls short of the amount needed – Rs. 64 billion is necessary as estimated by the Ministry of Energy. The allocation for differential on account of electricity is Rs. 21 billion whereas the estimated differential at 9$ per KWh will be Rs. 40 billion. Furthermore, the allocation for differential on account of gas is Rs. 10 billion while the estimate at current LNG rates is Rs. 29 billion. It may be clarified that both these allocations are indicative and any shortfall, it is assumed, will be met through supplementary grants. Therefore, continued supply of gas to the textile industry may be ensured for the sector to sustain production to achieve the target of over $20 billion exports next financial year.

International Monetary Fund (IMF) has kept Pakistan’s economy in a straitjacket and our exports remain limited to intermediate goods, while we remain an importer of oil, edible oil, tea, pulses, machines, raw materials, and even knowledge. At present, remittances are our saving grace when it comes to foreign debt. It is essential to support exporting industries in order to sustainably combat foreign debt, and to enable growth by diversification of our export bundle, expansion into higher value addition, and investment in human capital in order for Pakistan to compete in today’s knowledge-based economy.

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Considering the rapid expansion being undertaken by the textile sector, whereby the industry is on track to meet next year’s target of $20 billion, it is crucial to acknowledge that this is a substantial increase of $5-6 billion. Such an increase will be accompanied by a pressing rise in requirement for working capital. The manufacturing chain takes around 6 months to export, and without simultaneously increasing working capital to remain at par with the requirements of an expanding sector, progress in the industry will come to a halt. The most efficient way to ensure that working capital needs are met could be by reducing the GST rate down to half, or even better, restoring zero-rating. This will be an instrumental step in Pakistan’s journey to meet and exceed to export target set for 2021- 22 and 2022-23 fiscal years.

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