Ludhiana yarn manufacturers have got some relief in VAT rates as there has been a reduction in VAT rates on all kinds of yarn, except polyester filament, from 6.5 per cent to 3.63 per cent.
This VAT reduction comes as a relief for spinning mills. Punjab has 165 spinning mills with 4.25 million active spindles, and consumes seven lakh bales annually. Fabric and garmenting units in Ludhiana preferred to buy cotton yarn from units located in other states. This hit yarn units located in Punjab. Due to the high value added tax, buying yarn from spinners in the state was costlier than bringing it from elsewhere.
Punjab is a major consumer of cotton yarn in the north and due to higher tariffs on local manufacturing entities an estimated Rs 9,000 crores worth of yarn is being imported annually from other states.
The modified tax structure will be a bulwark against dumping from other states. It will provide protection to Punjab based spinning units against cheap imports from other states which have a lower cost of production. Most spinning mills in Punjab had been underutilising their capacities for the last few years as there were no takers for the yarn produced at a higher price.