Despite this slowdown in FY 2012, in cross country comparison, India still remains amongst the highest grown economy.

General: The Budget 2012-13 was presented under the backdrop of economys recovery being interrupted due to debt crisis in the Euro zone, political turmoil in Middle East, rise in crude oil prices, earth quake in Japan and overall gloomy environment. Impacted by the global crisis, Indias Gross Domestic Product (GDP) is estimated to grow by 6.9% in FY 2012 after having grown at the rate of 8.4% in each of the preceding two years. Despite this slowdown in FY 2012, in cross country comparison, India still remains amongst the highest grown economy. Internally, the main reason which affected the growth was the near double digit headline inflation, which was there in major part of the year. It was moderated to 6.95% in February 2012. As a result, a tight monetary policy was followed which impacted investment and consumption. The fiscal balance deteriorated in FY 2012 to 5.9% of GDP due to slippage in direct tax revenue target, lower disinvestment receipts and increased subsidies due to higher oil prices. The silver lining, however, is the fact that agriculture and services continues to perform well and the slowdown is due to weak industrial growth. The growth is estimated to be 2.5% in agriculture, 3.9% in industry and 9.4% in services. However, indicators suggest that economy is now turning around as core sectors i.e. coal, fertilizers, cement and electricity are showing signs of recovery and Indian manufacturing appears to be on revival path. Also, the headline inflation is expected to moderate further in FY 2013 and likely to remain stable thereafter. Twelve Five Year Plan is being launched along with the current budget proposal for FY 2013 aims at faster, sustainable and more inclusive growth. In line with that, in the ensuing fiscal year, five priorities have been identified: 1. Focus on domestic demand driven growth recovery; 2. Create conditions for rapid revival of high growth in private investment; 3. Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation; 4. Intervene decisively to address the problem of malnutrition especially in the 200 high burden districts: and 5. Expedite coordinated implementation of decisions being taken to improve delivery systems, governance and transparency; and address the problem of black money and corruption in public life. On the macro economy level, the GDP growth for 2012-13 have been estimated at 7.6%, + /0.25% and the fiscal deficit is targeted at 5.1% of GDP at Rs. 5,13,590 crores. This deficit would be met out of additional borrowing Rs. 4.79 Lakh crores, which would take the total debt by the end of FY 2013 to about 45.50% of GDP. The total revenue deficit is estimated at Rs. 3,50,424

crore (3.4% of GDP), however, after taking out grant for creation of capital asset of Rs. 1,64,672 crores, the net effective revenue deficit in FY 2012-13 is estimated to be at Rs. 1,85,752 crores, about 1.80% of GDP. Some of the proposals of the Budget and its impact on the Textile sector are given below: Indirect Taxes Service Tax: The service sector is an important part of the economy, especially considering that share of services in GDP is 59%. The Finance Minister was of the opinion that the service tax remains far below its potential and there is a need to widen its tax base and strengthen its enforcement. In order to harmonize and align Central Excise and Service Tax and also as an eventual transition to GST, the Service Tax is made applicable to all services except those in the negative list. The list contains 17 heads drawn up carefully, keeping in view the federal nature of our policy, best international practices and socio-economic requirements. To strengthen the fiscal situation, the service tax has been increased to 12% from the existing rate of 10%. This is expected to yield additional revenue of Rs. 18,660 crores. Custom Duty Proposals Following are the custom duty proposals relating to Textile sector:

Looking at the need to modernise the weaving sector, it is proposed to fully exempt automatic shuttle-less looms from basic customs duty of 5 per cent. Similarly, full exemption from basic duty is being accorded to automatic silk reeling and processing machinery as well as its parts. It is also proposed to restrict these exemptions and the existing concessional rate of basic customs duty of 5 per cent only to new textile machinery. Second-hand machinery would now attract basic duty of 7.5 per cent. Other proposals on textiles are: To reduce basic customs duty on wool waste and wool tops from 15 per cent to 5 per cent To reduce basic customs duty on Titanium dioxide from 10 per cent to 7.5 per cent To extend full exemption from basic customs duty to aramid yarn and fabric used for the manufacture of bullet proof helmets

Impact: The Full exemption to new automatic shuttle less looms as against basic custom duty of 5% will bring down the landed cost of machinery and induce industry players in making investment in latest technology available overseas. The detailed custom duty tariff is given in Annexure - I Excise Duty Proposals i) Increase in Excise Duty Rates:

Considering the need for fiscal correction, the standard rate of Central Excise Duty has been raised to 12% from the existing level of 10%. In addition, the merit rate has been increased to 6% from 5% and lower merit rate from 1% to 2%. This would result in increase in Polyester yarn duties to 12% from present 10%. The effective rate after considering Education cess would be 12.36% from present 10.30%. ii) Reduction in effective rate of excise duty on branded garments and made ups: Presently, excise duty of 10% is applicable to branded ready-made garments with abatement of 55% from the Retail Sale Price. In the budget, the excise duty rate has been increased to 12% with the enhancement in abatement to 70%. As a result, the incidence of duty as a percentage of the Retail Sale Price would come to down to 3.6% from present 4.5%. Impact: As the effective duty is coming down by 0.90% of the Retail Sale Price, the cost in the hand of the consumer would be lower to that extent and this coupled with lower cotton prices compared to last year is likely to stimulate the demand. The detailed Excise duty tariff is given in Annexure II The proposals relating to Customs and Central Excise are estimated to result in a net revenue gain of Rs. 27, 280 crores. Direct Taxes i) Corporate Tax Rates:

There has been no change in corporate tax rates, however, certain measures have been proposed to allow corporate to access lower cost of funds in some sectors and promote higher level of investments in some sectors. This is being done by reducing the withholding tax on payment of interest on ECBs from 20% to 5% for 3 years for some infrastructure sectors. Similarly, to promote investment in Research and Development, the weighted deduction of 200% for R&D expenditure in an house facility has been extended for a further period of 5 years, beyond March 2012. The other measures include removal of restriction on Venture Capital Funds to invest only in nine specified sectors. Removal of cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure. And extension till 31st March 2013 of lower rate of tax of 15% on repatriation of dividends from foreign subsidiaries of Indian companies to India.

ii) Personal Income Tax: a) Exemption limit for the general category of individual tax payers enhanced from Rs. 1,80,000/- to Rs. 2,00,000/- giving uniform tax relief of Rs. 2000/- to every tax payer. The revised slab for individual taxation is as under:

For A.Y. 2011-12

For A.Y. 2012-13

Income Slab Up to 1,80,000 1,80,001 5,00,000 5,00,001-8,00,000 Above 8,00,000

Rate (%) NIL 10% 20% 30%

Income Slab Up to 2,00,000 2,00,001 5,00,000 5,00,001-10,00,000 Above 10,00,000

Rate (%) NIL 10% 20% 30%

b) Deduction of upto Rs. 10,000/- for interest from savings bank accounts with salary income upto Rs. 5 Lakhs. c) The Rajiv Gandhi Equity Saving Scheme will incorporate 50% income tax deduction for retail investors in the equity markets up to an amount of Rs. 50,000. This is valid for individuals with annual income of less than Rs. 10 lakhs. d) Deduction upto Rs. 5,000/- for preventive health check- up within the existing limit for deduction allowed for health insurance. e) Senior citizens not having income from business are exempted from payment of advance tax The turnover limit for SME for compulsory audit of accounts as well as for presumptive taxation is increased from Rs. 60 lakhs to Rs. 1 crore. Security Transaction Tax (STT) has been reduced by 20% from 0.125% to 0.1% on cash delivery transactions. Also, series of measures have been announced to deter the generation and use of unaccounted money. Impact: The direct tax proposals would result in net revenue loss of Rs. 4500 crores. However, it would result in higher disposable income in the hands of individual and hence likely to boost the consumption levels, encourage savings and would attract additional funds for the capital markets. Other Proposals for Development of Textiles: 1. Government has announced a financial package of Rs. 3, 884/- crores for waiver of loans to handloom weavers and their cooperative societies. 2. Two more mega handloom clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighboring districts in Jharkhand to be set up. 3. Proposal to assist for setting up of dormitories for women workers in the five mega clusters relating to handloom, power loom and leather sectors. 4. Three Weavers Service Centres one each in Mizoram, Nagaland and Jharkhand to be set up for providing technical support to poor handloom weavers. 5. Rs. 500 crore pilot scheme announced for promotion and application of Geo-textiles in the North Eastern Region. 6. A powerloom mega cluster to be set up in Ichalkaranji in Maharashtra with a budget allocation of Rs. 70 crore 7. TUF Scheme A budgetary allocation of about Rs. 2910 crores for TUFs subsidy has been maJde for FY 2012-13 as against revised provision of Rs. 3700 crores for FY 201112.

Further, Ministry of Textiles has recommended continuation of TUFS with an allocation of Rs. 15886 crore for the entire 12th Five Year Plan against the allocation of Rs. 15404 crore during 11th Five Year Plan. Impact: If the above recommendation is accepted, the TUFs scheme would be continued in next 12th Five Year Plan. This would motivate the players in the Industry to make further investments, looking to the opportunity available both in the overseas and domestic market. It would be beneficial to Alok, to the extent of any capital expenditure that would be announced under TUFs. Implication of Proposals of Budget 2012-13 on Alok Industries Ltd. Aloks operates in the following textile segments: Segments Cottonand Cotton Yarn Apparel Fabrics (Woven & Knits) Home Textiles (Sheet sets / Towels) Garments (Woven & Knits) POY / Texturised Yarn Total Fibre base Cotton Cotton Cotton Cotton % Share ( FY 2011) 8.65% 46.54% 15.66% 2.72% % Share (FY 2012)Est. 4.00% 45.00% 15.50% 2.00% 33.50% 100.00%

Polyester 26.43% 100.00%

The effects of the budget proposals on Alok are as under: INDIRECT TAXES i) Effect of Excise Duty: a) The excise duty on cotton yarn and cotton fabric has been increased from 5% to 6%. After considering the education cess of 3%, effective rate has increased from 5.15% to 6.18%. However, duty on cotton products is optional in nature, i.e. the companies can opt for either zero (exemption route) duty or regular (cenvatable) excise duty. Since, the company has opted for exemption route for its cotton products for the domestic market, the increase of 1% would have no impact on the company. b) In polyester segment, however, the excise duty has been increased to 12% from 10%. After considering the education cess of 3%, effective rate has increased from 10.30% to 12.36%. Given the fact that there is huge gap between the cost of cotton yarn and polyester yarn (more than 100%), the polyester industry should be able to pass on this increase in duty to the end consumer. c) The reduction in effective rate of duty from 4.5% to 3.6% in case of branded garments and made ups is beneficial for Aloks retail subsidiary- Alok H&A Ltd., which sells branded garments and made ups in the domestic market under its store brand H&A and private labels.

This is expected to reduce the price of garments and made ups in the hand of customers and thus, boost demand. ii) Effect of Custom Duty: The Full exemption to new automatic shuttle less looms is beneficial for Aloks Apparel Fabrics (woven) division as this would reduce the landed cost of the machinery. iii) Effect of Service Tax: The widening of the tax base and increase of 2% from 10% to 12%, would increase overall cost of the company as more or less every service being availed by it comes under the bracket. However, since the same is Modvatable, the net impact would be marginal. Direct Taxes There has been no change in the direct tax rates; hence, there is no impact on us. Custom Duty on Textile Items w.e.f. 17.03.2012 Budget 2012-13 Sr. No. 1 2 3 4 5 6 7 8 9 Customs Duty 2012-13 5.15% 5.15% 10.30% 10.30% 10.30% 10.00% 10.30% 10.00% Customs Duty 2011-12 5.15% 5.15% 10.30% 10.30% 10.30% 10.00% 10.30% 10.00% 7.72% 5.15% 5.15%

Item PSF / VSF / POY / VFY / Paraxylene PTA / MEG NFY / PV Cotton Yarn Apparels (cotton and noncotton) Woven Fabric (cotton and non-cotton) Note 4 Knitted Fabric (cotton)-Note 4 Knitted Fabric (non-cotton)Note 4

Remarks No change No change No change No change No change No change No change No change No change No change No change

a) Normal Textile machinery 7.72% b) Textile Machinery 30 c) Textile Machinery 31 5.15% 5.15%

Note:

Above duties include Education cess of 3%. The CVD (Counter Veiling Duty) has been increased from 10% to 12% wherever applicable (man made products). All items except fabric attract additional 4% SAD Exempt from educational cess Abbreviations Used: PSF Polyester Staple Fibre VSF- Viscose Staple Fibre POY- Partially Oriented Yarn PTA- Purified Terphtalic Acid MEG- Mono Ethylene Glycol NFY Nylon Filament Yarn PV Polyester Viscose Excise Duty on Textile Items w.e.f. 17.03.2012 Budget 2012-13 Sr. No. 1 2 3 4 5 6 7 8 9 10 11 Excise Duty 2012-13 Excise Duty 2011-12 10.30% 10.30% 10.30% 5.15% 5.15% 10.30% 5.00% 10.30% 5.00% 10.30% 10.30%

Item

Remarks Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Increased in this Budget Introduced in this Budget

PSF / VSF / POY / VFY / 12.36% Paraxylene PTA / MEG NFY / PV Cotton Yarn (optional,note-2) Apparels (cotton) (optional,note-2) Apparels (non cotton) Woven Fabrics (cotton) (optional,note-2) 12.36% 12.36% 6.18% 6.18% 12.36% 6.18%

Woven Fabric (non cotton) 12.36% Knitted Fabrics (cotton) (optional,note-2) 6.18%

Knitted Fabric (non cotton) 12.36% Branded Garments / Made 12.36% ups

Note: The goods which were under concessional central excise duty rate of 5% are now being subject

to 6%. Excise duty on cotton yarn and fabric is optional in nature, i.e. the companies can opt for either zero (exemption route) duty or regular (cenvatable) excise duty. Above duties include Education cess of 2% and Higher Education Cess of 1% except in case of fabric (woven and knits). Abbreviations Used: PSF Polyester Staple Fibre VSF- Viscose Staple Fibre POY- Partially Oriented Yarn PTA- Purified Terphtalic Acid MEG- Mono Ethylene Glycol NFY Nylon Filament Yarn PV Polyester Viscose