The Centre has tinkered with an export incentive scheme that has left the cotton apparel exporters of northern India high and dry, but brought cheers to the woollen garment exporters.
The Central Board of Indirect Taxes and Customs (CBIC) has slashed duty drawback rates from 2% to 1.8% in case of cotton garments. For polyester, the new duty drawback rates will be 2.3% from 2.5% earlier, official sources said. The new drawback rates are effective December 19.
The move came as a bolt from the blue for the cotton apparel industry, which was expecting an increase in duty drawback rates, Punjab and Haryana-based exporters said.
Apparel industry has tremendous potential for employment generation. The industry is passing through an adverse situation due to intense international competition, particularly from neighboring countries. Surprisingly, instead of raising the incentive, it has been reduced,” said Ludhiana-based KG Exports Managing Director Harish Dua.
Exporters said, there has been a marginal increase in business for the past couple of months mainly due to dollar appreciation, but the industry is far behind the 2016-17 level. “The government must also stop raw cotton export to boost exports,” he said. There are around 200 cotton garment exporters in Punjab and Haryana.
Apparel exporters are required to use various inputs for making garments. About 70% of the material consumed is cotton, which is agri-product coming from farming sector and out of GST ambit. It comes loaded with all embedded taxes, which the farmer has to pay for production and transportation of cotton. During the production process of fabric and garments, electricity gets consumed which is also embedded in the cost of garment. Expenses are incurred on fuel and transportation, exporters said, giving reasons for losing market share in the international market. “All these add to the input cost and leads to losing competence over China,” one of the exporters said.
They added that margins are very thin. “Our neighbouring competitors like Bangladesh, Pakistan, Sri Lanka and Vietnam have duty advantage of 9.60% in importing countries whereas India does not have the same advantage in the absence of signing of FTA with EU. Our products, therefore, get outpriced and we lose the market,” they said.
On the other hand, woollen manufacturers said increase in duty drawback rates from 3 to 4.8% will help the exporters. “Any kind of support from the government is helpful for the industry. The increase in duty drawback rates will definitely boost the exports from the country and also give some kind of cushion to the domestic exporters which are facing stiff completion from China and other neighbouring countries,” said Monte Carlo Fashions Executive Director Sandeep Jain.