Around a year and a half since launch, the Rs 6,000-crore package for the labour-intensive garments sector, which included freedom to mills to have fixed-term employees, has accomplished much less than envisaged.
Around a year and a half since launch, the Rs 6,000-crore package for the labour-intensive garments sector, which included freedom to mills to have fixed-term employees, has accomplished much less than envisaged. Despite a crucial component of the package that the government will bear the entire 12% employer’s contribution to the employees provident fund for the first three years (against 8.33% earlier under a scheme), just 655 units have availed themselves of the benefit so far and the number of beneficiaries stood at 1,55,564, according to labour ministry data. And not all are new employment. Through the package, the government had targeted to create one crore additional jobs and investments of Rs 74,000 crore and extra exports of $30 billion (over and above the textile and garment exports of $40 billion in 2015-16) over a three-year-period. A senior textile ministry official said a comprehensive study on the impact of the package is yet to conducted, but according to an assessment done by it on the basis of investments under Amended Technology Upgradation Fund Scheme (A-TUFS), 3,26,471 direct and 4,24,412 indirect jobs were created in the textile and garment sector in the last fiscal, mostly after the announcement of the package. The actual job creation, said the official, will be much higher, after factoring in the investments made by the companies outside A-TUFS. Still, the targets prove to be elusive. An assessment by the Apparel Export Promotion Council (AEPC) and announcements by some companies, around six months after the declaration of the package, indicated investments of only Rs 1,000 crore pledged by various exporters. Garments exporters said the package, especially the scheme under which state levies paid by exporters were refunded to them from the centre’s funds, did help them reverse an earlier slowdown until the incentives were substantially cut under the goods and services tax (GST) regime.
The fixed-term employment made it easier for the industry to hire more in times of need to cater for the seasonal nature of order flows, but this remission of state levies (RoSL) scheme, along with a duty drawback scheme, were fiscally most important for exporters. The RoSL alone was estimated to cost the exchequer around Rs 5,500 crore in three years (of the Rs 6,000-crore package). Garment exports went up almost 9% to $13.47 billion between July 2016 and March 2017 (after the package was announced), exceeding the overall textile and apparel export growth of 3.5% during the period. Garment exports continued to rise up to May this year before dropping almost consistently since June, ahead of the introduction of the GST, barring the blip in September. This, exporters claim, was the adverse fall-out of the fears of a cut in incentives under duty drawback and RoSL scheme in the GST regime, and an actual cut later, which negated the positive impact of the package.
“The package helped us a lot and the government made some landmark announcements. But before the full benefits were reaped and businesses scled up, incentives under the RoSL and the duty drawback schemes were cut under the GST regime. This hit us hard. As such, we have been handicapped by the duty disadvantage against our competitors like Bangladesh and Vietnam in biggest markets — the EU and the US,” said AEPC chairman Ashok G Rajani said. Rajani said exporters are now getting less than 4% under both duty drawback and RoSL schemes, which need to be raised to around 11% (of freight on board value of exports) to offset various levies, even excluding the taxes that are subsumed by GST.
AEPC and other garment exporters have sent representations to the ministries of textile and finance, NITI Aayog and even the Prime Minister’s Office to raise these incentives. The government had said since the GST subsumed a number of state levies, including sales tax and VAT, the incentives were reduced. According to Sudhir Dhingra, chairman of one of the country’s largest garment companies, Orient Craft, if the proposed free trade agreement with the EU and another one with Britain are clinched, all these targets will be easily realised. Indian exporters are paying around 10% duties for supplies to the EU, while key competitor Bangladesh, Pakistan and Cambodia have zero duty access to it. The EU makes up for 37% of India’s garment exports and Britain alone used to account for roughly one-third of the EU demand. Orient has committed to add 4,000 people to its existing workforce of 32,000 over the next three years.
Virender Uppal, chairman of another large exporter, Richa Global, said he will add 3,000 people within a year to its existing employee base of 11,000 people. Narendra Kumar Goenka of Texport Industries said his company is looking to hire 4,500 people over the next three years, recording a sharp increase over the current workforce of 1,000 people. Despite enthusiasm shown by exporters for the package, analysts say the targets set by the government are too ambitious to be achieved in a span of three years, given stressed balance sheets of most companies, subdued demand and dented cost competitiveness of Indian exporters vis-a-vis Bangladesh’s or Vietnam’s.