Apparel exports may fall in FY18
Strong competitors in global markets, lack of refunds and incentives after GST lead to decline
The country’s apparel industry might see a rare decline in export for the current financial year.
From April 2017 to end-January 2018, the first 10 months, overall export was down 1.3 per cent from the previous year, to $13,783 million. This was despite growth of six to 20 per cent in shipment to some destinations —America, Britain, Germany, France, Spain.
Global factors such as free trade agreements of competing nations with key markets like Europe, the UK and the US had already been a challenge to Indian ready-made garment (RMG) exporters. After goods and services tax (GST) implementation in July 2017, reduced export incentives, coupled with delay in input credit refunds, have accentuated the industry’s woes.
According to the Apparel Export Promotion Council (AEPC) and rating agency ICRA, the decline was primarily driven by a sharp fall to the UAE market. Also, growth in world apparel trade was no more than one per cent higher in calendar year 2017, following a decline of two per cent and five per cent in 2016 and 2015, respectively.
ICRA says for the 10-month period ended June 2017, our apparel export to UAE grew at a sharp 56 per cent over a year before. “Thereafter, these have fallen at an equally fast pace, by as much as 45 per cent since June. Excluding the trade with the UAE, India’s apparel exports are estimated to have stood three to four per cent higher in the (first) 10 months of FY18,” it stated.
H K L Magu, chairman of AEPC, told Business Standard the year’s target of $20 billion in apparel export would not be reached. “Implementation of GST since July has resulted in blockage of funds for the export community, due to lack of input credit refunds. Except for a few exporters, hardly anyone has received refunds since the last eight months. Exporters don't have money to pay to suppliers. Second, export incentives such as duty drawback and rebate on state levies (ROSL) have been reduced,” said Magu.
While the duty drawback rate and ROSL were lowered to two per cent from 7.5 per cent and 3.9 per cent, respectively, in the post-GST era, the incentive under the Merchandise Exports from India Scheme (MEIS) was increased from two to four per cent.
However, the MEIS deadline expires on June 30, 2018. “We (are) unable to book orders beyond June because we are unsure if MEIS will continue after that. We will lose money if we assume four per cent incentive beyond June and the government does not extend it,” explained Magu.
And, global factors have been rendering Indian RMG exporters uncompetitive. "While China has vacated the apparel export space, India is unable to encash on the opportunity, unlike Vietnam, Bangladesh or Cambodia which have free trade agreements. India is emerging as an expensive affair in the global apparel market,” Magu stated.
Supported by its duty-free access to the European Union market, Bangladesh retains its status as second-largest global apparel exporter, after China. Vietnam remains the fastest growing among large apparel exporting nations, maintaining its growth in the US market despite the latter backing out of a proposed trade agreement.
Jayanta Roy, senior vice-president at ICRA, says the competitiveness of Indian apparel exporters will also remain contingent upon movement in foreign exchange rates. “This remained a key challenge last year, with the rupee appreciating by three per cent (against the dollar) in calendar year 2017, compared to a one to three per cent depreciation in currencies of other key exporting nations (i.e China, Bangladesh and Vietnam),” he said.