TOP TRENDS IN INDIA’S APPAREL SECTOR
Change in Duty Drawback Rates Shocks Industry
The apparel industry, which is an income generator for many in India, is going through turbulent times. When demonetisation came in the last quarter, the apparel and textile industry was not affected to that extent but GST, change in ROSL and duty drawback rates came as a big deterrent to growth.
While the industry was moving at a normal pace registering around 5 to 7 per cent, the Government’s announcement about new drawback rates to be effective from 1st October 2017 (post-transition period ending 30th September 2017) was a big shock. The new All Industry Rates (AIR) for garments were 2 per cent as compared to the 7.7 per cent drawback available till now.
With this steep decline in the drawback support, over 7,000 small and medium enterprises in the apparel exports were crippled and doomed to uncertainties. The outcome has been really bad as soon after this, exporters started downsizing their business. Many reported closure of factories and there were news reports about job losses and unemployment from all corners.
So far there has been no change in revised duty drawback rates and though the Government is assuring to look into the matter, the industry is still waiting for such relief. Many top exporters reported that they have halted all expansion plans as of now and are not taking up new orders because of the uncertainty and for every order taken they are losing 8 per cent.
The industry was expecting continuation of the present drawback rates till such time as these consultations could be completed and proper measures taken to ensure that exports remain zero rated and no taxes are exported.
Integrated Goods and Service Tax, without any corresponding relaxation for export obligation has rendered the Export Program Grant Scheme unattractive. Closure of factories and mills, loss of jobs, and sudden decrease in profit margins affected everyone from the top to bottom.
The balance sheets of textile major companies, exporters and fabric producing companies all went into the red with losses. During the pre-gst regime, apparel exporters were availing benefit of EPCG scheme, where exporters were allowed to import capital goods without paying any import duty. This scheme was very popular amongst apparel exporters and encouraged many of them to invest in new units or go for expansion, but in the recent policy, there has been no clarity on the refund proceeds of IGST. The working capital requirement of the exporters have gone up dramatically due to the high rate of IGST which has not only added to the cost of production, but has created a glaring anomaly by making domestic operations attractive compared to exports.
Machinery, man-made fibre and accessory import got costlier as the new GST rates were higher as compared to earlier. Jobworkers were also affected.