Change in Duty Draw­back Rates Shocks In­dus­try

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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.

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