In­dus­try | CLE

The GST Coun­cil over­hauled the new tax regime re­duc­ing the 28 per­cent tax levied on 178 items to 18 per­cent or lesser.

Shoes & Accessories - - Contents -

CLE: Work­ing for the bet­ter­ment of the In­dus­try

Most im­por­tant of them all, the GST Coun­cil de­cided to slash the tax rate on leather, last and chem­i­cals, apart from fin­ished items like hand bags, purses and brief cases. The new rates be­came ap­pli­ca­ble from Novem­ber 15. The coun­cil, which met at Guwa­hati, had de­cided to keep only 50 lux­ury and ‘sin’ goods like tobacco in the high­est slab, pav­ing the way for price cuts in a raft of com­monly used goods from bags to purses.

Coun­cil for Leather Ex­ports’ chair­man Mukhtarul Amin thanked Union Fi­nance Arun Jait­ley for con­sid­er­ing their re­quest of re­duc­ing the GST on leather and chem­i­cals. Ear­lier in Oc­to­ber, Mukhtarul and PR Aqeel Ahmed, vicechair­man CLE, along with other leather prod­uct ex­porters, ap­pealed for a re­duc­tion in the tax from 12 per­cent to 5 per­cent.

“We wel­come the pro­posal and thank the Gov­ern­ment for con­sid­er­ing our ap­peal. Presently all man­u­fac­tur­ers, not only ex­porters, are try­ing to grap­ple with GST, and the tran­si­tionary phase has been a very dif­fi­cult phase for us. Con­tin­u­ing to pro­vide rate re­lief will help busi­nesses to counter the ris­ing prices on raw ma­te­rial and other util­ity costs,” said the chair­man.

PR Aqeel said, “The im­pact of these changes would be pos­i­tively felt in the next few months. The move would make life much eas­ier for the small busi­ness en­ti­ties. The

“We wel­come the pro­posal and thank the Gov­ern­ment for con­sid­er­ing our ap­peal. Presently all man­u­fac­tur­ers, not only ex­porters, are try­ing to grap­ple with GST, and the tran­si­tionary phase has been a very dif­fi­cult phase for us.” – Mukhtarul Amin Chair­man - Coun­cil for Leather Ex­ports

de­ci­sion of GST Coun­cil on prun­ing of the 28-slab list is a wel­come move for many in­dus­tries in man­u­fac­tur­ing space. Though it was ex­pected that there would be rate cuts, it was never ex­pected that the list would be trimmed down so sig­nif­i­cantly.” The move was wel­comed by the In­dia Inc., which said that the ‘big changes in the GST rates’ would lead to a pickup in con­sumer de­mand and sig­nif­i­cantly re­vive the busi­ness sen­ti­ment. Though still many leather and footwear man­u­fac­tur­ers are gin­gerly ex­pec­tant about the econ­omy and it’s bear­ing on their busi­nesses. After the or­di­nary GDP growth of 5.7% in the first quar­ter of cur­rent fis­cal, many man­u­fac­tur­ers an­tic­i­pate the GDP pro­gres­sion to spring back and close at 6.5% by the end this fi­nan­cial year. “Make in In­dia” ini­tia­tive and in­fra­struc­ture in­vest­ments have been per­ceived as key driv­ers for busi­nesses. While the view is yet to be as­cer­tained on im­pact of GST over the short and medium term. In the long run, many man­u­fac­tur­ers hope that busi­ness wll be sta­ble and progress will man­i­fold. Mean­while, the busi­ness houses are com­bat­ting with the teething prob­lems and ex­pect them to re­solve sooner rather than later. PR Aqeel voiced, “With the rate re­duc­tion on a plethora of prod­ucts, the next step of the gov­ern­ment should be to safe­guard that the ad­van­tage of the rate re­duc­tion goes to the con­sumers.” The ef­fect of de­mon­e­ti­za­tion on the busi­nesses has been mostly neu­tral. To stip­u­late an enor­mous im­pe­tus to the “Make in In­dia” ini­tia­tive, footwear sec­tor fore­sees a need for ma­jor la­bor re­forms and skill devel­op­ment ini­tia­tives. Ac­cu­mu­la­tive raw ma­te­rial costs, low pull de­mand sit­u­a­tion, poor busi­ness sen­ti­ment and gov­ern­ment poli­cies are seen as key chal­lenge ar­eas for com­pa­nies—ex­porters are also un­der­go­ing un­pre­dictabil­ity in their out­looks. Most of the busi­ness lead­ers believe that ex­change rate would re­main sta­ble and in the range of Rs 63-67 to the dol­lar. Many or­ga­ni­za­tions have taken onto cost cut­ting and op­er­a­tional ini­tia­tives as top strat­egy. “

Here are the edited ex­cerpts from a dis­cus­sion be­tween Amit Cho­pra, MD, S&A with PR Aqeel Ahmed, ViceChair­man, Coun­cil for Leather Ex­ports.

Amit Cho­pra: Let me start by con­fer­ring the cau­tious op­ti­mistic mood that the ex­porters seem to be sug­gest­ing. What’s your view on the growth prospects for the leather in­dus­try? PR Aqeel Ahmed:

We hail the slew of mea­sures taken by the GST Coun­cil un­der the Chair­man­ship of Arun Jait­ley Union Fi­nance Min­is­ter in its 22nd meet and 23rd meet­ing that con­cluded in Guwa­hati. CLE views that these mea­sures will give im­me­di­ate re­lief to the ex­port sec­tor which has been go­ing through a dif­fi­cult stress­ful phase due to var­i­ous fac­tors both global and do­mes­tic. These mea­sures in­clude re­duc­tion in the rate of GST on leather, chem­i­cals and ma­te­ri­als. The GST coun­cil has also made a pro­vi­sion

“We hail the slew of mea­sures taken by the GST Coun­cil un­der the Chair­man­ship of Arun Jait­ley Union Fi­nance Min­is­ter…” – PR Aqeel Ahmed Vice Chair­man–coun­cil for Leather Ex­ports

for re­fund of GST for the pre­vi­ous months, which will ease the work­ing cap­i­tal stress. A fa­cil­ity of e-wal­let has also been in­tro­duced for ad­dress­ing the re­fund is­sue.

AC: What was the main con­cern for ex­porters? PR:

The changes which have been an­nounced by GST Coun­cil, after its meet­ing re­cently, will give a great re­lief to the leather, footwear as well as to the ac­ces­sories In­dus­try for the im­me­di­ate term, as the sec­tor has been fac­ing se­vere liq­uid­ity crunch after the in­tro­duc­tion of GST. The in­dus­try was fac­ing fi­nan­cial bur­den and sig­nif­i­cant out­flow of cap­i­tal on ac­count of levy of higher GST rates on ma­jor seg­ments of the man­u­fac­tur­ing chain and re­quire­ment of up­front pay­ment of GST and then claim re­fund Im­pact­ing them.

AC: What has been CLE’S pri­mary de­mand on GST? PR:

CLE had de­manded re­duc­tion of GST on fin­ished and com­po­si­tion leather from 12 per cent to 5 per cent, as these are an es­sen­tial ma­te­rial for the sec­tor.

You see the weather in In­dia, par­tic­u­larly the North, we have a win­dow of only 3 months for leather gar­ments, mean­while in the over­seas the win­ter sea­son is for only 6 months, which makes it very dif­fi­cult for the leather ap­parel man­u­fac­tur­ers to be in busi­ness for the en­tire year. The coun­cil had asked for cut in GST rates on leather gar­ments and gloves from 28 per cent to 12 per cent, so as to at­tract for­eign in­vest­ments in this sec­tor. The gov­ern­ment pos­i­tively con­sid­ered these re­quests, as the cur­rent sit­u­a­tion is threat­en­ing to take away the busi­ness of In­dian leather in­dus­try to com­peti­tors like Bangladesh, Viet­nam and In­done­sia.

To­day, when you look around, you will re­al­ize that cer­tain items are an es­sen­tial part of one’s life. Shoes, wal­lets , belts and bags are car­ried by ev­ery in­di­vid­ual. So these aren’t lux­ury items any more. In this pre­text, we had ap­proached the au­thor­i­ties to relook at the slab cat­e­gory, and we thank the Gov­ern­ment for con­sid­er­ing our ap­peal.

So, CLE’S aim is to foster bet­ter in­ter­ac­tion among man­u­fac­tur­ers and ex­port­ing units in In­dia and play a very im­por­tant role for its mem­ber com­pa­nies. CLE is al­ways tak­ing up im­por­tant is­sues re­lated to the in­dus­try whether its ex­porters or local man­u­fac­tur­ers of any leather or re­lated prod­ucts and think­ing and work­ing for the bet­ter­ment of the leather in­dus­try as a whole.

GST Rate re­duc­tion from 12% to 5% GST rate has been re­duced for the fol­low­ing types of fin­ished leather and com­po­si­tion leather from 12% to 5%.

AC: How about the GST rate on footwear, both from ex­ports and do­mes­tic point of view? PR:

By the 2020, the leather in­dus­try is aim­ing at in­creas­ing its turnover to $25 bil­lion plus. In ex­ports, it’s tar­get­ing $9 bil­lion from present $5.85 bil­lion and its do­mes­tic turnover to $13 bil­lion from $6.50 bil­lion. There is an im­me­di­ate need to pro­tect this in­dus­try as more than 75 per cent of the in­dus­try is con­cen­trated in MSME seg­ment.

We have had many de­lib­er­a­tions on the footwear GST rate and hope the gov­ern­ment con­sid­ers the rate of footwear as well and bring it in the lower cat­e­gory of GST from 18%. It would cer­tainly for­tify and en­cour­age Make in In­dia ef­forts and to at­tract more in­vest­ments. Also, a lower rate is de­sired con­sid­er­ing footwear is a com­mon con­sumer item. Man­u­fac­tur­ers and Traders, par­tic­u­larly SMES, are fac­ing is­sues in fil­ing re­turns, which is in­creas­ing their com­pli­ance bur­den. So, even the Small busi­nesses are get­ting im­pacted more. Some have cut their pro­duc­tions also. We have raised all the is­sues with the au­thor­i­ties and have got a pos­i­tive re­sponse from the min­is­ter. But I sup­pose we will have to wait for a lit­tle while longer.

AC: Are there any time­lines to achieve the growth lev­els in footwear sec­tor? PR:

More than 4.5 mil­lion peo­ple are em­ployed in this sec­tor that ac­counts for ex­ports of about $5.6 bil­lion, and is dom­i­nated by small play­ers work­ing on sin­gle-digit mar­gins. Un­less the is­sue is ad­dressed on an ur­gent ba­sis, a num­ber of units could shut shop in the com­ing months.

AC: Is there a shift hap­pen­ing in the sec­tor. Are mov­ing to­wards a for­mal econ­omy? PR:

In ex­ports, the en­tire fra­ter­nity has been en­su­ing the for­mal path. How­ever, in the do­mes­tic, I think the shift was very ev­i­dent from Au­gust on­wards. In fact, to­wards the end of Novem­ber last year, after we all sort of got away from the shock of de­mon­e­ti­za­tion, the shift had started hap­pen­ing. In the footwear busi­ness which does have a lot of or­ga­nized play­ers, a lot of shoes are sold are be­low the radar, and those got badly im­pacted. So these play­ers are mov­ing to­wards the for­mal sec­tor. Re­tail side had been im­pact in the be­gin­ning of an­nounce­ment of de­mon­e­ti­za­tion. How­ever, after a quar­ter, I think we are see­ing nor­malcy in that seg­ment.

AC: How do you per­ceive the fu­ture growth? PR:

I be­long to the fac­tion of the 7% plus, and I think what is most im­por­tant is that the next few quar­ters, hope­fully after these mea­sures and re­liefs the growth rate should ac­cel­er­ate and for me 2018-2019 is more im­por­tant than 2017-2018.

AC: The ques­tion then is what is hold­ing back ex­ports? PR:

What’s hold­ing back growth and ex­pan­sion to­day is the sen­ti­ment. Glob­ally, the mar­kets have been down. How­ever, if you see the fu­ture busi­ness out­look, I think sev­eral com­pa­nies are look­ing at the same pos­i­tive man­ner as re­gards In­dia.

AC: Where do you find the most pain? PR:

We are not see­ing any perceptible change, in re­gard to im­prove­ment in liq­uid­ity by way of pump­ing in re­funds into the com­pa­nies, so it may take some more time. Frankly, up­load­ing the in­voices etc. I believe it is quite a chal­lenge for a SME or MSME’S. How­ever, GST is great for a com­pany like ours. It brings in a lot of trans­parency across the in­dus­try and ben­e­fits from in­put tax credit. So, it is great and only teething trou­ble for maybe a quar­ter. We are all go­ing through that. I hope by De­cem­ber we should be through the pain part and if some more eas­ing of reg­u­la­tions and eas­ing of up­load­ing data, etc. hap­pens, it will be help­ful.

AC: Where do you con­tinue to see the pain and what is it that you would like changed?

PR: GST be­ing a trans­for­ma­tional re­form, there will be a lot of pain when you go into the new sys­tem. By the time our cus­tomers, sup­pli­ers and our stake­hold­ers un­der­stand this it will take some time. Pro­ce­du­rally there are lots of is­sues, which are get­ting grad­u­ally re­solved. Busi­ness has not stopped on ac­count of GST; there was some slow­down, which is grad­u­ally com­ing back now.

AC: What do you think needs to be done to re­lieve the pain? PR:

For com­pa­nies like ours, there is no is­sue at all in im­ple­ment­ing GST. But for many ex­port firms there were is­sues be­cause in­put tax cred­its are get­ting de­layed af­fected their work­ing cap­i­tal re­quire­ments and many of them came for more credit be­cause they fell short of money. I think this re­cent an­nounce­ment by the gov­ern­ment that you can file it once in three months and for the whole chain to do it once in three months that has given a lot of re­lief to the sys­tem. Also, sound bites from gov­ern­ment of show­ing sen­si­tiv­ity to the is­sue are a pos­i­tive thing.

“The coun­cil had asked for cut in GST rates on leather gar­ments and gloves from 28 per cent to 12 per cent, so as to at­tract for­eign in­vest­ments in this sec­tor.”

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