Garments industry hopes for more duty cuts

The negative impact of 9/11 may be finally over. After a long gap, global retail majors have increased their apparel outsourcing from India, improving the prospects of garment exporters. While exports have staged a turnaround, the domestic garment industry is struggling to recover from recession.
Hence, the industry is looking for export boosters and support to revive the domestic sales from the budget.
“No doubt exports have registered a growth of close to 15% in the last few months. Because orders from the US and Europe were quite good. It’s all in the budget. If the budget has export incentives, the buoyancy will last,“ said Premal Udani, president, Indian Clothing Manufacturers Association (ICMA).
The industry is now pleading for restoration of Section 80 HHC of the Income-Tax Act. This implies that export profits are fully exempted from income-tax. Until the year ‘00-01, export profits were given full exemption. The exemption is crucial for the industry since it faces tough competition from neighbouring countries like Pakistan and Bangladesh. Industry sources cite the recent decision by the Canadian government to provide duty exemption to apparel produced in Bangladesh and Pakistan. Canada imports apparel worth $700-$800m from India. Industry sources said that the margins of exporters were under pressure due to appreciating value of rupee against the dollar and the overall increase in costs. There has been a steady increase in manufacturing costs due to a slew of factors including the rise in fuel costs. A Mumbai-based garment exporter said that costs have gone up by 20% over the past few months. This has forced the industry to demand labour reforms, pending for a long time. The main demands include reduction in the multiplicity of trade unions, permission for units to farm out the manufacturing process on contract basis and that units exporting 50% or more of their production should be treated as essential services.
Since infrastructure costs are proving to be a major constraint, the industry is lobbying for a few incentives. Industry feels that all national highways should have four-lane traffic system instead of the present two-lane traffic. This will speed up the road transport of export goods, they say.
When the budget for the year ‘00 introduced 16% excise on garments, it came as a surprise for the industry. Since this had resulted in falling margins for many garment units, the government had bought it down to 12%. Even this has not helped companies to improve margins. For instance, India’s largest garment company Madura Garment has reported a 16% decline in revenue during the second quarter ended March 31, ‘02. This could be the reason why the industry is now lobbying hard for total rollback of excise duties.
Will this happen? It can at best go down to 8% since the Kelkar committee had recommended that excise on garments should be reduced to this level. A section of the organised players feel that there is no need to rollover excise duty since that has become part of every industry. Instead, they need clarity on excise rules. The industry is also demanding deemed credit rebate on excise duty. The industry wants deemed credit to be increased to 62.5% from the current 20%. Import of cheap garments to India from places like the Far East have been steadily increasing over the past few years. Mostly, it is being routed through countries like Nepal. To prevent dumping, the industry has demanded specific duties on each product category.
Industry feels that budget incentives will accelerate growth in the industry resulting in consolidation. Large garment companies are now taking over small ones to expand market share. Raymond’s acquisition of the ColorPlus brand is one such example.