Port Wings News Network:
Tirupur Exporters Association (TEA) has expressed disappointment over reduction of Duty Drawback Rates by the government.
In a press release issued on 10 December 2018, Shri. Raja M Shanmugham, President, TEA, said the All Industry Rate of Duty Drawback for garment sector was announced on Thursday and in the revised drawback rates list, the rates have been reduced from 2% to 1.8% for some garments and 1.9% for few garments and added that the new revised list has totally disappointed Tirupur knitwear garment sector when they were expecting hike in the rates.
Shri. Raja M Shanmugham pointed out that when the raw material cotton and subsequent processed item cotton yarn drawback rates were enhanced how could the value added garment sector, employment generator has been neglected and the rate revised downwards.
Shri. Raja M Shanmugham said he has made a representation to the Prime Minister and Textile Minister with a requisition to look into the issue and help to revise the drawback rates upwards.
Below is the reproduction of letter TEA written to the Prime Minister Shri Narendra Modi
Prime Minister Office
Government of India
South Block, Raisina Hill,
SUB : REDUCTION OF DUTY DRAWBACK ON APPARELS – REG
REF : CUSTOMS NOTIFICATION NO. 95/2018 CUSTOMS (NT) DATED
With reference to the above, we wish to submit that as per the Customs Notification cited above, which came out as a shocker for the entire apparel industry of the country, the All Industry Duty Drawback rates applicable for value added readymade garments were reduced while the rates for raw materials such as Cotton, Yarn and Fabrics were increased.
In this connection, we would like to summarise the plight of the apparel industry that is reeling under continuous months of negative growth since July 2017 for your kind consideration and necessary action:
- To give an overview about Tiruppur cluster, our town was a tiny village about three decades ago, which has grown leaps and bounds in global apparel trade to become ‘Knitwear Capital of India’ and presently our cluster does an export turnover of around Rs. 24,000 Crores and domestic business of Rs. 16,000 Crores providing employment to six lakh people. About 55 % of the knitwear manufactured in India are produced in Tiruppur.
- A recent study conducted by Oxford Economics on the world’s fastest growing cities, Tiruppur is ranked in 6th place in the entire world.
- Times of India study as reported in the magazine dated March 14, 2016 has ranked Tiruppur as the best place for job seekers with over 44 % of the population of the town employed. All these credentials are testimony to the entrepreneurship of this place and also the potential of the apparel industry.
- Apparel manufacturing is an ever growing industry till mankind lives on earth. The change in attire pattern – whereby every individual wears three to four dresses every day depending on his lifestyle – has created enormous growth opportunities for the apparel sector. With proper handholding and support, this opportunity can be effectively leveraged for the benefit of our nation for creating more and more jobs to the rural poor and generate enormous forex earnings that are the dire need of the country at present.
- Traditionally, the Government of India has been following a policy of encouraging apparel exports and attempt to reduce raw material exports. This is with a noble agenda for creating more and more jobs for the rural poor – which is exactly the task the apparel sector is doing.
- It is well known that for every crore of investment in apparel making, 70 jobs are created. This is without considering the jobs created in the backward vertical right from cotton farming to spinning of yarn and producing fabric.
- Besides, the only ray of hope for MSME to flourish and thrive in textile industry is apparel manufacturing – as most of the other verticals like Spinning and Processing have become hugely capital intensive to an extent hardly any MSME entrepreneur could afford. Historically, more than 90 % of the Apparel manufacturing segment is dominated by MSME sector.
- Encouraging MSMEs is the single most important agenda being pursued by your august Government whereby more and more initiatives are directed towards empowering the micro and small enterprises to come up and emerge in the international arena.
- This being so, the abovementioned Customs Notification whereby the duty drawback rates are being reduced for apparel manufacturing and increased for cotton, yarn and fabrics comes as a rude shock for the entire sector and a marked deviation from the existing policy to preserve and create jobs.
- Effectively there is a 0.1 / 0.2 % reduction in the Duty Drawback for apparels while there is an increase of around 0.2 to 0.5 % on various raw material items like Cotton, Yarn and Fabrics. This will not only have the effect of exporting our jobs but also strengthen our competing nations who will become even more competitive henceforth.
- It may be noted that the industry has been crying for an increase in the duty drawback rates because of the continuous negative growth being encountered post implementation of GST, a summary view of the same is as below :
- As may be seen from the above data, the industry is already suffering from the aftershocks of the GST implementation that has replaced the earlier Drawback and ROSL mechanism by GST refund mechanism. The working capital and bottom-line issues faced by the industry for the past one year was enormous which is evidenced by the sharp month on month downturn in the export data captured above.
- Just to point out one anomaly – duty drawback rate for natural fibre cotton is being increased from 0.15 % to 0.50 % – Cotton is a agricultural produce with very little embedded tax for which duty drawback is increased three fold.– while in apparel, large number of imported items are being used including accessories, buttons etc., that suffers customs duty, but herein the rate for drawback is reduced.
- The benefit of this rate hike for cotton hardly goes to the farmer, but enrich only a few MNC corporations who play in global commodities market thereby inflicting enormous damage for the domestic manufacturing sector. A move like this is only to the detriment of all the stakeholders including farmer, manufacturer and the country at large.
- Yet another point to be noted is the fact that India is already at a disadvantage with all our competing nations like Bangladesh, Cambodia, Myanmar, Ethiopia and Vietnam that enjoy tariff benefits with the western countries. Till July 2017, a portion of this competitiveness gap was being offset by the cushion made available through duty drawback and ROSL benefits. The elimination of this additional cushion has immediately shown its result whereby there is an unprecedented month on month fall in apparel exports for the past one year.
- For a country like India where the need to feed 1.3 Billion people is an agenda of topmost priority for the government, it is imperative to find ways to support the industries like apparel manufacturing that are providing the livelihood to the rural poor, especially rural women.
In this background, we seek your indulgence to address the imminent survival threat faced by the apparel export industry of India on the following lines:
- Kindly look into the matter and arrange for reinstating the duty drawback rates on readymade garments, and
- Initiate a consultative process with all stakeholders in Apparel manufacturing segment and arrive at means to compensate the exporters by increasing the drawback and ROSL rates so as to arrest the further fall in exports;
Your intervention in this regard will go a long way in not only preventing huge job losses in one of the biggest employing industry of the country but also realize its true potential of becoming the global leader in Textile Manufacturing.
Requesting your kind and favourable action in this regard.
Raja M Shanmugham