Readymade garment exports down 3.84% in August over GST worries

Duty drawback rate will come down after September and the real pinch of GST will start only from October

Readymade garments (RMG) exports dropped by 3.84 per cent in August. Exporters have said that they are not able to confirm orders since, after the implementation of the Goods and Services Tax (GST), duty drawback and rebate of state levies (RoSL) are yet to be decided.

In August 2017, Rs 8,556.35 crore worth of RMG exports were reported as against Rs 8,897.77 crore a year ago — a drop of 3.84 per cent.

Tirupur Exporters Association President Raja M Shanmugam said that the trend would continue as exporters are not able to take new orders since, after the GST implementation, the threat of loosing drawback to the tune of five-six per cent has prevented worried exporters from confirming orders.

After September, the duty drawback rate will come down and the real pinch of GST will start only from October.

"This is going to be a very big threat to the growth of RMG," Shanmugam said.

Exporters have appealed to the authorities to rectify this anomaly through policy intervention in whichever way possible. If the trend continues, India's share in global RMG exports is expected to come down to 3.5 per cent this year and to three per cent next year.

India's position will drop to ninth from its current sixth position and hundreds of people would lose their jobs, said Shanmugam.

There is also an apprehension that all benefits to exporters will cease from January 1 since the country has agreed and signed in the World Trade Organization that no incentive would be given after the country's per capita income reaches $1000 for three consecutive years. The country has reached that status already.

On the sector's outlook, exporters said that the delay in concluding the free trade agreement with the European Union has allowed China, Vietnam, and Bangladesh to grab the opportunities.

The Confederation of Indian Textile Industry (CITI) said that the condition of not allowing the refund of accumulated input tax credit (ITC) at fabric stage (with five per cent GST at the fabric stage and its related job works) has a huge impact on processed fabrics, especially cotton fabrics, as the dyes, chemicals, and ETP chemicals are expensive and attract 18 per cent GST.

More than 80 per cent of textile manufacturing units are highly fragmented and predominantly undertake job work.

The inverted duty will have a major impact on the cost of production, inflation, and export competitiveness, said CITI.

"It is essential to fully refund the accumulated ITC at every stage of manufacturing, especially the processed (dyed and printed) fabrics," said CITI.

In the post-GST era, knitted fabric processing units, which have a 20 tonne per day production capacity, undertaking dyeing job works, like Tirupur, at a rate of Rs 130 per kg would pay Rs 3.89 lakh per day as input tax and Rs 1.30 lakh per day as output tax. Thus, leaving Rs 2.59 lakh per day as unclaimed ITC.

This works out to Rs 9-10 crore of accumulated credit per dyeing unit (20-tonne production capacity) every year.

If the ITC is not refunded, it would significantly increase the cost and would affect not only the processing segment but also the exports of garmenting and made-ups, said a leading exporter.

CITI added that the garment and made-up sectors would be compelled to use imported fabric as indigenous fabric would become costlier due to inverted duty.