India's apparel exports decline by nearly 4% in year of GST

In the first year of implementation of the goods and services tax (GST), India’s apparel or readymade garment (RMG) exports have declined by nearly four per cent in dollar terms in FY18. In rupee terms, the decline is higher at 7.6 per cent.

RMG exports fell from $17.4 billion in FY17 to $16.71 billion in FY18, a 3.8 per cent decline.

Fall in RMG exports happened due to continual month-on-month (MoM) decline in dollar terms, beginning from a 39.30 per cent fall in October 2017 and ending at 17.8 per cent in March 2018. In the latter month alone, India’s RMG export was $1.49 billion, against $1.81 billion for the corresponding month last year.

H K L Magu, chairman, Apparel Export Promotion Council, said, “The export figures show apparel export is not only stagnating but heading towards recession. These clearly indicate ongoing shrinkage in the industry, which is a big cause of concern.”  

Global factors such as free trade agreements (FTAs) of competing nations with key markets like Europe, the UK and the US had already been posting a challenge to RMG exporters. GST implementation in July 2017 resulted in blockage of funds for the export community, says the industry. Further, export incentives such as duty drawback and rebate on state levies (ROSL) were reduced. 

“While the duty drawback rate and ROSL were lowered to two per cent from 7.5 per cent and 3.9 per cent, respectively, in the post-GST era, incentive under the Merchandise Exports from India Scheme (MEIS) was increased from two to four per cent,” Magu told Business Standard.

However, with the MEIS deadline on June 30, the industry is uncertain of taking orders beyond the date on the basis of a higher incentive. "We are unsure if MEIS will continue after that. We will lose money if we assume four per cent incentive beyond June and the government does not extend it,” said Magu. Global factors have been rendering Indian RMG exporters uncompetitive. “While China has vacated the apparel export space, India is unable to encash on the opportunity, unlike Vietnam, Bangladesh or Cambodia who have FTAs. India is emerging as an expensive affair in the global apparel market," Magu stated.

Backed by its duty-free access to the EU market, Bangladesh retains its status as the second-largest apparel exporter after China. Vietnam remains fastest-growing among large apparel-exporting nations, maintaining its growth in the US market despite the latter backing out of a proposed trade agreement.
 

"Bangladesh and Vietnam are showing consistent growth in the apparel exports. We would like the government to address the issue at the earliest," Magu said.