A PALL of gloom hangs over the local textile mills even as their rivals in China, Bangladesh and Vietnam are betting on a 25% growth. The duty drawback balm has failed to soothe the industry, which is expected to shed 1.5 lakh jobs by next month. Sales are expected to fall to around $8 billion by the end of this fiscal, as against $8.9 billion in the previous year.
The export driven industry took a hit in last 12 months when the dollar slipped 14% against the rupee. And, India’s failure to match the production standards and volumes of rival countries worsened the situation. The duty drawback scheme has failed to pep up the industry, which was rolled out in July 2007 with a retrospective effect from April 1, 2007. “Duty drawback is a high-sounding platitude. It is nothing but the reimbursement of taxes paid to the central government by the industry. The government should also find a way of reimbursing the tax paid to state governments,” says CMAI president Rahul Mehta.
Bangalore-based Gokaldas Exports MD Rajan Hinduja agrees: “With a rupee appreciation of 14%, the margin for the apparel sector is just 7%; so, in effect, our profitability has taken a major beating. Of
course, the government is trying its best with the duty drawback scheme, which is currently at 4%, but we have been fighting for a 6% drawback.”
CMAI has suggested several steps to bail out the sector: Says Mr Mehta: “In the short term, local and state government taxes need to be reimbursed and interest rates brought on par with global levels. In the medium term, we need to increase production by building large factories, improving our technologies in a more cost-effective manner and look at technology upgradation fund schemes (TUFS) which provide certain subsidies, loans and infuses capital investment for the sector. Finally, in the long term, we can have special economic zones and integrated textile parks.”
Kewal Kiran Clothing MD Kewal Jain makes a case for small and medium enterprises (SMEs): “Along with duty drawbacks, the government must provide more incentives for SMEs to help them mature and grow. Also, interest rate, which is around 8-9%, should be reduced to match the global rates of 3% to allow us to be more globally competitive.” Kewal Kiran manufactures leading apparel brands like Killer, Integrity and Lawman.
Last year, the government introduced a 12.5% service tax on rentals, which has hurt the apparel industry, where almost 80% of the property is rented. “We have been asking for a service tax exemption at least on exports or some income tax benefit,” says Mr Hinduja.
However, there is some hope in the horizon: The government is believed to be in favour of extending a scheme of income tax exemption for 100% export-oriented units, which is expiring in 2009.