Textile and garments industry eye more incentives

The Apparel Export Promotion Council has sought a number of interventions from the government, which include more incentives, continuation of the duty-free import of speciality fabric up to 1 percent of export value of garments, round-the-clock customs clearance, withdrawal of GST on air-freight and duty-free import of samples in the forthcoming Union budget, as the the labour intensive textile and garment companies are facing increasing competition from Vietnam and Bangladesh.

While apparel exports have grown at a subdued pace in the face of intense competition, yarn exports also remained under pressure given the decline in demand from China as well as India’s losing market share in the Chinese market.

According to rating agency Icra, adequate budgetary allocation for schemes such as refund of state levies and interest subvention benefits can help improve the competitiveness of Indian textile exporters in the international market and improve textile export growth.

Subsidies under the TUF scheme are the key drivers for investment in the textile sector. Hence, lowering the allocation constrains the pace of capacity addition.

The budgetary allocation for the Technology Upgradation Fund (TUF) Scheme was reduced by 23 percent to Rs 2,013 crore in 2017-18 from Rs 2,610 crore in 2016-17, a level even lower than 2014-15.

Analysts said that a higher allocation towards the TUF scheme for 2018-19 would prop up investments in the downstream segments, facilitate value addition and result in a higher contribution by the sector to the country’s GDP as well as forex earnings.

They said that apparel exports can go up significantly if the raw material and intermediaries that are currently being exported get processed further into apparels. This has the potential to double the cotton-based apparel exports and increase the total textile exports from the country by 50 percent in value terms.

Assocham has sought an interest equalisation of 3 percent in yarn exports to make the domestic product competitive in the international market. It has also sought exemption from payment of GST on exports, reduction in GST rates from 18 percent to 12 percent on manmade fibre and sufficient provision for the TUF Scheme in the Union budget.

The sector is largely dominated by small and medium enterprises and faces constraints arising from infrastructure bottlenecks and dispersed value chain. Continued funding allocation to textile parks, financial assistance (in the form of equity/grants) and access to conducive infrastructure can enhance the sectoral efficiencies. This in turn can help in enhancing the sector’s contribution to the country’s manufacturing production as well as GDP.

The domestic industry is also concerned about increasing imports from Bangladesh. The import of garments from Dhaka to the country increased 66 per cent to $111.3 million during July-December 2017 from $66.9 million in the same period last year.

In the pre-GST scenario, the import of garments from Bangladesh cost Rs 77 per piece (MRP Rs 999 per piece) and Rs 116 per piece (MRP Rs 1,500 per piece) in the form of CVD plus education cess.

However, post-GST, there is no cost for the import of garments from Bangladesh. Similarly, in the case of import of garment from other countries, the cost has been substantially reduced by Rs 77 per piece and Rs 116 per piece where the MRP is Rs 999 per piece and Rs 1,500 per piece, respectively.

In terms of volume and market size, the overall import from Bangladesh isn’t much. However, the fast increase poses a threat to the Indian manufacturers. The country’s garment industry will face stiff competition because of the imported garments, especially from Bangladesh where production cost is already less than India.

Indian garment manufacturers have to pay duty on imported fabrics, while Bangladesh can import fabric from China duty-free and convert them into garments and sell to India duty-free.

The export of garments and textiles, which contributes 13 percent to the overall shipments, declined 3 percent in December 2017 to $2.99 billion although in the April-December 2017 period it posted a growth of 2 percent at $26.13 billion.