The Hindu Business Line : Drawback rate cut irks garment exporters

THE Government's decision to reduce duty drawback rates from January 19 has upset exporters who fear that this will raise product costs and makes them uncompetitive in the global market.

The reduction ranges from 24-47 per cent in the case of fabrics and 64-71 per cent in the case of made-ups such as bed linens and terry towels. It has been about 40-50 per cent for readymade garments.

According to Mr Premal Udani, President, Clothing Manufacturers' Association of India, the association in its pre-Budget memorandum submitted to the Government had requested it to consider 17 per cent as the duty drawback rate, since taxes such as service tax, electricity duty and education cess have not been considered. The current move, he said, would paralyse readymade garment exporters.

Mr Amit Goyal, President, Confederation of Indian Apparel Exporters, said that while the old system was based on the f.o.b. value of the products, the new system was calculated on a `per kg' basis.

This may dampen high-value garment exports like mill-made fabric shirts or mercerised T-shirts. Normally exported at $8 per piece and weighing only about 250 gm, Mr J.B. Jain, proprietor, Rupam, said an exporter would get only Rs 10.5 per piece in the new system versus Rs 32 previously.

According to an industry source, since the quota regime was dismantled on January 1, prices had fallen by an estimated 10-12 per cent.

About 350 exporters who have recently sealed contracts at the recently concluded Heimtextile Fair in Frankfurt will also stand to lose.

The new rates will hurt the existing contracts and prices will have to be revised upwards while negotiating new contracts.

Mr B. K. Patodia, Chairman, Cotton Export Promotion Council, said that the reductions were uncalled for particularly when 350 exporters of made-ups and furnishings "have negotiated substantial contracts on the basis of the prevailing rate. The sharp and sudden reduction in duty drawback rates has disrupted the contracts signed''.

He added that the Council had already provided the Government with data on transaction costs, which showed that there was an incidence of 8 per cent on various accounts and was not being rebated under any scheme.

Mr Patodia suggested retaining the old duty structure while initiating discussions with the industry to arrive at a justifiable duty drawback scheme.

It was expected that the rates would be revised suitably to accommodate the phasing out of the DEPB scheme on March 31, 2004.

Now exporters would have to bear the cost of unrebated taxes. The VAT is also not likely to cover textiles for another year and exporters may find time matching the performance of nations such as China, Thailand and Pakistan whose manufacturing costs are lower than that of India's.

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