The Hindu Business Line : Garment industry wants duty drawback at last year’s level

Raising concerns
Industry cites competition from other low-cost countries
Low drawback hits high-quality cotton inputs
Finance Minister points to nil customs duty on cotton

G. Srinivasan

New Delhi, Oct 3 The Finance Ministry has told the garment industry that the recently announced duty drawback rate of 8.8-10.5 per cent was “adequate”. The industry, with $9.4 billion export turnover, had sought a higher rate. Drawback is the refund of duties of customs and central excise and service tax suffered on input raw materials/services used in manufacturing the export product.

Official sources told Business Line that Minister of State for Commerce Mr Jairam Ramesh had forwarded a charter of demands from the garment industry to Union Finance Minister Mr P. Chidamabarm. It mainly focused on enhanced drawback rates for the garment industry in the face of intense competition not only from China but also Vietnam and low-cost manufacturers from Bangladesh and Pakistan.

High value inputs

In its plea, the industry said that high-end readymade garments are manufactured with high quality/high value inputs, and the cost data gleaned by the Apparel Export Promotion Council pegged drawback rate at 14.64 per cent for cotton garments. As 78 per cent exports take place in cotton garments, the lower drawback rate hits the industry, it said adding that during the past three years apparel export growth swung wildly from 31.22 per cent at $8.6 billion in 2005-06 to 3.11 per cent at $8.8 billion in 2006-07 and 5.87 per cent at $9.4 billion in 2007-08.

When contacted, Mr Ramesh conceded that he had forwarded the industry plea to Mr Chidambaram in August, but in a communication he received from Mr Chidambaram on October 1, it was stated that all industry rates of duty drawback for 2008-09 have since been announced and the proposed drawback rates of 8.8-10.5 per cent on garments appear to be ‘adequate’ to the industry.

Nil customs duty

Justifying the reduction of duty drawback, Mr Chidambaram said this was consistent with the provisions of the drawback scheme. The Finance Minister pointed out that the customs duty on cotton (main raw material of the textile industry) has been brought down from 10 per cent to ‘nil’. This has obviously brought down the duty incidence on the whole range of cotton and blended textiles and clothing products, beginning from yarn through fabric to garments and made-ups. He also contended that the central excise duty on raw cotton is also ‘nil’.

Further, the customs duties on man-made staple fibres and filament yarns have also been brought down to a uniform level of 5 per cent with most of the raw materials and intermediates used in the textile and clothing industry being exempt from central excise duty or qualify a concessional rate of 4-8 per cent. It was further stated that although the cost of captive power generation went up due to increase in petroleum prices, the consequent spurt in excise duty incidence has been counterbalanced by cut in the customs duty on crude petroleum to ‘nil’ in June. As crude is the basic raw material for man-made fibres, this has also led to reduction of the duty drawback rates on garments made of man-made fibres.

Price pressure

However, the garment industry contends that it is now in a bind with the interest subvention and enhanced drawback rate extended to it when the rupee appreciated in the second half of 2007-08 having gone effective from October 1, 2008. The rate of drawback announced last month has only dampened its sprit. Apparel Export Promotion Council Chairman Mr Rakesh Vaid said the least the Government could do to help the industry register higher growth is restore drawback rates to the 2007-08 level when it was 11.5 per cent for the garment industry. The reduction in drawback rates coupled with the pressure from the supplier to reduce sale price following depreciation of the rupee vis-À-vis the dollar has come as a double whammy to the industry, he said.

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