After seeing an increase of around 25 per cent in exports in September, exports of ready-made garments fell by nearly 41 per cent in October.
Exporters say the drop is owing to ambiguities embedded in the goods and services tax (GST), which has put India in a disadvantageous position vis-á-vis competing nations.
Industry sources said after the GST was introduced, realisations had been affected by nearly five per cent, making Indian-made garments costlier by 12-15 per cent.
In October, exports of ready-made garments dipped by around 41 per cent in rupee terms to Rs 5,398.08 crore from Rs 9,100.75 crore during the same month last year. In dollar terms they declined in October by 39.22 per cent to $0.829 billion from $1.364 billion a year ago.
Exports rose to Rs 10,707 crore in September from Rs 8,583.55 crore of the same month last year. Exporters attributed the increase mainly to the upcoming Christmas season in western markets. The other factor is that inventories piled up due to the GST are now being cleared.
A Sakthivel, regional chairman of the Federation of Indian Export Organisations (Southern Region) and former president of the Tirupur Exporters Association (TEA), said that exporters were facing a serious cash crunch. While referring to the difficulties faced by exporters in getting GST refunds for taxes paid in July and August, he said that in a majority of the cases, refund claims could not be settled.
R Rajkumar, managing director, Best Corporation, which supplies to global brands including Mothercare, said there was confusion regarding the GST. Pricing pressure is high since there is no duty drawback and rebate of state levies (ROSL).
European market conditions are not encouraging, either. Both these factors have resulted in a drop in exports. “Unless something done on drawback and ROSL, it is going to be very difficult for exporters,” said Rajkumar.
As the refund mechanism is not fully in place, working capital requirements have gone up, increasing the cost. “With the introduction of the GST, our realisation is getting affected up to 5 per cent net,” he said. He noted the exporter’s margin was 3-5 per cent.
Exporters are not able to pass on the burden to customers because competing nations such as Bangladesh, Vietnam, Sri Lanka, Cambodia, and others are cost-competitive. “Our garments are 8-10 per cent costlier than garments produced by other countries such as Bangladesh, which are enjoying duty-free status in European countries, and added to that comes this five per cent. We are behind competitors by 13 to 15 per cent,” said Rajkumar.
Exporters have urged the Centre to reinstate the old rate of duty drawback at least up to March 31, 2018, including reinstating the old ROSL rates.
They also want banks to give soft loans against GST refunds receivable.