Spearheaded by the New Delhi-based Denim Manufacturers Association (DMA), Indian denim manufacturers have requested the government to offer increased support to counter the increased costs and potential loss of business. DMA chairman, Sharad Jaipuria says since the introduction of GST which only added to the price of goods sold before the October 1 and slashing of drawback duties for exporters, the denim industry has temporarily closed down about 30 to 40 per cent of production and is operating at 60 to 70 per cent capacity following a slowdown in demand and over-capacity in the industry. Presently, the industry is bleeding and if the situation continues, there can be more production cuts.
The government’s move to reduce duty drawback rates created resentment among exporters that had relied on the funding to maintain prices and ensure competitiveness with its neighbours. The Apparel Export Promotion Council has said the steep drop in drawback support will negatively impact about 7,000 small and medium enterprises in the apparel export sector creating an adverse impact on the employment being provided to over 12 million people.
The new rate for cotton garments was dropped from 7.7 per cent to 2 per cent while the duty drawback rate on garments containing cotton and man-made fibre blends is now 2.5 7 per cent, as against the previous 9.5 7 per cent and the rate on garments made of man-made fibres is also 2.5 7 per cent, as against 9.8 7 per cent, before.
Jaipuria opined with the all-inclusive GST, the government has withdrawn refund because they had already given exporters a provision that the GST could be claimed back so the government is saying that if we are allowing you to claim back the GST under Make in India, then why should we give you the additional refund under the drawback program begun last year.
Despite this, there still is a gap between the rescinded drawback and the rollback of the GST of about 5 per cent, which is what is causing heartburn among manufacturers and could lead to a comparable increase in FOB prices. The apparel industry in India has continued to urge the government for relief and has been able to obtain some help from the GST Council.
