India’s share in global textile exports has declined while that of other countries like Bangladesh and Vietnam is increasing. HK Magu, Chairman, AEPC expounds on the reasons for this decline in exports and strategies for their revival.
Due to the ongoing US-China trade war, the Indian apparel industry expected a lot of orders to be diverted to India. “However, buyers didn’t really flock to us due to the low scale of operations of our exporters,” says HKL Magu, Chairman, AEPC. “Most Indian exporters are either small or medium scale operators. Only a few of them can cater to big orders. Also, our exporters cannot ensure a speedy delivery as they have to wait for ROCTL and MEIS clearances,” he adds.
High GST rates, fund shortage affecting Indian exports
Another issue that hampers the growth of Indian exporters is high rate of GST. As Magu notes, “We pay GST at the rates of five percent, 12 percent and 15 percent. However, we get only a five percent benefit. The government blocks around 3-4 percent of this amount preventing us from giving better prices to our buyers. This makes it becomes difficult for us to retain these buyers,” adds Magu.
The apparel business has been declining in the last couple of months. “Clusters like Tirupur and Noida are closing down due to shortage of funds. Some banks have agreed to finance the export community through the GST input. However, they charge a heavy interest on this loan, which adds to the buyers’ costs,” adds Magu.
Indian exporters don’t get GST refunds for embedded costs like fuel. “But they have been assured that no further tax will be added on their exports. This benefit will be particularly given to the person who shows his GST inputs,” notes Magu.
FTA eliminates duty differences
AEPC does more of value addition. “Around 73 percent of our exports are 50 HS code items. To export technical textiles, we need infrastructure and finance,” he says further adding that “though India is working on a FTA with the EU, there are obstacles like duty free imports of wines and automobiles.”
According to Magu, FTAs are important as a buyer purchasing his goods from Bangladesh doesn’t have to pay duty whereas while purchasing from India, he has to pay a 10 per cent duty. This duty difference has enabled Bangladesh to double its exports in the last two or three years. “We need to build a better infrastructure and bigger clusters to compete with these countries,” adds Magu.
Imports from Bangladesh may hit the domestic industry in India but they will not affect its export industry. “Duty free exports from ASEAN or Bangladesh will certainly hit the domestic industry,” says Magu. Big chain stores in India also buy from Bangladesh affecting its manufacturing sector. To prevent this, the government should allow only products made in Bangladesh to be imported to India. It should not allow fabric imports from China.
Reforms needed for export growth
Across the world, polyester or viscose is more in demand. “Therefore, we should also start producing manmade fibers. We should set up weaving centers to enable our exporters to get a better price for their exports,” adds Magu.
In terms of exports, South is ahead of the north. Exports from Tirupur range from 25 percent to 28 percent, while those from NCR are just 21 percent. However, NCR is known for its value addition while Tirupur produces basic clothes .
“We should set up apparel parks near metro cities or ports. That will save our transportation costs,” says Magu. The need to spend on real estate can be eliminated by setting up plug and play facilities. “We should also reduce our electricity and transaction costs, which will enable us to produce and export more,” he sums up.