Short Term Policy Fix Will Propel India’s Apparel Exports

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India’s textile and apparel exports in calendar year 2020 have not fared too well, though orders and bookings picked up in the last quarter of financial year 2021. A globally disruptive event severely disrupted the fortunes of this important foreign exchange revenue earning industry.

Various exporters’ representative organisations have been requesting the government to at least reimburse the taxes and duties that they have paid. However, for various reasons, the finance and commerce ministries are still to announce the rate of Reimbursement of Duties and Taxes on Exports (RoDTEP). The scheme is effective from January 1, 2021 yet the rates have not been announced, though almost five months have lapsed.

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The government had appointed a Committee, under former Commerce and Home Secretary G.K. Pillai, with a mandate to calculate the duties and taxes on each product.  The Committee has handed over its recommendations to the Finance/Commerce Ministry, but the implementation has not happened yet.

While an improvement in orders is certainly one reason for a better export performance in FY 2021, this is not the only reason. A never-before-seen increase in raw material prices, devaluation of the Indian rupee, substantial increase in freight costs, etc have all reflected in the higher export revenues, even as exporters claim that profits have been near zero, with many exporting at a loss too. This is believable as international buyers have delayed or scrapped payments, cancelled orders without notice.

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Exporters have demanded that tax and duty refunds should be allowed to Advance Authorisation/DFIA holders, EOU and SEZs (who contribute to over 25% of India’s exports) as they also suffer from many of the disabilities of taxes which is the basis for calculation of the RoDTEP rate. Getting the tax and duty refunds would help the industry tide over the current crisis.

Meanwhile, some experts have suggested that the government has short term tools for propping up India’s exports, at no cost – keeping the currency artificially low, at least till exporters are able to recover from this uncertainty, allowing duty-free imports of MMF fabrics solely for garment exports, again a short term fix to help exporters move into MMF apparel faster.

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The industry, on its part, is working towards better negotiations with buyers, moving away from the commodity business, and into value-added apparel.

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