The retail industry, along with hospitality and tourism industry has been the hardest hit by the Covid-19 pandemic and consequent impact on the economy. Within retail, the garment industry, whose manufacturing is solely dependent on retail, has been perhaps the worst affected, in view of the stringent lockdowns, partial lockdowns, and an on-off approach to markets being allowed to operate.
What makes the problem more compounded, is the fact that more than 80% of the garment industry is within the MSME sector, with its own constraints of finance and sustaining power.
“It is therefore essential that the garment manufacturing sector, which is a very important employment creator in the country, gets the much-needed support from the government if it has to survive and recover in the coming years. The upcoming Union Budget 2021-22 is an ideal opportunity for the government to extend this support to the MSME sector in this crucial industry,” said Rajesh Masand, President, CMAI.
CMAI (The Clothing Manufacturers Association of India), is the largest representative of the domestic clothing industry, with over 4,000 manufacturers and 20,000 retailer members. The association has submitted its pre-budget memorandum to the Finance Ministry.
Some of the suggestions include:
Drawing Power should be based on 2019-20 performance
In FY 2020-21, many apparel and retail companies will face a drastic drop in revenue and profits. In fact, it is very likely that more than half of the companies could end up making losses. In such a situation, banks could unnecessarily panic and drastically curtail or withdraw the credit facilities to these companies – when in fact these facilities would be most required, especially by the MSME companies.
CMAI has recommended that banks should continue giving Drawing Power (DP) based on 2019-20 performance, and not give weightage to the 2020-21 numbers. Normally, any ‘loss’ return in income tax would attract an automatic application of scrutiny. Considering that many firms will be showing losses this year, it is suggested that the mere fact that a firm has made a loss should not make it an automatic candidate for scrutiny.
Uniform rate of 5% GST
Although retail sales have shown some signs of a mild pick up, it is still struggling at around 60% to 65% of last year’s sales. Consumer confidence has been impacted due to a reduction in and uncertainty around discretionary spending, besides the various movement restrictions due to the pandemic.
It is therefore strongly recommended that the current distinction in GST rates below and above Rs 1000 is removed, and a uniform rate of 5% GST is applied. Undoubtedly this decision can ultimately be taken only by the GST Council, the Budget can certainly give an indication and direction to the Council to seriously consider this suggestion.
Working capital interest rate at par with exporters
Working capital and cost of money are the biggest constraints for the domestic garment manufacturers. It is one of the acknowledged low margin industries and will become even more so in the future due to the extended credit that most buyers are likely to take in the coming months.
It is therefore recommended that at least for a period of one year, domestic manufacturers are offered working capital interest rates at the same rate as available to exporters. This will provide a huge relief to the domestic manufacturers.
Qualifying turnover for FPLI Scheme to be reduced to Rs 50 cr from Rs 100 cr
The government is contemplating an outstanding PLI Scheme, which for the textile sector been converted to a FPLI Scheme. One of the qualifying criteria for this scheme is a current base turnover of Rs100 crore. For the garment sector, and especially the domestic sector, there are only a miniscule number of manufacturers who would qualify for this criterion.
To really give a massive push to the avowed objective of pushing MMF sector in the industry, CMAI has suggested that the minimum turnover criterion be reduced to Rs 50 crore, for this scheme to be effective.