Exporters from the Tirupur ready-made garment sector are facing a stiff task on the face of nip in duty drawback scheme coupled with the Indian rupee strengthening itself against the US dollar and the British pound. The consequent fall in exports was more pronounced in the second half of the year. Even prior to that in the first five months exports registered a fall because of the uncertainties surrounding the GST regime.
The ready-made garment export basket from Tirupur contributed significantly to the national aggregate of exports from ready-made garments and stood at a robust 45%. The total exports amounted to INR 25,000. Earlier the Tirupur RMG team had targeted INR 30,000 crore. This however, could not materialize as Brexit resulted in the fall of the pound value. This led to a sharp dip in the revenues that were earlier calculated by the exporters. As compared to a double digit growth of 10 percent in 2015-16, the export growth shrunk to single digits and was stranded at 8 percent in 2016-17.
The nip in exports was very sharp during the month of July 2017 because the GST for job works was fixed at 18%. This affected the Tirupur RMG sector badly as the working capital flow was blocked and the manufacturing costs escalated. Relief came only in the month of August, when the GST was revised and slated at 5 per cent. In fact, the month of July 2017 witnessed a 15 percent drop in exports.
The revised rates however, failed to fetch immediate relief to exports. The Tirupur exporters explained, “The dip was not confined to July. August and September are usually a lean season for garment exports. Then come October, the Centre proposed a drastic cut in incentives that are in place for exports. The envisaged cut also featured a slash on duty drawback from 11.2 percent to a measly 6 percent. When the sharp fall in incentives, coincides with the strengthening of the rupee it works out to be a strong deterrence to our export segment.”
The other contributing factors that held exports in check were that countries like Bangladesh, Vietnam and Cambodia enjoy a free trade agreement with the European Union countries. Unfortunately, Europe is the major destination for the Indian ready-made garments. To circumvent this problem, the Tirupur exporters are planning to give an impetus to their exports to the US markets.
The sunny side here is that the US values Indian garment products highly and is currently contemplating importing more RMG from India. In addition, some of the Tirupur exporters are planning to target some Eastern European countries like the Czech Republic.
According to Raja M Shanmugham, President of the Tirupur Exporters’ Association, “We strongly feel that the slash in export incentives will affect the price competitiveness of Indian products. Consequently, many of our export sector players are going slow on orders. We were the second largest exporter of garments after China way back in 2005. From there we have slipped to the sixth position, well behind Cambodia, Vietnam, Bangladesh and Sri Lanka. If this current trend were to continue, in all likelihood we would further slip and fall to the ninth position behind Myanmar and Ethiopia.”