India - Textile co`s call for duty drawback, upset with Trade policy

26 Feb, 2009 - India
In the interim trade policy, the custom duty under Export Promotion Capital Goods Scheme (EPCG) was cut to 3% as compared to 5%. Duty Entitlement Passbook (DEPB) Scheme for exporters was extended to December.

According to the industry, the textile sector is going through its own ‘S’ curve at this juncture. Most of the textile companies are US based and Europe based where there is a tremendous slowdown in demand. Therefore, the industry expected some more stimulus packages from the government to see a revival and protect a lot of job losses.

Industry expected more

Rajendra Hinduja, ED, Gokaldas Exports, said the foreign trade policy is pretty lukewarm as there is nothing much in it for the apparel sector. He said the company was expecting an increase of duty drawbacks and interest subvention. "This has not found place in the policy. If that doesn't come through now in these difficult days, then there would definitely be more job losses of nearly 5-7 lakh in the next 2-3 months."

Akhil Jindal, Director, Welspun India expected a much better help from the Centre in the textile segment. “We are looking at a situation where there are tremendous pressures building up on all counts. Internationally, there is a demand compression. Costs are going up. So, I would have recommended a much more liberal policy in terms of the duty drawback, which could have probably taken our earnings to a higher level.”

Jindal is of the view that the Commerce Minister was very bullish on USD 200 billion export turnover by 2010 and feels that this remains a challenging number. This is very much required for us to maintain and sustain the GDP growth of around 6-7%, he added.

State of textile industry

Hinduja said orders are being snatched by neighbouring countries like Bangladesh and Vietnam. "We are losing out on terms of 4-5% in difference in price and that's the reason we were requesting the Finance Minister to give us 3-4% increase in the drawback. China has increased its drawback from 12% to 17%, Bangladesh from 11% to 15%, and Vietnam up to 15%. We are getting 8.5%."

The apparel industry, he said, has done USD 9.7 billion in exports in 2007-08. "But this year we may not cross USD 8.5 billion, which is an about 12-13% dip."

On custom duty reduction

Jindal believes that the reduction in custom duty from 5% to 3% under the EPCG scheme will not have any material implications going forward because not many people in this market are looking to really get the machinery in the investment mode. “Most of the companies are just consolidated on the investment that they have made in the past. So to that extent this is a welcome change. But this is not going to affect profitability in the short run. Over the long to medium-term, this might be helpful. But we need steroids at this juncture not vitamins. So to that extent this is not going to help immediately.”

What the industry needs?

Akhil Jindal lists out three things which he expected. “The industry needs a better drawback scheme because at one point in time there was a drawback which was around 11%, and then it was brought down to around 4% and then it was hovering around 4%. So there is a 6-7% possibility on the drawback itself. The second thing that probably will help the industry is bringing the input costs down. Cotton, chemicals and other things that are very heavily involved in textile making, they could bring the cost of production down and make the textile industry very competitive vis-à-vis Bangladesh, Pakistan and China. The third is providing effective TUF loans or Technology Upgradation Fund loans, which can certainly help in terms of deferment of cash flows.”

Source: http://yarnsandfibers.com/