Garment exporters have sought a rollback of the decision to cut duty drawback benefit as they fear it would drag down their competitiveness.
The government has announced new drawback rates to be implemented from October 1. According to the Apparel Export Promotion Council (AEPC), the new rate of 2 per cent — a steep cut from 7.7 per cent -- is too low and not in the interest of the textile sector, particularly readymade garments exporters.
This comes at a time when exporters are facing a serious liquidity crunch, as they are yet to get GST refunds. They had said Rs 65,000 crore could get stuck in the July-October period if the current mechanism of refunds for GST does not improve
Ashok G Rajani, chairman of AEPC, said the industry was expecting a continuation of the old rate, but the government decided otherwise.
The larger production cycle is under various pressures due to GST and the industry needs to take in orders for the next season. With such rates it seems impossible to do business, he said.
The government must consider the issues surrounding the sector and immediately go for a rollback of the new rate, he added.
AEPC has suggested that the government continue the old duty drawback rate at least until March 31, 2018, so that the sector could have stability before it prepares to go for a lower rate. The commitments are already made based on old rates, so a sudden change will impact deals, an exporter said.
This decision will further cripple the already struggling small-scale sector involved in the textile and garment business. AEPC further said that post implementation of the goods and services tax (GST), the export of textile has already registered a slow trend.
It has pointed out that the industry is facing severe financial pressure due to the increased working capital requirements under the GST regime. Adding to it is the stress due to the uncertainties, which has kept export sentiments extremely low. The drawback was one of the key policy support measures towards lifting industry's cost competitiveness.
The decision has simply not come at the right time. When rupee has appreciated, haunting the export business in all sectors, a new low duty drawback rate means disaster for the several MSME units in the apparel exports, AEPC said.
With this steep decline in the drawback support over 7000 small and medium enterprises in the apparel exports will be crippled and doomed in uncertainties, the industry body said.
“This will have an adverse impact on the employment being provided to over 12 million people,” AEPC said in into its notings.