Branded garments prices unlikely to decline in India

16 Jan '12

4 min read

With no signs of removal of the excise duty on branded garments in India, imposed through the Budget of February 2011, the price of branded apparels may not see any major decline this year.

The imposition of excise duty for the first time on the branded clothing segment has generated estimated revenue of Rs. 20 billion for the Government.

Currently, the Indian Government is collecting an excise duty of 10 percent after giving an abatement of 55 percent, i.e. on a garment costing Rs. 100, excise duty is calculated on Rs. 45 after deducting abatement, which would come to Rs. 4.50.

Most brands passed on this excise duty to the customers by raising the prices between 15 to 20 percent, dampening the consumer demand.

This put a break on the Indian organized apparel market that was growing at 15 percent annually till 2010. The branded garment industry in India has estimated to have incurred an overall loss of nearly Rs. 40 billion owing to decline in sales volume, along with an increase in discounts and extra cost of inventory carrying accrued to manufacturers and retailers.

Putting his case forward for rollback of excise duty, Mr. Mohan Sadhwani, Executive Director, Clothing Manufacturers' Association of India (CMAI), told fibre2fashion, “If the Government rollbacks the excise duty, it would at least provide clothing manufacturers some protection from the imports that are happening from Bangladesh.”

“We are an industry which has huge potential for employment. We have witnessed a regular 15 percent annual growth for some years, but last year our growth level went down due to recession, allowing duty-free imports from Bangladesh and imposition of excise duty. Of these three, recession is not in the hands of the Government, allowing zero-duty garment imports from Bangladesh is a decision taken by the Government that cannot be revoked. So, all the Government can do to help us is at least rollback the excise duty,” he argues.

Giving the issue an employment perspective, he says, “Textile and garment industry has the second largest employment potential after agriculture. On the one hand, the Government has ear-marked huge sums of money for skill development programmes and for the TUFS scheme. The Government is supporting these projects because it wants employment to increase, modernization to take place and thereby make the industry to grow and progress. But, on the other hand, the Government is penalizing the industry by allowing duty-free imports from Bangladesh and imposing the excise duty.”

The imposition of excise duty is particularly harming the small and medium enterprises more. Mr. Sadhwani says, “There are 25 large players in the country and the rest are all fragmented. So, the excise duty is indirectly hurting the small and medium scale sector.”

For 2012, Mr. Sadhwani has a little pessimistic outlook. He says, “In 2012, growth may not be there unless the industry begins to improve drastically. 2012 is going to be more or less sluggish, and growth is going to be difficult. Clothing is a priority but it does not get the top priority like food does. Employment generation would not be a possibility this year.”

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