2011has been a year of roller coaster ride for the Indian industrial sector. With issues such as rising input costs, power failures, labor concerns, and many others, few of the policy declarations made by the Government has also put the industrial sector in turmoil. Heated debates happen for and against the policies; while the Indian textile, and apparel sector is still hopeful about the positive outcomes of the decisions, expecting a better growth. Here is are view of the policies, and declarations of the Government that has evoked mixed reactions among the industry players.
10% Excise duty on branded apparels:
In the 2011-12 Union budget the Government levied 10% excise duty on branded readymade apparels. The 7000 crore Indian branded apparel sector was up in arms protesting this decision. The declaration was believed to add more burdens tote industry which is already fraught with increasing cost of raw materials.Apparel retailers felt insecure as the higher duty would only be pushed on to the customers. Retailers witnessed an increase in their inventory level by10-20%. Most of the retailers minimized their inventory levels by going in for deeper discounts.
The excise duty has come as a sudden shock not only to the apparel retailers, but also to the consumers. Clothing makers and retailers considered various alternatives to handle this. They considered for a change in the product mix,introduce different price points, and also a price hike up to 8%. Some others even considered a 10% hike in apparel prices. Apart from the impact on the operating costs, retailers also feared a decline in the apparel sales.
Goods and Service Tax:
GST is an indirect tax collected on value added goods and services during various stages of the supply chain transition. This would replace excise duty, and service tax. Both state and central Government will impose GST. It is collected on the goods imported into, and manufactured in India, and does not apply to exports. Under GST, manufacturers will get credit for the earlier paid taxes,thereby eliminating payment of multiple taxes for the same goods or services. It is believed to divide the tax burden among manufacturing and services. It is expected that the GST would promote exports, increase employment, and boost the country's growth.
FDI in Retail:
India is predicted to be among the top five destinations for foreign investors during 2010-12. The 'Economic Survey of India' presented by the Government to the Parliament states, "Permitting FDI (foreign direct investment) in retail in a phased manner beginning with metros and incentivizing the existing retail shops to modernize could help address the concerns of farmers and consumers. FDI in retail may also help bring in technical know-how to set up efficient supply chains which could act as models of development".
India's Committee of Secretaries (CoS) has voiced its approval for 51% of FDI in multi-brand retail industry. India has already allowed for 51% FDI in single brand retail, and 100% FDI in cash-and-carry business formats.
But the Government's decision of inviting FDI also brought a little heartburn. Protests spark stating that the proposal would affect the interest of small shops which are the back bone of Indian economy. Flooding the country with supermarkets is feared to create unemployment. Big retailers may also undercut the margins of small store owners, thereby throwing them out of the business. Possibilities exist for a monopoly.
Altering the sensitive items list:
India, under its free trade agreement with Saarc countries maintains a list of items considered as protected goods. Indian Government; rather than considering Bangladesh as a rival export market wanted to give duty free access to its textile exporters. This friendly gesture of the Indian Government has evoked opposition from domestic textile manufacturers who believe that this would be a major blow in the Indian market. The items considered by the Government made 85% of the total imports from Bangladesh into India. The general fear that was menacing the industry was removing knitwear items from the list would flood the country with knitwear apparels which would impact the jobs of thousands of garment workers in India. On the contrary, few others argue that this relaxation will only be a drop in the ocean, and will positively encourage the bilateral trade between the two countries.
Indian textile and apparel sector has an overwhelming presence in the country's economic improvement. Despite all the confrontations, Indian textile and apparel sector offer rosy promises for industry players.
References:
"Consolidated FDI Policy" (Effective from April 1, 2011), Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion (FC Section), CIRCULAR 1 OF 2011, dipp.nic.in.
Thehindu.com
Thebangladeshtoday.com
10% Excise duty on branded apparels:
In the 2011-12 Union budget the Government levied 10% excise duty on branded readymade apparels. The 7000 crore Indian branded apparel sector was up in arms protesting this decision. The declaration was believed to add more burdens tote industry which is already fraught with increasing cost of raw materials.Apparel retailers felt insecure as the higher duty would only be pushed on to the customers. Retailers witnessed an increase in their inventory level by10-20%. Most of the retailers minimized their inventory levels by going in for deeper discounts.
The excise duty has come as a sudden shock not only to the apparel retailers, but also to the consumers. Clothing makers and retailers considered various alternatives to handle this. They considered for a change in the product mix,introduce different price points, and also a price hike up to 8%. Some others even considered a 10% hike in apparel prices. Apart from the impact on the operating costs, retailers also feared a decline in the apparel sales.
Goods and Service Tax:
GST is an indirect tax collected on value added goods and services during various stages of the supply chain transition. This would replace excise duty, and service tax. Both state and central Government will impose GST. It is collected on the goods imported into, and manufactured in India, and does not apply to exports. Under GST, manufacturers will get credit for the earlier paid taxes,thereby eliminating payment of multiple taxes for the same goods or services. It is believed to divide the tax burden among manufacturing and services. It is expected that the GST would promote exports, increase employment, and boost the country's growth.
FDI in Retail:
India is predicted to be among the top five destinations for foreign investors during 2010-12. The 'Economic Survey of India' presented by the Government to the Parliament states, "Permitting FDI (foreign direct investment) in retail in a phased manner beginning with metros and incentivizing the existing retail shops to modernize could help address the concerns of farmers and consumers. FDI in retail may also help bring in technical know-how to set up efficient supply chains which could act as models of development".
India's Committee of Secretaries (CoS) has voiced its approval for 51% of FDI in multi-brand retail industry. India has already allowed for 51% FDI in single brand retail, and 100% FDI in cash-and-carry business formats.
But the Government's decision of inviting FDI also brought a little heartburn. Protests spark stating that the proposal would affect the interest of small shops which are the back bone of Indian economy. Flooding the country with supermarkets is feared to create unemployment. Big retailers may also undercut the margins of small store owners, thereby throwing them out of the business. Possibilities exist for a monopoly.
Altering the sensitive items list:
India, under its free trade agreement with Saarc countries maintains a list of items considered as protected goods. Indian Government; rather than considering Bangladesh as a rival export market wanted to give duty free access to its textile exporters. This friendly gesture of the Indian Government has evoked opposition from domestic textile manufacturers who believe that this would be a major blow in the Indian market. The items considered by the Government made 85% of the total imports from Bangladesh into India. The general fear that was menacing the industry was removing knitwear items from the list would flood the country with knitwear apparels which would impact the jobs of thousands of garment workers in India. On the contrary, few others argue that this relaxation will only be a drop in the ocean, and will positively encourage the bilateral trade between the two countries.
Indian textile and apparel sector has an overwhelming presence in the country's economic improvement. Despite all the confrontations, Indian textile and apparel sector offer rosy promises for industry players.
References:
"Consolidated FDI Policy" (Effective from April 1, 2011), Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion (FC Section), CIRCULAR 1 OF 2011, dipp.nic.in.
Thehindu.com
Thebangladeshtoday.com
Comments