Things will only get better
The Indian apparel sector is trying to regain lost ground in the post-demonetisation era and the launch of the goods and services tax (GST). HKL Magu, Chairman of the Apparel Export Promotion Council (AEPC), the official body of apparel exporters in India, speaks to Fibre2Fashion about government support, challenges and the expected growth of the industry.
What is the share of apparel exports in India's GDP?
The textiles and apparel industry is a major contributor to India's export basket, accounting for 13.3 per cent of total exports. The latest Economic Survey has observed that states which have performed well in exports have a higher prosperity level. The textiles and apparel industry contributes 14 per cent to manufacturing output and 2 per cent to the GDP. With over 45 million people employed directly, the industry is one of the largest sources of employment generation in the country.
Which countries have an edge over India in apparel exports?
Bangladesh certainly has an edge over India due to its zero-duty access to European Union (EU) markets. It also has a lower wage rate.
How can Indian exporters beat competition from countries that have preferential duties with the EU?
The preferential duties given to other countries lead to a cost disadvantage of around 10 per cent for Indian exporters. Given the limited options for export promotion policy support options, there are no alternatives to cover such a cost difference. Hence, the Indian government will have to work towards speedier implementation of free trade agreements (FTAs) with countries/regions like the EU.
The Indian government had announced a special package for the garment sector. Please tell us more.
The components of the special package include: (i) additional incentives under ATUFS; (ii) a special advance authorisation scheme; (iii) rebate of state levies (ROSL); (iv) employee provident fund scheme reforms - PMRPY; (v) introduction of fixed term employment; (vi) increasing overtime caps; (viii) enhancing scope of Section 80JJAA of the Income Tax Act; and (viii) employee provident fund scheme reforms - optional EPF (This scheme is yet to be notified).
What about announcements made in Union Budget 2018-19? Will those help in increasing exports?
The textiles industry got an increased allocation of Rs7,148 crore, which includes an additional allocation of Rs2,163.85 crore for ROSL for 2018-19 as against Rs1,855 crore for 2017-18. Moreover, there has been an increased allocation from Rs1,100 crore to Rs2,000 crore for the interest equalisation scheme (IES) for the current year and Rs2,500 crore for 2018-19. However, the increased allocation of Rs2,163.85 crore is not enough to clear the backlog of ROSL. The AEPC estimates that around Rs2,900 crore will be required to clear the backlog up to March 2018. The industry was expecting a higher allocation on account of ROSL backlogs and increased drawback to compensate for the embedded and blocked taxes that account for around 5 per cent of FoB currently, following GST.
Which are the major challenges faced by the apparel export industry? What measures are needed to overcome them?
The apparel industry was one of the worst-hit after demonetisation and GST roll-out, as a huge part of the supply chain was outside the tax regime prior to GST. The industry is grappling with a severe financial crunch due to the non-receipt of GST and ROSL refunds, besides other procedural issues towards transition to GST. The AEPC had raised this issue with the ministries, and the industry was hoping for some financial support for mitigating the crunch, especially because the sector also saw a severe reduction in drawback and ROSL benefits. But, the sector has not been given an increased interest subvention from the existing 3 per cent to 6 per cent. The need of the hour is to clear ROSL backlogs, provide the refund of 5 per cent shortfall post-GST, and expedite the process of GST refunds.
What latest technological advancements will help the readymade garment industry?
India has an advantage in terms of availability of skilled workforce, existence of a complete value chain, and a good fibre base. But the missing link is leveraging the skilled pool of technicians and workforce for producing more value-added products, as also improving R&D and product development capabilities. However, I am hopeful that with the government's focus on Skill India and with the emergence of new technologies, things are only going to get better as far as apparel manufacturing is concerned.
What is the contribution of women in the apparel / fashion sector?
Women constitute around 70 per cent of the workforce in the apparel sector. The government's decision to reduce the provident fund contribution from 12 per cent to 8 per cent is an extremely positive step and will encourage higher participation of women in the sector.
Which regions in India will become the new hubs for apparel sourcing?
An encouraging sign has been the red carpet that various states have been rolling out for the textiles and apparel industry. Some states like Bihar, Uttar Pradesh, Jharkhand, Odisha, West Bengal, Gujarat, Telangana and Andhra Pradesh are offering a slew of benefits in terms of subsidised capital, wages and logistic support to new set-ups on their land, well recognising the high potential of the sector. The potential of the apparel industry in addressing unemployment and the fillip it can give to the downstream domestic industry is the reason behind the healthy competition among various states for attracting investments from the apparel sector. The AEPC State Partnership Committee has been working well and encouraging exporters to avail the opportunities in these states.
What is the growth that India's apparel exports will see by 2022?
The industry had set for itself an export target of $20 billion this year. However, the GST transition issues like delays in refunds and procedural challenges have stalled the growth story seen in the first half of 2017-18. The industry can set a target of 10 per cent in the coming years if the concerns are smoothened out in the coming months. The post-GST transformation has been challenging, but I am sure the industry will show the resilience it has shown in the past and emerge stronger. In fact, the GST-driven digitisation, documentation and compliance requirements may help the industry emerge as a much better managed and transparent ecosystem than many of our neighbouring production centres. If India's readymade garment exports grow at a rate of 10 per cent, it can reach $28 billion by 2022. (RR)