'Open up non-food retail to FDI' – CMAI tells govt

21 Feb '12

8 min read

Among its various pre-budget recommendations to the Finance Ministry, the Clothing Manufacturers Association of India (CMAI) has proposed opening up the non-food sector to foreign direct investment (FDI), removal of excise duty on branded garments and ban on imports of second-hand clothing.

The Indian domestic textile and garment industry is estimated at Rs. 1,500 billion and has grown at an annualized rate of 14 percent since 2007, providing direct employment to about 6 million people. Majority of the industry and market is unorganized, characterized by family-run businesses with small capacities and limited reach.

But after the removal of SSI restriction in 2003, organised sector share has grown to about 27% or about Rs. 400 billion, driven largely by the penetration of organised retail.

High degree of growth is expected on account of rising disposable incomes, growing consumer class and advent of global brands in the Indian markets which would increase the level of consumption. The domestic market size is expected to reach Rs. 3,000 billion by 2017 creating a direct employment opportunity for more than 7 million people.

With a view to promote the Indian textile and garment sector and provide impetus to its growth prospects, the CMAI has forwarded several recommendations to the finance ministry to be included in the budget for fiscal year 2012-13.

1) Removal of excise duty on branded garments:
The 10 percent excise duty imposed on the garment industry has been untimely as the Industry is already suffering due to macro-economic factors like inflation and borrowing costs; and industry specific factors like rising raw material costs and labour costs. Imposition of 10% excise duty on branded garments means reduction of already wafer-thin margins of the industry players.

To ensure the industry again grows at a fast pace and consumption is increased, the excise duty has to be removed immediately and if excise duty cannot be removed because of future GST roll out, than it should be reduced to 1 percent in line with 130 other items.

2) Deduction of R&D expenses including sampling costs:
Being a fashion oriented sector with trends changing at such a fast pace, considerable sums of money are required for the development of new products and designs and also on account of sampling. Sampling expenses which form a significant proportion of the product development cost are currently not under the purview of R&D expenses.

With a view to encourage the garment industry, benefits under this section should be extended beyond March 2012. Sampling costs should also be considered as part of R&D expenses and allow for necessary deduction for the same. This deduction should also be extended to unorganised units in SSI sector along with companies.

3) Funding for Development of Domestic Market:
India is a large country with several heterogeneous population groups, due to which one size/fit is not suitable across the board. Providing right size and fit to the market will promote the consumption of ready-to-wear and expedite the shift from ready-to-stitch.

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