TEA - 'Restore duty drawback rates on knitted garments'

01 Sep '08

6 min read

The Department of Revenue, Ministry of Finance while announcing the Duty Drawback Rate for 2008-09, has reduced the said rate for cotton knitted garments from 11% to 8.8% and the value cap has also been reduced for knitted garments to the dismay of Tirupur Exporters Association.

Currently, the garment exporting units are undergoing severe strain in price front, due to increase in input costs like, yarn cost, power cost, processing charges, transaction cost and are struggling to survive in the competitive global market.

The cost of escalation has happened mainly due to increase in petroleum products, thanks to spiraling oil prices in the global market.

The exporters have always looked up to the government whenever any factors affected business performance and the government has always been kind enough to give sops / solutions to bail out the exporters from the crisis after studying the concerned factors.

There are a lot of reasons in favour of the requisition to restore the Duty Drawback rates.

Yarn Cost:
The prices of the main raw material, cotton yarn has been increased on an average by 25% and the textile mills are citing reason for hike is the increase of cotton prices and also power cost due to captive power generation using diesel as fuel.

Power Cost:
Due to unscheduled power cuts prevailing in Tamilnadu over more than six months and the TN Government announcement of scheduled power cut of six hours per day has forced the garment manufacturers to resort for captive power generation, using diesel as a fuel, which increases their power cost by almost 2.5 times of the TNEB grid power cost.

Processing Charges:
Job work charges like Knitting, Dyeing, Compacting, Calendaring, Embroidery / Printing and including accessories like Polythene Bags and Packing Materials cost have been increased by 25% to 40% within three months period and ultimately increased the cost of garment manufacturing.

Due to escalation in petroleum products, the cost of dyes and chemicals, accessories, polythene bags have also increased considerably compared to three months back.

Effect on Cost of Manufacturing:
Considering all the above cost increases, the cost of manufacturing of a Polo Shirt has increased by 28.77%. Now with the reduction in duty draw back rates by 2.2%, it will be impossible for knitting sector to stay competitive market in the global market.

Transaction Cost:
It may be noted that apart from the above mentioned factors, and hike in fuel prices, there has been a dramatic increase in transaction cost like sending the product to various job working places, which is minimum five to six places, and also the increase in transportation cost to ports.

The lorry freight charges from Tirupur to Tuticorin, has increased by Rs. 800 from Rs. 5,100 to Rs. 5,900 and similarly, from Tirupur to Chennai, the freight rate has been increased by Rs. 1900, from Rs. 5,600 to Rs. 7500.

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