TEA - 'Restore duty drawback rates on knitted garments'

01 Sep '08

6 min read

Current Trade Position:
The bone of contention is that the garment exporting units are no way in a position to increase the price of the garments as prices were decided and quoted nine months to one year back and it could not be altered proportionately to meet out the rise in input costs and transaction costs.

Another cause of concern is that foreign buyers are having alternative countries to source garments, not only from our neighbouring countries like China, Bangladesh and Pakistan but also from other newly emerged competitive countries like Vietnam, Cambodia and Indonesia.

Exports To US & EU market:
Exports to US market in the past seven months is recording a negative growth and in the case of European Union also, the trend is slightly on the negative side. This clearly portray a true picture that our products are loosing the competitiveness because of price factor only and not on quality.

Forex:
Though there has been a depreciation of rupee against dollar by 7.94% in the past four months ( as on May 01, 2008 Dollar rate was Rs. 40.19 and as on August 29, 2008 the dollar rate was Rs. 43.38 ), the benefit arisen has not really percolated to most of the garment exporting units as they have entered into forward booking for nine months based on the prediction of economists, advise of banks, reputed financial consultants and various reports saying that the rupee would touch Rs. 36/- against the dollar.

Owing to this, the exporters are literally not in a position to enjoy the benefit out of it. Moreover, in recent period, the currency fluctuations are quite abnormal and also unpredictable.

Added to this, Tirupur exporters have alone lost more than Rs. 100 crores in derivatives deals since the exporters had resorted for derivative deals mainly to offset the losses that may be incurred due to continuous falling of rupee against dollar.

Rupee Export Credit Interest Rates:
Reserve Bank of India has issued a Circular on August 01, informing the closure of the Interest Rate subvention of 4% given on Export Credit with effect from September 30, 2008 and this effect has come at a time when the banks are revising their Prime Lending Rate (PLR) upwards. The interest rates should be at par with competitive countries to be equally competitive in the price front, not to mention product quality.

As per the earlier circular, the interest subvention was given upto March 31st 2009 and based on this circular only, the exporters had worked out and given their costing to buyers. At this point of time, the sudden removal of Interest subvention at 4% given on Packing Credit Interest Rates would affect the cost of manufacturing.

Considering the increase of diesel prices (which includes duties of Customs and Excise also) which resultant into increase of power cost and transaction cost in addition to hike in yarn costs, increase in processing charges and accessories cost, at least the status quo in the drawback rate at 11% is required for the survival of the knitwear exporting units.

The Tirupur Exporter's Association has requested the Finance Minister to kindly take into account the various adverse factors gripping on knitwear garment exporting units and restore the duty drawback rate for cotton garments to 11% against 8.8% announced yesterday.

Tirupur Exporters' Association

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