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Duty Drawback Decline: Apparel industry stands divided over the issue

by Dheeraj Tagra

12-January-2019  |  8 mins read

Duty Drawback

Duty Draw Back (DDB) used to be a big support for Indian apparel exporters until it was reduced from 21 per cent to even less than 2 per cent, over the years. However, the industry seems to be divided on the same.

Apparel Resources talked to many garment exporters with different scale of operation and product specialization in the same regard. Most of them have different views on the impact of recent reduction of 0.1 and 0.2 per cent in DDB. While some say the recent move will have no impact, others feel it is going to affect the industry big way. There are some who feel that the government should ponder over other issues that need more attention, than DDB. However, the entire industry is strongly of the opinion that there is no survival without enough support of the government.

“No Impact”

Naresh Bajaj, Partner, Parvati Fashion, Noida-based SME apparel exporter, believes, “Being medium level exporters and specialising in organic garments, we do mainly small orders. So, we have a little reasonable price. All these things result in having less impact due to decisions like reduced duty drawback.”

Navjot Singh Walia, Head-Marketing, Maral Overseas Ltd., Noida echoes similar opinion. “The reduction of 0.1 and 0.2 per cent will not create much difference but this is for sure that apparel export industry needs support from the Government. The challenges are growing both at the internal as well as external level. There are numerous kinds of support that our competitor countries get from their Governments, as well as they have advantages from their core markets too like duty-free access etc,” he said.

Maral Overseas Ltd is one of the well-known export houses of Delhi-NCR.

Industry Veteran Vinod Thapar who is also Chairman of Knitwear and Textile Club, Ludhiana, says, “Looking at duty drawback rates as a whole, not only from the point of view of the garment exporter, I must say that it is not going to impact the overall industry much. The Government has taken from one segment of the industry and given somewhere else within the industry itself. There are vertically integrated players in the industry that export yarn, fabric as well as garments, so they will manage as per their convenience or demand. The minor reduction will not have much impact on even the small or medium-size garment exporters.”

“Much Impact”

There are few exporters who believe that the recent drop in DDB is going to impact the industry big way.

“Our apparel export industry needs duty drawback rates or overall incentives as they used to get earlier, but the Government is reducing the same. The two per cent rate of duty drawback is something that we don’t understand as to whether to count it in costing or as profit…. It is like a peanut,” says Vimal Shah, VP, Garment Exporters Association of Rajasthan (GEAR), Jaipur.

“Definitely, this reduction will have its negative impact on our apparel export business, irrespective of the scale of business, type of products or bulk or small order size… Looking at the current scenario of apparel export business, every single penny counts. International buyers don’t listen or try to understand that the government does not support us. Our survival was majorly on incentive but now we can’t say about the future as overall, the Government support is almost finished,” Naveen Duggal, Partner, Kokeva Designs, Delhi

“Becoming Insignificant But Does Have Impact”

Rajat Jaipuria, MD, The Rajlakshmi Cotton Mills, Kolkata is of the view, “Now DDB has become insignificant. It is only for bulk manufacturers, especially those working on low margins. SMEs exporters with small orders should not be impacted much by these rates. As far as our company is concerned, we do have some negative impact and the coming time seems more challenging.”

“Forget DDB, There Are Other Ways Too.”

Amit Gupta, Partner, Pearl Apparels, Gurugram, insists, “Many apparel exporters are running their factories in losses and the Government officials are well aware about this fact. So, when factories are already in losses, such a reduction is not a major thing impacting them. Rather than reducing or focusing on duty drawback, the Government should make optional PF and ESI for garment export sector. Our industry also needs relief on rules regarding overtime. When our Prime Minister can work for 16 hours, why can’t we, and why do our workers require overtime to complete a time-bound task? The Government should support us on long pending issues, like it takes 18 days for fabric to reach Chennai from China and again it takes 18 days for the fabric to travel from Chennai to Delhi. This system needs improvements.”

Vikram Khandelwal, Director, Sneh Designs, Delhi, says, “With the recent decision on duty drawback, exporters like me will bear a loss of Rs. 10,000 on the export of Rs. 1 crore which is not a major issue. I wish to bring Government and policymakers’ attention to an allied issue which is hurting more and whenever I raise this issue in my circle, many exporters are not even aware about the same. We get a loan from banks on 9.7 or 10 per cent interest and Government claims interest subvention of 5 per cent but it is always delayed and that too, very much. As far as my experience is concerned, it is still pending from April, 2018.”

He further adds, “The second thing on similar lines is that banks give us loans on the basis of order to order and asks to pay them back as the order expires which is not possible because it takes time to receive payment from our client. All this finally results in higher interest/penalty on us. The banks should give us flat time like 180 days. An exporter has many orders and gets a loan on the basis of order to orders, so most of the time he is not even aware that how much higher he is paying owing to this procedure. The RBI must look into this matter.”