Indian Textile Exports May Fall 10-15% in FY18 Following Paring of Tax Exemption

India’s textile exports are likely to decline by 10-12 per cent for the current financial year due to the reduction in tax exemptions granted to exporters, appreciation in the Indian rupee against the dollar and shifting of import orders to competing countries.

In an alarming situation, India’s readymade garments exports, which are part of textiles segment, declined by 41 per cent in October to Rs 5,398 crore ($830 million) compared to Rs 9,111 crore ($1.4 billion) in the corresponding month last year. Exports of manmade yarns, fabrics and made-ups also declined by 8.3 per cent to Rs 2,310 crore for October 2017 from Rs 2,518 crore in the same month last year.

India’s overall exports of locally made retail and lifestyle products have grown at a compound annual growth rate (CAGR) of 10 per cent during FY2012-13 to FY2015-16, mainly led by bedding bath and home decor products and textiles. The government set a target for textile and garment sector exports at $45 billion for FY2017-18 as against total exports achieved worth $38.6 billion and $40 billion for FY2016-17 and FY2015-16, respectively.

The decline in exports of readymade garments indicates India’s failure to grab global market share, especially when the world leader China (around 42 per cent of global market share) has ordered shut down of a number of textile units due to environment concerns. Indian textile exporters are working hard to grab the space which China tends to vacate. But, unfavourable government policies with reduction in overall duty exemptions may push Indian exporters on the back foot, say industry experts.

“India’s overall textiles exports are likely to decline by at least 10-15 per cent this year due to the reduction in overall tax exemptions. While the government has increased the Merchandise Exports from India Scheme (MEIS), the Remission of State Levies (ROSL) remains far below our recommendations. Unfortunately, the government did not consider central tax rebate at all. Overall, textile exporters are witnessing a shortfall of 2.7 per cent in incentives now compared to the pre-Goods and Services Tax (GST) era. Also, appreciation in the rupee has hit exporters’ receivables,” said Ashok Rajani, chairman, Apparel Exports Promotion Council (AEPC).

The Directorate General of Foreign Trade (DGFT) in a recent notification raised MEIS rate from 2 per cent to 4 per cent on readymade garments and made-ups for exports between November 2017 to June 2018 through allocation of Rs 1,143.15 crore and Rs 685.89 crore for 2017-18 and 2018-19, respectively.

Also, Union Textile Ministry has recently announced the Solar Energy Scheme for small power loom units, on grid solar photovoltaic plant (without battery backup) and off-grid solar photovoltaic plant (with battery backup), where the government will provide Rs 250,000 subsidy for setting up one plant. “This will help the unit to pay back bank loans within 3 - 4 years, after which the unit shall get practically free electricity,” said Kavita Gupta, textile commissioner, Ministry of Textiles while inaugurating buyer-seller meet here today.

Looking at various schemes and incentives offered to boost the textiles sector, the government has set a target for India’s overall apparel exports at $20 billion for FY 2017-18 against the actual exports of $16.8 billion for FY 2016-17.

However, Rahul Mehta, president, Clothing Manufacturers Association of India (CMAI) believes that the export target for 2017-18 is not achievable and is likely to remain at the last year’s level.

Rajani said that overseas importers are shifting orders from India to Bangladesh, Cambodia, Vietnam because of preferential treatment being given to these countries. Interestingly, cost of production in these countries is also lower because of cheap electricity.