India’s garment exports plunge 41% in October on GST, duty draw-back woes

India's garment exports plunged 40.7 per cent year-on-year in October, which exporters blamed on the financial crunch due to the delay in getting GST refunds and reduction in duty drawback rates under the new regime.

In value terms apparel exports from the country declined 39 per cent in value terms to Rs5,398 crore ($829.4 million) in October.

The fall is one of the highest in percentage terms. Garment was the worst performing export category in October, data with the union commerce ministry showed.

Apparel exporters have demanded that the duty reimbursement to garment exporters be retained at pre-GST drawback rate of 7.5 per cent as an immediate relief to them amid declining outbound shipments.

Under drawback, exporters get the reimbursement of duties they have paid on the imported items used in the finished good.

"GST is the main reason for the fall in exports," said Raja M Shanmugham, president, Tirupur Exporters' Association (TEA).

"Order bookings didn't happen because of the ambiguities relating to GST," he said.

"We are in a disadvantageous position against our competitors. GST would impact our profit margins by 5-6 per cent," Shanmugham stated. Though exports declined between June and August, the drop was not quite big.

"Exporters could not take advantage of positive trend in global trade due to serious cash crunch," said A Sakthivel, regional chairman, Federation of Indian Export Organisations (FIEO), southern region.

Refund claims could not be settled due to system-related issues, including the need for matching various heads of different returns in a majority of the cases, he said referring to the difficulties faced by the exporters in getting GST refunds for tax paid on exports during July and August.

The duty drawback for cotton 'T-shirts' was reduced from 7.7 per cent to 2 per cent with the ceiling per piece being brought down from Rs36 to Rs9 with effect from 1 October. Under the GST regime, exporters can claim drawback only for levy of customs. Though exporters can claim input tax credit for excise duties and service tax under GST, the refunds would be minuscule, industry officials said.

However, garment exports increased 4.5 per cent y-o-y in rupee terms to Rs59,120.7 crore in the first half (H1 or April-September) of 2017-18. Exports gained 8.9 per cent y-o-y in dollar terms to $9.2 billion during H1 of 2017-18.

The Apparel Export Promotion Council (AEPC), meanwhile, said it has been engaging policy makers for an early resolution of the issue, which is hampering the apparel industry, post GST roll out.

Chairman of Apparel Exports Promotion Council (AEPC) Ashok Rajani has called on Chief Economic Advisor Arvind Subramanian to apprise him about the difficulties faced by garment exporters.

The apparel export industry has been "severely handicapped" by the sharp reductions in the effective drawback and rebate on state levies (RoSL) rates. The drawback mechanism prior to the GST reimbursed both the customs duties and domestic taxes like central excise and service tax.

"The important point is the principle of reimbursement of domestic non-GST and GST central taxes in addition to customs through the drawback mechanism," he said.

This, however requires an amendment in the drawback rules to provide for reimbursement of GST duties.

"We therefore urged Subramanian that pending these legislative changes, the total duty reimbursements to the apparel sector be retained at pre-GST stage of 7.5 per cent drawback without input tax credits, plus 3.5 per cent of RoSL (rebate on state levies)," Rajani said.

The pre-existing levels of reimbursement through the drawback and the RoSL routes should be maintained up to 31 March, 2018 to provide immediate relief to the reeling apparel sector, he added.