Garment industry in Millennium City feels the slowdown heat

The government has withdrawn or reduced certain tax benefits to the garment industry over the past two years putting it under financial stress.

The government has withdrawn or reduced certain tax benefits to the garment industry over the past two years putting it under financial stress.   | Photo Credit: M_Balaji

Slew of factors, including liquidity crunch due to delay in GST refunds, affecting state of affairs; some businessmen fear worsening of situation

With the slowdown hitting the industries across the spectrum, the around 1,200 garments units in the Millennium City, providing direct and indirect employment to lakhs of people, are too feeling the heat because of a slew of local, domestic and foreign factors, including the liquidity crunch due to delay in Goods and Services Tax refunds.

Matrix Clothing Private Limited director Vipin Kumar Gupta told The Hindu that August and September were usually a lean period for garments exports to the United States and Europe and the business would pick up in October normally.

However, there was an “extraordinary” slowdown this year compared to the previous year. He, however, allayed the fears that it was a spillover effect of the slump in the automotive industry. “It has nothing to do with the automotive sector. But there is a fear that it might also impact the garments industry in the long run,” said Mr. Gupta.

Slump in demand

Conceding the slowdown, Richa and Company General Manager Amardeep Dagar at Udyog Vihar Phase-I said they were into cent per cent garments exports business — 95% to the United States and 5% to the U.K. — and had witnessed a slump of 10%-15% in the demand beyond the usual slowdown during this part of the year. “We are into exports of women garments and lost around 60% business since July,” said Mr. Dagar. He said that there were no layoffs as of now on account of slowdown, but the worsening situation could lead to job loss as well.

There are 343 garments exports units in Gurugram registered with the Apparel Export Promotion Council and total exports till January this year is ₹1,000 crore. It was ₹1,200 crore for 2017-18.

According to industry insiders, the Indian garments sector has been fast losing exports business to Bangladesh, China, Vietnam and Indonesia primarily on account of high labour cost and lack of technological advancement, besides other factors.

“While Bangladesh has the cheapest labour, almost one-thirds of India, Vietnam enjoys full duty waiver on garments exports to the United States. The garments from India have to pay 12%-28 % duty on the exports to the U.S. China has advantage over India in terms of bigger industries and better technology. In India, 80% of garments factories are small size. Many Chinese entrepreneurs have now set up their units in Vietnam as well,” said Neetee Apparel LLP CEO Animesh Saxena at Udhyog Vihar Phase-I.

Duty waiver

Mr. Saxena claimed that Bangladesh and Vietnam garments exports to the U.S. were around three times compared to the India. In Europe too, Bangladesh had an edge over India since it enjoyed complete duty wavier.

Bangladesh garments industry also poses a serious threat to the domestic garments industry with the imports from the neighbouring country registering a growth of around 160% over the past few years, said Mr. Saxena.

As a member of the South Asian Association for Regional Cooperation, Bangladesh enjoys duty-free import of raw material from India and China. Since the labour cost is less, it sells garments to India at a rate cheaper to the domestic industry. “India has been hit both ways since the export of fabric from India to Bangladesh has also gone down. Bangladesh now procures it from China. With the domestic brands in India buying from Bangladesh, the domestic garments industry has been hit,” said Mr. Saxena.

Post-GST, the industry has been hit with the imposition of the tax on garments and the delay in GST refunds, ranging from four to six months, causing liquidity crunch. Since most of the garments industry falls in the Micro, Small and Medium Enterprises category, it has been hit hard by the liquidity crunch.

Besides, the government has withdrawn or reduced certain tax benefits to the garments industry over the past two years putting it under financial stress. The Merchandise Exports from India Scheme (MEIS), under which Duty Credit Scrips were given to the entrepreneurs with the tax benefit of around 4%, has been withdrawn from August 1, said Mr. Saxena.

The scrips could be transferred or could be used to avail tax benefit for imported or domestically procured goods. Similarly, the duty drawback and rebate of State levies have been reduced from 7% and 3% to just 2% and 1% respectively. Duty drawback is a refund in payments that were initially collected upon importation of foreign-made goods.

Piped natural gas

The entrepreneurs are apprehensive that the government pushing for shift to piped natural gas will also add to the financial burden making them further uncompetitive in the market. Mr. Gupta said he had two boilers running on the biomass fuel and the installation cost for PNG would be ₹60-70 lakh while the running cost would increase 3-4 times. “With the increase in cost, I will lose the competitive edge in the market,” said Mr. Gupta.

Shift to Jharkhand

Due to sky-rocketing land prices, expansion of business is another challenge for the garments industry in the Millennium City. “Due to high cost of land, many garments factory owners plan to shift to Jharkhand. Some of the entrepreneurs such as Orient Craft have already opened new units there. The Jharkhand government is not just providing land at concessional rates, but also offering huge refunds on the wages and power subsidy. As of now, only big players with deep pockets could afford to shift,” said Mr. Saxena, hinting that the most of the garments industry might shift base to Jharkhand in another decade.However, lack of skilled labour, delay in promised refunds from Jharkhand government on wages, non-availability of raw material and reluctance of the senior managerial staff to shift to Jharkhand are some of the factors delaying the shifting of the industry.

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Printable version | Apr 4, 2020 3:23:34 AM |

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