In the 2011-12 Union budget, the Government has levied 10% excise duty on branded readymade apparels. The 7000 crore Indian branded apparel sector is up in arms protesting this decision. Already burdened with increasing cost of raw materials, labor issues, and increasing borrowing costs, the industry is in turmoil. The Government's nod to allow duty-free apparel imports from Bangladesh is also giving jitters to the industry players. Retail manufacturers of readymade apparels are requesting the Government to bring down the current excise duty of 10% and make it 1%.
Speaking with the News Desk of Fibre2fashion, Mr. Vinod K Thapar, President of Knitwear Club, said, "The excise duty on garments is 10 percent, which is very high. Also, every month we have to deposit that amount in advance which turns out to be a big amount, while our payment realization begins after 60 days. So, our major investment gets blocked in the form of excise duty."
Current year is seeing a decline in the profit margins. Various factors plaguing the industry including increase in raw material prices, labor unrest, and increase in borrowing costs are infecting the industry. Readymade apparel industry is going through a rough patch with 17% drop in sales figures during the recent few months. Retailers feel this is a major drawback for the apparel industry. Business standard reports CMAI President Rahul Mehta saying "The duty has proved a major setback, overturning the direction of the entire industry. The domestic industry has shown tremendous growth over the past 8-10 years. However, for the first time in 2011-12, a decline of over 17 per cent or `1,725-crore has been estimated due to high inventory levels."
10% excise duty had resulted in increased inventory for retailers. Prices have shot up by 20%, resulting in a pile of merchandise in the retail stores. Despite giving discounts, and other sales promotional offers, apparel retailers are still left back with an additional inventory of `1,400 crore. To do away with the enormous stock, retailers are offering hefty discounts up to 40% on the MRP. Business standard quotes the CMAI President stating estimated losses up to `4,000 crore.
Remedial Resources:
Clothing makers and retailers are looking for ways to handle the price rise. They are opting for a change in the product mix, introducing different price points, and also considering a price hike up to 8%. Some of them are even considering a 10% hike in apparel prices.
In the forth coming budget, retailers expect the Government to roll back the duty. Echoing similar sentiments Vinod Thapar says "We have demanded that the excise duty should not be there at all. Ludhiana's knitwear industry has been badly affected by this duty and it is now fighting for survival. At this juncture, growth looks like a distant dream and our industry will get destroyed if the excise duty is continued." Retailers even think sourcing from Sri Lanka, and Bangladesh would be cheaper options than making apparels here.
The Knitwear Club President expresses his hope that the excise duty would be removed from 1st April 2012. "Even if the Government does not completely rollback the duty, it might, at least, reduce it to one percent" he claims.
Organized apparel industry which booked sales up to `40, 000 crore during the previous years is hit sternly due to issues outweighing the price increase. Retailers are positive hoping that the Government would either roll back the duty or reduce it to 1%.
References:
1) Business-standard.com
2) Cmai.in
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