Apparel Exporters Say Six Million People May Lose Jobs
Apparel exporters expect 15-20 percent decline during the rest of financial year.
Apparel exporters said nearly half of 12.9 million people employed in the $17.5-billion industry may lose jobs as one of India’s largest employment-generating sectors struggles to recover from the disruption caused by the Goods and Services Tax.
Many factories in Jaipur, Ludhiana and neighbouring areas have already shut down, PMS Uppal, president at Okhla Garment and Textile Cluster said in a press conference in New Delhi on Tuesday. “Almost 30 percent of export units have shut in the hosiery hub of Ludhiana. Six million employees may lose jobs this financial year.”
Exporters said production costs have risen because of new levies on air freight and outsourced work. And delayed refunds of taxes paid on inputs have added to their pain. Apparel shipments declined 39.2 percent in October over the same month last year, Uppal said. In April-October, they were down 5.8 percent and are expected to fall 15-20 percent in the year to March, he said.
Exporters were not required to pay tax on several inputs earlier, Ved Jain, former president of the Institute of Chartered Accountants of India, the governing body for the accounting profession, said. “GST now taxes inputs and reduces incentives like drawbacks. That’s hit the garment exporters.” Reducing input costs and higher incentives will help the industry, he said.
The duty drawback, or the rate at which taxes on imported inputs are refunded, was brought down to 2 percent from 7.5 percent. The rebate on state levies was also lowered to 1.7 percent from 3.5 percent.
Sudhir Sekhri, chairman at Garment Exporters Association, said the average profitability prior to GST was 4-5 percent of the turnover. “Due to reduction in the drawback rate and rebate of state levies rate, we are losing 6.5 percent of the profit.” Order book is expected to contract by 10 percent in the year to March, Sekhri said.
There was no tax on job work or outsourced services and air freight. That’s changed after GST. Air freight is taxed at 5 percent. Outsourced services like embroidery and knitting were initially taxed at 18 percent but the rate was later lowered to 5 percent.
The government also increased the duty benefit under the Merchandise Exports from India Scheme from 2 to 4 percent to cushion exporters. Yet, that hasn’t helped much.
“Still, the industry is worse off by around 4-5 percent compared to the pre-GST era considering the impact of change in tax rates, input credits and export incentives,” said Nimish Bhatia, director at law firm BDO India LLP. Despite higher benefit under the merchandise exports scheme, “exporters are struggling to maintain the same business levels”.
On top of it, refunds for taxes paid on inputs have still not been released. The exporters have urged the government to expedite the refunds as it has blocked their working capital. Banks too are unwilling to lend. Borrowing more is further hurting profitability, Bloomberg reported Ganesh Kumar Gupta, Mumbai-based chairman of Akaash Textiles Pvt. Ltd. and Vijay Silk House Group, as saying.
Being one of the largest employment generators in the country, the government must address the industry’s concerns, BDO India’s Bhatia said.