There is some good news for the Indian garments industry who has been protesting the 10 per cent excise duty imposed by the Union Budget. The Finance Minister has addressed their concern by partially rolling back the excise levy. He had proposed to levy 10 per cent excise duty on 60 per cent of the MRP of branded apparel. However, now the 10 per cent excise duty would be levied on 45 per cent of the MRP. In other words, for an apparel costing Rs 1,000, a garment-maker will now have to shell 10 per cent duty on Rs 450 — according to the original proposal, excise duty was to be levied on Rs 600.
Referring to the concern expressed by small-scale garment manufacturers on the 10 per cent excise levy on branded ready-made textiles garments, Pranab Mukherjee proposed to enhance the abatement from 40 per cent to 55 per cent of the retail sale price. With this, a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.9 crores.
However, the changes have not really amused garment makers who are unhappy with roll back. In fact, they have expressed dismay at the meager 1.5 per cent reduction in excise duty. "Very disappointing," said Rahul Mehta, President, Clothing Manufacturers Association of India. CMAI, which had gone on strike earlier this month against the proposals made in Budget 2011-12, especially demanding the rollback of 10 per cent excise duty on branded apparels, said Mukherjee's move failed to address the bigger issues. "Since it has only tinkered with the rates and not addressed our major concerns particularly that of spiraling costs of raw materials and futility of introducing a new tax one year before
GST rolls out," Mehta said.
Vijay Purohit, President of Gujarat Garment Manufacturers' Association feels the change will not help garment industry significantly. “The relief is negligible and may not help curb the drop in demand for ready-made garments. Companies will be forced to pass on the burden to the end-user as margins of most players are already under pressure due to rising cotton prices," he says. Agrees Viren Shah, President, Federation of Retail Traders Welfare Association (FRTWA) as he feels reducing the excise duty by 1.5 per cent is no relief. “We will spend as much money on extra paper work and on hiring excise consultants. Exorbitant excise will only prompt garment manufacturers to remove the 'Made in India' label and go unbranded to avoid taxation," he explains. The proposal of additional levy may push prices up by 5-35 per cent, depending on the brand and type of textile product.
The rise in excise duty and hike in prices of raw materials have already started affecting the consumer. Retail prices of garments have already shot up and manufacturers say prices are likely to go up further in the near future. It may be noted that the Indian garment market is pegged at Rs 90,000 crores, of which Rs 20,000 crores is the branded garment industry. "The industry was expecting a complete withdrawal of excise duty. Branded garments will get costlier. We fear this may lead to reduction in demand. The duty has come at a time when raw material prices are very high. Consumer will have to shell out more for branded garments April onwards. Besides, this will take away the level playing field from branded garment makers," sums up Jayesh Shah, Director and CFO Arvind Ltd. Echoing similar sentiments, Future Group director and CEO (retail) Rakesh Biyani said, "The industry is largely disappointed by the minimal concession, which only addresses the margin and discount structure of the garment industry." In short partial roll backs may not be the answer as the FM needs to address bigger issues here.