The government is considering a proposal to offer higher incentives to garment and made-up exporters under a scheme that is meant to reimburse them for various state and Central government imposts, as it mulls ways to soften the Covid-19 blows to key employment-intensive industries.
The government may raise the incentive level by 2-4 percentage points under the Rebate of State and Central Taxes & Levies (RoSCTL) scheme from the current 4-6% of the freight-on-board value of shipments, depending on the types of garments, a source told FE. “A final decision on this issue will soon be made,” said the source. This will also be in sync with the exporters’ demand that certain embedded taxes are currently not reimbursed under the RoSCTL, and that exports must be zero-rated, in accordance with global best practices.
The garments sector has been hit hard due to a massive cancellation of export orders and an exodus of migrant labourers in some states. Exporters in the country’s largest garment hub in Tirupur, which is estimated to have shipped out apparel worth Rs 26,000 crore in FY20, have already warned of a 50-60% slide in FY21. Since 80% of the garment exporters are MSMEs, with very limited resources, the sector is reeling under an unprecedented liquidity crisis.
Many units will have to be shut, leading to massive job losses, if the government doesn’t step in swiftly with some succour, exporters say. In such a scenario, global orders will increasingly go to new competitors like Vietnam, Cambodia, Bangladesh and Poland, etc, they warn.
The Cabinet has already approved the extension of the RoSCTL for garment and made-up exports beyond March 31 until a proposed, and more WTO-compatible, scheme — Remission of Duties and Taxes on Exported Products (RoDTEP) — is implemented. However, in case, the new scheme is implemented later this fiscal, the higher benefits under the RoSCTL will likely continue.
As such, the pandemic has only accentuated a slowdown in the outbound shipments of textiles and garments, which, in turn, aided a 1.5% year-on-year contraction in overall exports to $293 billion in the April-February period. The fall in garments exports would be sharper in March, as the pandemic spread and led to the lockdown.
Garment exports have witnessed a roller-coaster ride in recent years, despite the announcement of a Rs 6,000-crore package in 2016, as the labour-intensive sector was hit by demonetisation and the GST in quick succession. In the April-January period of this fiscal, while exports of cotton garments rose just 4.4% year-on-year, those of man-made fibres dropped by 3.9%.