The government is yet to clear refunds worth R650-700 crore for textile exporters under the duty drawback scheme, accumulating since September last year, senior industry executives said on Wednesday.
Already hurt by the recent rupee appreciation and volatile raw material prices, the delay in releasing the refunds could further erode textile mills’ ability to export and also squeeze their profitability, they said.
Under the duty drawback scheme, textile exporters get refunds in the range of 3-10% of the freight-on-board value of the exported products. The duty drawback scheme provides for the refund of duties (customs and central excise) paid on raw materials and inputs that have gone into the production of goods for exports.
Despite a pick-up in exports due to initial rupee depreciation, as many as 286 listed firms in the textile and garment sector recorded combined net profits of R1900.17 crore in the first three quarters of 2013-14, down 33% from R2822.97 crore a year earlier.
Most of the major players, including Alok Industries, Bombay Rayon Fashions and Bombay Dyeing, either witnessed a drop in profits or recorded losses.
In such a situation, the total refund, to the tune of 37% of the profits of all these listed firms in the April-December period, dents the cash flow in the sector. Last year, some mills had applied for loan restructuring, for the second time since 2007-08.
?Ideally, duty drawbacks should be released within two weeks after exports, as textile mills operate at 50-75% of exports on total turnover. And if the drawback claims remain pending just because of the customs collection target, then it is a serious issue and should be addressed at the earliest,? said Manikam Ramaswami, chairman of Cotton Textiles Export Promotion Council.
The textile industry typically operates between 3% and 5% net profits, and any delay in getting the refunds badly impacts liquidity, he added.
Since the rupee has now appreciated by 11.2% since its record low against the dollar last August, export growth has come under pressure. If the rupee strengthens further from Wednesday’s level of 61.07, as forecast by some analysts, the profitability of the organised textile and garment sector could be further strained in the coming months.
According to provisional data, textile and garment exports alone hit $20.43 billion during the April-December period, up 13.4% from a year before. This is mainly because the rupee depreciated 11.6% against the dollar between April and December this fiscal from a year before to an average of 60.79, making the shipments more remunerative.
However, industry executives said that after factoring in exports of raw cotton, handicrafts, jute, coir and handlooms, the overall textile and garment exports won’t exceed $40 billion this fiscal, falling short of the $43-billion target set by the government.
In September last year, the government had withdrawn benefits for cotton and cotton yarn under the focus market scheme (FMS), drawing sharp reaction from the industry.
Under the FMS, exporters used to get up to 4% of the freight-on-board value of cotton yarn in the form of a transferable scrip.