Production in the labour-intensive garment sector contracted for a 10th straight month through February while exports dropped for six months in a row and in eight out of the past 12 months, official data showed. The contraction stokes fears of job losses and compounds problems of policymakers who are contemplating how to compensate the textile and garments sector adequately once subsidies to promote such exports are phased out (by as early as December 2018, according to some analysts) to avoid disputes at the World Trade Organisation (WTO). Apparel exports dropped almost 4% in 2017-18 when the country’s overall goods exports jumped close to 10%, while garment production declined almost 10% during the April-February period of the last fiscal from a year before. HKL Magu, chairman, Apparel Export Promotion Council (AEPC), said: “Due to the slide, several garments clusters have been impacted. Though India is struggling in exports, countries like Bangladesh and Vietnam are showing consistent growth in the apparel exports.”
Magu said the reduction in the duty drawback and remission of state levies (RoSL) after the imposition of the goods and services tax (GST), capital blockage due to slow GST refunds and uncertainties on the future of export subsidies have affected the deeply-fragmented garment industry. In their meetings with various government officials in recent months, exporters have said they are getting less than 4% under both duty drawback and RoSL schemes, which need to be raised to around 11% (of freight on board value of exports) to offset various levies, even excluding the taxes that are subsumed by GST. The government had said since the GST subsumed a number of state levies, including sales tax and VAT, the incentives were reduced.
RoSL, under which garment exporters get refunds from the Centre against all the levies they pay at the state level, was a key scheme in the Rs 6,000-crore garments package announced by the government in 2016 to create 10 million jobs, Rs 78,000 crore of additional investments and $30 billion more in exports over a three-year period. The government had then said the textile and garment sector employed 31.9 million people. Most of those employed in garments factories are women.
As such, garment exporters say they have been handicapped by the duty disadvantage against key competitors like Bangladesh and Vietnam to our biggest market — the US.
Last month, the US dragged India to the WTO, alleging New Delhi had been offering illegal export subsidies worth around $7 billion a year that were harming American workers. But even before its latest move, the US had insisted that India’s stop subsidies for its textiles and garments sector, citing a WTO rule. According to the WTO’s Agreement on Subsidies and Countervailing Measures, when the share of a developing country — with per capita income below $1,000 a year — in global exports touches 3.25% in any product category for two straight years, thereby gaining “export competitiveness”, it has to phase out export subsidies for the items eight years from the second year of breach.
The US had contended that India’s “textiles and clothing” exports first breached the threshold in 2005 and remained above the level in 2006. India had said and insists it had time at least until end-2018 as the multilateral trade body asked it to consider phasing out the subsidies only in 2010.