“Many Of Our Taxes Are Not At All Exporter Friendly” March 2018 issue

Ashok G Rajani, Chairman, Apparel Export Promotion Council

“Many Of Our Taxes Are Not At All Exporter Friendly”

The apparel industry has consistently been one of the leading forex earners for the country for the last many decades. However, of late, its export performance has not been very encouraging. In an exclusive interaction with The Dollar Business, Ashok G. Rajani, Chairman, Apparel Export Promotion Council (AEPC), discusses issues that are hurting the sector and his plan to resolve them.

Interview By Ahmad Shariq Khan | May 2016 Issue | The Dollar Business

TDB: How do you see the Union Budget 2016-17 impacting the Indian apparel industry?

Ashok G. Rajani (AGR): I regard the Union Budget 2016-17 as balanced, growth oriented and forward looking. The thrust on giving a boost to manufacturing, skill-led employment and infrastructure will surely provide an impetus to the garment industry. Also, customs duty exemption on import of specified fabrics, of value equivalent to 1% of FOB value of exports in the preceding financial year, for manufacture of textile garments for exports, would enable garment exporters to undertake production of those garments where they were not competitive. In FY2017, fabrics worth about Rs.1,000 crore (1% of Rs.1 lakh crore) would be eligible for imports and customs duty of Rs.110 crore would be saved by garment exporters. We believe, this will provide avenues for new product development. Moreover, continuation of duty free import of trimmings and embellishments to the extent of 5% of FOB should result in additional garment exports of Rs.5,000 crore in FY2017.

TDB: Will the Amended Technology Upgradation Fund Scheme (ATUFS) help in boosting the Indian apparel manufacturing base, thereby aiding exports as well? 

AGR: We are quite optimistic when it comes to ATUFS. We believe the scheme will provide the much-needed thrust for the expansion and growth of the apparel industry. So far, the ministry has offered full support to accelerate the growth as far as ATUFS, duty drawbacks and interest rates are concerned and there is nothing to complain about. We are thankful to the Ministry for making the necessary changes and hope that all new initiatives will help bring profits to the industry.

TDB: Are you happy with the export incentives currently provided to your sector? What more should the government be doing? How do you see the existing duty structure and tax deductions available to the apparel sector?

AGR: One of the concerns the industry has is that many of our taxes are not at all exporter friendly. To mitigate this, it has been proposed that entry taxes, stamp duty, state-level taxes and duties may be reimbursed. Some of the other suggestions for a ‘Model Export Policy’ are reimbursement of employers’ share of ESI and EPF, 50% freight subsidy for exports, leasing ‘plug and play’ factories which can be dovetailed with schemes like MGNREGA for creating durable assets and, of course, labour reforms.

TDB: According to the Confederation of Indian Textile Industry, apparel manufacturing costs in Bangladesh are 60% of those in India. So, how do you plan to compete with Bangladesh? 

AGR: Bangladesh’s competitiveness is derived from lower labour cost, better policy incentives, low-cost inputs and a priority sector status. It also enjoys Least Developed Country (LDC) status in many exporting countries, making it relatively more competitive.

Some of these advantages can’t be replicated in India, given the socio-economic differences. However, improving the efficiency of the supply chain for more efficient Cut-make & Trim (CMT) operations is what we need to strive for. Procedural simplifications, better warehousing and shipping facilities, etc., can reduce lead times and resource cost, which in turn can help us in retaining a competitive edge against Bangladesh.

Our Exporters Are Concerned About Vietnam’s Zero Duty Access to EU Markets

According to Board of Investment of Bangladesh, of late, amid rising costs and declining sales, hundreds of Indian exporters have been setting up factories/manufacturing base in Bangladesh. What would be your message to those manufacturers?  

AGR: The industry will always try to leverage the differential benefits available to it in any country and hence we have seen manufacturing facilities being set up in Bangladesh by many Indian entrepreneurs. My message to them is to identify relative advantages these two manufacturing destinations have and strategise win-win solutions accordingly so that textile value chain improves and consumers in both countries benefit.  

TDB: Despite being the number two exporter of textiles, when it comes to value addition in export-oriented apparels, India’s products lag far behind products from Bangladesh, Sri Lanka and other countries in the APAC region. How do we reverse this situation?

AGR: I agree that there is a huge scope for enhancing value realisations of our exports. This can be achieved through innovations in product and design development. In fact, AEPC has already initiated forecast seminars for preparatory support for the development of fabrics, styles, shapes and colours for the markets where our exports are targetted to. Another innovative initiative I propose to start this year is a ‘global artisan connect for value added exports’, aimed at connecting Indian artisans with international brands and designers directly.

TDB: With Trans-Pacific Partnership (TPP) on the horizon, things are bound to get tougher for Indian exporters. What strategies are you mulling to counter this challenge?

AGR: With various bilateral and multilateral agreements in play, especially the Trans-Pacific Partnership (TPP), the global export market is going to get tougher in future. Many of our exporters are concerned about the zero duty access to EU markets by Vietnam. Vietnam exports are likely to grow faster due to implementation of zero duty from 2017. India presently faces import duty of 9.6%. TPP also allows export opportunities for Vietnam to USA with a benefit of 17-30% export duty relief. India-EU Broad-based Trade & Investment Agreement (BTIA) is yet to be finalised and Indian exporters are expecting faster conclusion of the talk so that they can compete with Bangladesh and Vietnam. To mitigate such challenges arising out of multilateral frameworks, AEPC has planned an aggressive export promotion strategy. We have an ambitious target of 40 planned events and are exploring two new markets – Iran, where US sanctions have been recently lifted, and Cuba, with whom US has renewed its ties. In addition, we are also exploring the Latin American markets.
TDB: Most of the FTAs that India has signed have not resulted in desired benefits for Indian manufacturers. Your take on the issue.

AGR: Most of the FTAs entered by India in the past have had various considerations, besides market access. Unfortunately, some of the FTAs that can really benefit the industry have not been fast-tracked, as has been repeatedly requested for by the industry.

TDB: Do you believe the incentives provided for apparel exports under FTP 2015-2020 are enough to motivate new players to start exporting?

AGR: The exporting community has always displayed its entrepreneurial skills and resilience to adverse scenarios. Hence, besides being concerned about the challenges faced by new players coming into this sector, I am equally anxious about retaining old players, especially the second and third generation
entrepreneurs. I believe, good long-term policies can give the required stability and confidence that can keep the exporters motivated.

TDB: Do you believe the PM’s Task Force on manufacturing and National Manufacturing Policy is really in tune with ground realities?

AGR: I feel the National Manufacturing Policy has not had the desired impact on ground so far. However, I must say here that the two flagship initiatives of this government – Make in India and Skilling India – are extremely relevant, timely and complement each other. Together, these initiatives can transform India into a strong manufacturing hub, with buoyant demand and supply dynamics feeding it. The ‘Make in India’ dream for the textile and apparel sector will be a reality when Indian products move to high-value categories on the strength of their innovative finishes, special fabrics, efficient supply chain management and patented designs. Ensuring that investments are directed into these areas is a challenge. Also, skill development, which has been taken up in a big way by this sector needs to produce better designers and industrial engineers and not just shop floor workers. At present, the sector is taking baby steps in this direction.

TDB: Nearly 75% of the apparel producers in India fall in the MSME category. In your view, what are the key challenges plaguing these MSMEs?

AGR: One of the key challenges in a labour-intensive MSME sector like apparel is to keep the effective wage cost low, especially with increasing minimum wages. This is because of relatively lower productivity levels, which driver up the effective wage rate. Given the fragmented nature of this industry, scales of operation are low, which further limit roductivity enhancement. Besides working on various productivity enhancement initiatives, we are also looking at policy incentives for scaling up operations.

TDB: Many prospective entrepreneurs feel that regulatory and licensing process and procedures for setting up units continue to be cumbersome and in contrast to claims by the government about ease of doing business. How would you respond to them?

AGR: I agree that procedural simplification is one of the most wanted changes required. Many of the tax incentives or policy incentives offered to the sector have not been availed by the majority, especially the MSMEs due to huge paperwork and procedural complexities involved. For MSMEs, with limited manpower and resources, negotiating many of these requirements is not possible.  With a large portion of exports coming from MSMEs, the government needs to take up this issue on priority.