GST giving an upper hand to the homegrown cotton and natural fibers jeopardizes the domestic MMF industry causing the continuous rise in import of man-made fibers (MMF) that in turn is deeply hurting the domestic textile sector, according to the Confederation of Indian Textile Industry (CITI). It has been observed that there is a substantial increase in imports of MMF yarn post-GST being 83% and apparel being 84% percent. Analysis by CITI shows the primary reason for this is the removal of countervailing duty (CVD) after GST was implemented, which overnight made imports cheaper by more than 12% percent.
To combat the increasing imports and in order to help the MMF sector of India, the import duty on fabrics and garments was subsequently increased by the government to control imports, and therefore, the import of fabrics has been relatively under control. However, the import of garments could not be controlled through this measure because of free trade agreements (FTAs).
Moreover, the import of polyester yarn in India has been increasing by a compounded annual growth rate (CAGR) of about 13% since 2014-15 to reach $95 million in 2018-19. Indonesia is the biggest supplier of such yarn to India and notably, imports from there have increased exponentially at a CAGR of 59% during the same period.
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Apparel Exports Need Fresh Lease Of Life… But How???? A Report..
Last few months have been catastrophic for apparel exports industry of India. One after the other the industry was struggling with one or the other challenge. While global competition is one aspect of the challenges within the country at the moment is being regarded as the biggest deterrent to the slow situation of the industry. Burdened with higher tariffs than their competitors, the exporters need more incentives and protection to stay afloat. India’s foreign trade policy pundits need to renegotiate tariffs on apparel exports with the EU and the US to tackle the emergent economic slowdown in the country. The apparel industry is the country’s largest low technology employer after agriculture, with 45 million workers, contributing two percent of GDP and 15 percent of export earnings.
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Indian Manmade Fibre (MMF) Industry In Jeopardy: Increased Imports And Esclated Cost Affects Industry
Working out tax rates for different goods and services was a huge challenge for India’s Goods and Services Tax (GST) Council. Although the GST has taken under consideration a significant part of the industry - cotton and natural fibers, distortion has been introduced in the GST system, through the ‘inverted’ duty structure on man-made fibers. Man-made fiber and synthetic yarn attract an 18% GST rate as compared to 12% excise duty, while the fabric produced from these fibers is taxed at 5%. This creates a situation where the input is taxed at a much higher rate than the final product.
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On the other hand, a few people have differing opinions about velvet. “New government policies have affected the business a lot, demonetisation had already caused a huge loss and GST has simply added to those wounds. 12% GST rate solely on velvet whereas GST on other fabrics is only 5%, has closed doors for export for many like us” said one of the officials from Kedarnath Velvet. He also said that even though Velvet is trending worldwide, exports are suffering due to taxation schemes in India. Also, China is hugely competitive.
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