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The Shirt Off Your Back

The textiles garment goes into belt-tightening mode

The Shirt Off Your Back
outlookindia.com
-0001-11-30T00:00:00+0553
It's a triple whammy for the textile and readymade garments industry. Apart from the challenges of a quota-less market, it's also been slapped with a 16 per cent excise duty in the budget. And with the lifting of QRs, over 230 textile items are now freely importable. This means any and every kind of fabric and garment can now sell locally—after paying customs duties which on average are bound at 35 per cent.

So what'll this mean for the consumer? Can s/he now look forward to wider variety and better quality? The answer is largely yes. And China is going to provide most of the choice. Whether hosiery products, cotton T-shirts, silk or cotton yardage, the price-quality ratio of Chinese products will be far superior, even post-duties, than most Indian products, feel market analysts.

All this will of course drive prices down even though smaller units like those that run out of homes in places like Bhiwandi near Mumbai may have to shut shop. A large part of India's Rs 45,000-crore textile consumption market is in the unorganised sector. "The Vimals and Raymonds will not be affected," says a market analyst.

The flip side for the consumer is the possibility of a lot of dumping of surplus inventory. Out-of-fashion goods or leftovers from western markets will be discounted marginally and sold here. "Importers will buy up excess inventory, underinvoice it and sell here at discount sales," says a market observer. But some don't mind that. Says 25-year-old college student Rajeev Gulati: "I don't mind buying a slightly outdated Tommy Hilfiger T-shirt for Rs 500. It would be twice that if I bought it abroad."

But branded readymades sold in India might be costlier. All manufacturers have to pay the 16 per cent duty on the maximum retail price. But the duty is to be levied only on brands that have been registered. And under government laws, it isn't mandatory to register a brand. It also takes up to seven years—inexplicably—to get a brand registered. Thus, manufacturers waiting for registration are not liable to pay excise duty.

Here's another loophole newcomers can exploit. Even if they decide to register their brands, they get a virtual seven-year excise holiday. That is why local industry is lobbying the government to impose a 16 per cent countervailing duty on imported garments.

There are many popular Indian brands too that are not registered and hence not liable to pay excise duty. Of a market size of some Rs 10,000 crore for all branded (read labelled) garments, only 10 per cent fall under the registered category.

The excise duty and the lifting of QRs has also come even as the industry is coping with sluggish demand and a stocks pile-up. Retailers are selling at 20-25 per cent discounts. Says Vikram Rao, group executive president (fabrics & apparel business), Grasim Industries, "There has been a big downturn in the last six months. A price rise (owing to the excise duty) will have a big impact on the industry which is already sitting on four to six months of inventory."

On the one hand, the industry wants to raise prices to meet the excise duty but on the other, the lifting of QRs has brought the threat of cheap imports closer home. Given the fragmented nature of the industry, where efficiency levels are low—as low as 30 to 40 per cent of global benchmarks—the new market order might work as a motivator to become more competitive.

But the government argues that in industries where QRs have been earlier lifted, there hasn't been a flood of imports. This is no indication though of the kind of numbers likely to be seen in the future, feel some in the industry. Says Rahul Mehta, partner, Creative Casuals, and a committee member of the Clothing Manufacturers Association of India, "The industry got dereserved from the small-scale sector only in November 2001. Is a four-month gearing-up period enough to take on the challenges of globalisation?" Good question.
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