The Union finance ministry’s decision to increase basic customs duty on ready-made garments to 20% from 10% has brought relief to the garment industry. The move comes at a time when there has been a sharp spike in garment imports, especially from Bangladesh. Ready-made garment imports increased to Rs 4,983 crore in 2017-18 compared to Rs 3,994 crore in 2016-17. India imported textile and apparel products valued at about $7 billion in 2017-18, a 16% year-on-year increase. The government has increased import duty for products, which account for around 26% ($ 1.8 billion) of total textile imports into India, according to the Confederation of Indian Textile Industry (CITI).
In all, 48 apparel items for which the import duty has increased accounts for nearly 82% ($630 million) of the total apparel imports. “This will definitely prevent apparel imports from China, which is the largest supplier of apparel to India,” said Sanjay Jain, chairman, CITI. Industry officials, however, said that the problem is not yet over. “There is a big issue of imports from Bangladesh where there is full exemption of ‘Basic Customs Duty’ and hence it is a gateway for Chinese fabric entering India duty free,” Jain said.
“This is because no rules of origin are in place for duty free imports from Bangladesh,” he said. In 2017-18, imports of apparel from Bangladesh surged 44% y-o-y to $201 million. “The government can consider imposition of safeguard measures such as ‘Rules of Origin’ on the countries that have FTAs with India to prevent cheaper fabric produced from countries like China routed these countries,” CITI said.
The Department of Revenue, Ministry of Finance, has increased the basic customs duty to 20% for import of 23 knitted garment items and on one knitted fabric item, which came into effect from July 16. Textile imports from China, Bangladesh, Vietnam, Cambodia and Sri Lanka have been growing at a robust pace registering a CAGR (compounded annual growth rate) of 17% in the last five years. There has been a continuous rise in imports of textile products, especially after the implementation of GST (Goods and and Services Tax) last July.
In the pre-GST era, import of garments from Bangladesh was attracting Rs 77 per piece (where MRP is Rs 999 per piece) in duties and Rs 116/pc (where MRP is Rs 1,500/pc) in the shape of CVD (countervailing duty) plus education cess and thereon. However, in the post-GST scenario, there was no cost for import of garments from Bangladesh and other countries as it is cheaper compared compared to garments produced here,” said Raja M Shanmugham, president, Tirupur Exporters’ Association (TEA).
Several industry associations including TEA have been continuously making representations to the government citing the vulnerability of the Indian textile industry and the serious threat to employment caused by imports. TEA also submitted a white paper to union textile minister Smriti Irani providing details details on the issue.The while paper explained how China, by setting up their factories in border countries, is taking advantage of the abundant availability of labour , and customs duty exemption available to these countries in in key export markets such as European Union and Canada.
“Bangladesh imports Chinese fabric, converts them into garments using its cheap labour and exports them to India without paying any duties,” industry officials said in their representations to the government. Since import of ‘Made in China’ fabrics is meant for exports, Bangladesh doesn’t impose import duties. Some specified garment items imported into India from Bangladesh is exempted under agreement on South Asian Free Trade Area (SAFTA).