Over the past two decades successive Governments, textile ministers and textile secretaries have failed to push for reforms to give the industry a level playing field to grow in a very competitive environment, where the margins are shrinking by the day. Unfortunately, the Ministry has always been of the opinion that garment exporters are asking for incentives, but the fact is the industry actually needs much more than ‘money’ to do business in a global market. Praveen Nayyar, MD, Dimple Creations, who has been closely associated with AEPC and other garment export associations over these two decades and more, interacting closely with ministries to put forward the ground realities of the garment industry, is very disappointed that the Government’s inaction and inability to take firm steps has led to a situation where the industry is at a crossroad, despite its fighting and entrepreneurial spirit…
hough, it has been said a zillion times, the fact remains that even today poor infrastructure and ambiguous custom clearance procedures are the biggest challenges for any exporter. What makes them even more fatal for the garment industry is the nature of the product, which is seasonal and hence has a limited lifespan. If an exporter misses two vessels, either because of delay in reaching port due to bad roads or because of delays in custom clearance then he has no option but to airlift the container which costs a lot of money.“Whether it is exports or in importing fabrics, there are 50 things that can delay the process,” says Nayyar. The basic problem is that people manning the custom procedures are not trained to recognize the shipments or guide the exporters properly or do not understand the urgency of lead times.
It is shocking to know that custom clearance of imported fabric can take from 70 hours to 70 days! No wonder exporters prefer to work with product categories that use Indian fabric. At one end, the exporters are criticized for not getting into categories like sportswear and lingerie, fabric for both of which is not available in India and on the other hand the process of imports is so cumbersome that not many want to get into it. The fibre composition of imported fabrics is a major friction point and cause of delay. “For fabrics where no drawbacks is applicable to the final garment exported, why stop the imported fabric at all,” questions Nayyar. There should be a clear policy, which says that if the fabric is being imported for garment exports the clearance has to be made in 24 hours, but no Government has ever thought it necessary to take such action to facilitate increase in our export basket!
Even the category under which a particular garment needs to be classified when exporting is opened to interpretation. “One of the most common issues is whether a garment is a top or a blouse. The customs is very particular because in tops category drawbacks are given on weight and for blouses they are given on per piece quantities. Instead of understanding why the mistake happens and simplifying the definition for greater clarity, the customs impound the shipment when documents are not in line with customs requirements. “Broadmindedness has to come in, okay the guy has made a mistake, ask him to mend the documents, maybe even fine him and clear the goods as soon as possible, but why treat an exporter as a ‘thief’?” reasons Nayyar.
The mindset of the Government is indeed a major irritant for the industry and is seen in many policies including the cap on duty drawbacks. “If somebody is exporting embellished dresses for 12 dollars, what interest does he have to export if Government is giving him a cap of Rs. 45-50. The Government should be more pragmatic, if a person exports 10,000 high-value garment of 12 dollar, then he will have to export 40,000 garments of 3 dollar to get that same value, why should it make a difference, in fact they should encourage the exporters to move up the value chain?” opines Nayyar.
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- Customs are a major problem; people manning the custom procedures are not trained to recognize the shipments or guide the exporters properly. They do not understand the urgency of lead times.
- The politics of diverse interest groups is bigger than national interest and no Government has had the commitment to think above these interests. This is one of the biggest reasons that the country does not have an integrated textile policy.
- There should be a separate ministry or a sub ministry of the textiles department which only deals with the apparel sector but no one is listening.
- The thrust has to come from the PMO, they must get all the ministries together and say this is a priority industry and meetings should be held jointly so that decisions can be taken quickly and files are not pushed around instead.
- Small changes in policies can make exporters more competitive – diesel consumed for generators used in factories should be exempted from duty. Machines not made in India should be duty-free; service tax for offshore lab dips should be exempted.
- The industry has approached the Cost Competitive Committee to increase the permissible extra hours of work from 52 hours in three months to 150 hours in three months to all factories in India.
- Let the tailor work for six months or four months before he goes in for PF. The whole idea of these laws is to give social benefit to workers, but for compliant factories, these small issues should not be impediments for letting the goods cleared on time.
- Factories should be rated and given quick clearance as per rating to meet delivery schedules without hindrances, formalities can be looked into as a routine and if someone defaults his rating can be lowered as a punishment.
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Fluctuating yarn prices and availability of the same is another major difficulty that exporters face when trying to meet price points. “I understand that it is an infringement of fundamental rights to ban exports, but the Government can put cotton yarn under a restrictive list that says you have to take a license when you want to export, which can be denied when it becomes crucial to supply to the domestic market,” suggests Nayyar. So there are methods, by which the Government can judicially regulate the availability of yarn for domestic use, but the politics of diverse interest groups is bigger than national interest and no Government has had the commitment to think above these interests. This is one of the biggest reasons that the country does not have an integrated textile policy and each segment in the supply chain is always at loggerheads to get the maximum benefit. Garments being at the end of the chain, invariably suffers the most, as its representation is the weakest with few companies at a level, which can make a difference with the Government in policy making.
Over the years exporters have been asking for small changes in policies to make exporters more competitive, but with little response. “We have been asking that the diesel we consume for our generators should be exempted from duty. If you read the export laws carefully, it says ‘anything that is used in the manufacturing facility of an export product is exempted from duty’, and it has been proved that diesel is used in the manufacturing process, though we have been requesting the Government for a number of years, but to no avail,” bemoans Nayyar. He questions why importing machines cannot be duty-free when they are not made in India and are exported to increase garment exports from the country.
There is no consistency of policy, some Government gives one concession then the other pulls it back and offers something different… how can exporters plan in the long-term if such uncertainties continue. The tax structures and inconsistency of the same over the years is a matter of great discontentment. “Service taxes are killing, we are paying reverse service tax on lab dips being done overseas and when I remit to them I am deducting 20% TDS and 12.5% service tax, if he doesn’t pay then I have to pay the same and it is a very high cost, so my price is very high, then the Government says don’t export taxes,” logically explains Nayyar.
This year for the first time the Government announced 2% subvention on pre-export credit at the starting of the year, which generally happens in the middle of the year, so the industry was able to plan their costing accordingly. The Government needs to be proactive rather than keep sitting on policies. “If we are not able to export then the focus license, which the Government has announced will be of no use,” says Nayyar. In fact, it is very disappointing to note that the Ministry is much more upfront for the handloom and the handicraft industry; many believe that for them that is the textile industry. “At one point of time we suggested to the Government that there should be a separate ministry or a sub ministry of the textiles department which only deals with the apparel sector but no one is listening,” adds Nayyar.
Labour laws have been a bone of contention for years immemorial, and now it is becoming very difficult for the industry to increase productivity within the working hours parameters set by the Government. The industry has approached the cost competitive committee to increase the permissible extra hours of work from 52 hours in three months to 150 hours in three months to all factories in India. The Karnataka Government has already approved the increase in working hours for the Apparel Industry within the ILO parameters and the same is lying with the President of India for past one-and-a-half years for official approval to make it a national regulation.
“In India, workers want overtime as they come to the cities with a mindset to earn money, but when the buyer comes from outside and does the audit, he says that the limit of overtime of more than 52 hours has been breached so you are not a compliant factory and we lose business,” argues Nayyar. Adding, “The proposal has been pending since 2008, we don’t want the Government to allow us to work 10 hours with the same wages; we are more than willing to pay them for 2 hours of overtime. What we want is more working hours to meet shrinking deadlines.”
Then there are ESI and PF laws which are another contention point. “If a tailor doesn’t want his PF to be deducted, the exporter has to pay, which means cost goes up by 25%. Our request is to let the tailor work for six months or four months before he goes in for PF. The whole idea of these laws is to give social benefit to workers, but for compliant factories, these small issues should not be impediments for letting the goods cleared on time,” avers Nayyar. Few years ago buyers were also not so worried about the working hours as long as factories were paying double the amount for overtime, but now they have started bothering because they are ethically committed to their products and if somebody raises their finger, specially NGO’s they are not able to control them.
It is suggested that factories should be rated and given quick clearance as per rating to meet delivery schedules without hindrances, formalities can be looked into as a routine and if someone defaults, his rating can be lowered as a punishment.
The industry is very clear that just by raising the bar for garment exports the industry cannot deliver. A target of 18 billion US dollars for garments and 50 billion US dollars for textiles and garments put together by 2015 is unachievable in the current situation. Many steps need to be taken to even get close to the target.
It is indeed sad that despite being a labour-intensive industry, it has never been a thrust industry for the Government. The industry works on an average 1.75 man/machine ratio, which means that if 2 lakh machines are added, around 4 lakh people are simultaneously employed; no other industry can do that, so the thrust has to come from the top to give this industry a green signal to go ahead. “In a factory like Hero Honda they are giving salary to 25,000 people and their export may be around Rs. 500 crores; and in the garment industry we have 5 million people working and the exports are at Rs. 40,000 crores, the Government has to decide which should be the thrust area in line with their national goals and objectives?” reasons Nayyar.
The country can grow from US $ 12 billion export to US $ 18 billion export only if a comprehensive growth policy is followed and not just relying on incentives. “The thrust has to come from the PMO, they must get all the ministries together and say this is a priority industry and meetings should be held jointly so that decisions can be taken quickly and files are not pushed around instead.” concludes Nayyar.
