Department of Revenue, (Ministry of Finance) has raised the basic customs duty (BCD) on various imported textile yarn, fabrics and raw materials through three notifications. These announcements will help the textile industry to strengthen itself in the domestic as well as international markets. Customs duty on almost all chapters (50 to 63) belonging to textile and clothing products have been revised. Silk, wool, cotton, polyester and other man-made fibre, woven fabrics, wadding, felt and non-wovens, special yarns, twine, cordage, carpets, textile floor coverings, tufted textile fabrics and special woven fabrics etc., have now been subjected to higher import duty ranging from 10% or above with immediate effect (import duty varies based on products). Now, polyester fabric imports range from 10% to 20%. A substantial drop in the import duty was observed after the implementation of GST. This has encouraged cheaper import of polyester fabric from neighbouring countries like China.
In the GST regime, countervailing duty has been replaced with IGST and the special additional duty has been scrapped. The polyester fabric attracted 10% BCD, 12.5% CVD and 4% special additional duty in the pre-GST regime. Consequent to the scrapping of 4% additional duty and levy of 5% GST on polyester fabric, the imported polyester fabric attracted 10% BCD and 5% IGST. Therefore, there was a significant drop in the import duty threatening the survival of the domestic manufacturing industry due to cheaper imports especially from countries like China. Hence, the industry had requested the Government and the GST Council to increase the BCD on fabrics to retain the competitiveness of the domestic manufacturing industry. Since man-made fibre price in India is expensive by 20% to 30% due to high incidence of duties and levies, there is a threat of cheaper imports especially from countries like China.
Various trade bodies welcomed this move. Sanjay K. Jain, Chairman, Confederation of Indian Textile Industry (CITI) and P. Nataraj, Chairman, The Southern India Mills’ Association (SIMA) lauded the Union Finance Minister Arun Jaitley for the new rates. The trade bodies believe that this would eventually reduce the fabric import. According to them, this has come as a big relief to the man-made fibre based fabric manufacturers. SIMA feels the import duty on cotton fabric should also be raised in the interest of powerloom and handloom sectors.
“We hope that problem of non-refund of GST on inputs for fabric manufacturers is resolved at the earliest, so that the disadvantage against imports is also taken care of (fabric imports carry 5% IGST while due to inverted duty structure, effective IGST for domestic manufacturers is in the range of 7 to 9%). – Sanjay K. Jain, President, CITI
Sanjay added, “It’s a very positive and welcome step by the Government and will go a long way fulfilling the ‘Make in India’, ‘Skill India’ and ‘India as a global textile hub’ initiatives of the Prime Minister. This announcement has given the textile fabric industry a big relief as it was going through tremendous pressure post GST regime.” He also stated that the announcement will help increase fresh FDIs especially in the fabric sector which will help the textile industry enhance its capacities to meet future challenges and opportunities arising in the domestic and foreign markets and penetrate new markets. The duty increase is mainly in man-made fibre based fabric, which is a weak link in the country and needs a lot of investment to increase Indian textile industry’s share in the MMF category.
“There is a need to increase the import duty on cotton fabric also at par with polyester fabric in the interest of powerloom and handloom sectors to sustain their competitiveness.” – P. Nataraj, Chairman, SIMA
But industry also feels that problems on imports are not fully over. There is a big issue of imports from FTA countries like Bangladesh and Sri Lanka where there is full exemption of BCD and hence it’s a gateway for Chinese fabric entering India duty-free in the form of garments. This is because no Rule of Origin Rules are there for the duty-free imports from these SAARC countries. India too has FTAs with certain other Asian countries which allows some imports to be duty-free which in turn impacts the domestic industry. Further duty increase in BCD still doesn’t bring the overall import duty rates to pre-GST level, hence the industry is still relatively at a disadvantage post GST by about 5 – 7%.