The unfairness of the garment export rebate programme is harming the apparel and garment industry’s ability to compete

Ready-made clothing exports to Rajasthan saw their largest growth at INR 2,078 crore in 2018–19 and INR 2,561 crore in 2021–22. Rajasthan is the leading producer of textiles and apparel, with a total value of INR 2,500 crores for the state’s apparel industry. In India, Jaipur has become a significant centre for the manufacture of clothing. Industry estimates indicate that there are already 2 lakh machines producing 20 lakh pieces per day, which equates to a daily turnover of INR 5 crores. Only in Jaipur do 5 lakh people currently work in this industry. The unbalanced rebate programme is causing losses for the labor-intensive sector of the economy.

India presently exports goods worth about USD 44 billion, USD 16 billion of which are exports of clothing and apparel. This industry, which also generates enormous exports, employs over 4.5 crore people and is projected to be worth more than US$ 209 billion by 2029.

The loss of 15% of the garment exporter’s margins as a result of state and federal tax rebates, however, is of great worry (RoSCTL). As a result, Rajasthan’s garment exporters predict a fall in export competitiveness along with their peers nationwide.

In order to increase India’s textile industry’s competitiveness and export capacity, RoSCTL was established. The Scheme was modified in September 2021, however in its current form, it is reducing the domestic textile industry’s export margins. The government intended for these reforms to help exporters, but they are instead helping importers. This undermines the scheme’s core goals of pushing the government’s stated “Make in India” agenda for the global marketplace.

“The textile industry wants the government to restore cash reimbursement instead of these tradeable scrips, as these scrips are trading at a 20% discount,” stated Mr. Vimal Shah, President of the Garment Exporters Association of Rajasthan (GEAR). Exporters sell these scripts to importers, who can use the purchased scripts as an alternative to paying their import duties in cash. A significant monetary transfer from exporters to importers is the effect of this.

The member of the AEPC’s export promotion committee and the president of GEMA, Mr. Vijay Jindal, stated that the RoSCTL programme offers a rebate for taxes, levies, and other fees that exporters have previously paid on inputs. This rebate has been transformed into tradable scrips, meaning that exporters can sell scrips to importers and importers can pay import duties with these scrips purchased instead of paying in cash. While it was on sale previously as well, the discount on the scrips has since increased from 3% to roughly 20%. Importers benefit from the discounting of scrips, taking unfair advantage of exporters in the process.

According to estimations, of the USD 16 billion in total garment exports, about 5%—or about INR 6,000 crore—is reimbursement. Given a discount of 20–25% on this, there is an approximate INR 1,500 crore direct effect on the thin margins of businesses engaged in the garment sector.

The objective of the Scheme was to make India’s textile industry competitive with other low-cost nations like Bangladesh and Vietnam (due to low labour and manufacturing costs). The government’s desire to compensate the exporters has always been in line with the demand, but because of the discounting of scrips, the entire scheme’s goal and intent are undermined. The discounting of scrips currently gives importers an unfair advantage at the expense of exporters. In order to promote the government’s proclaimed policy of “Make in India” for the World, this undermines the fundamental point and intent of the entire project.

There is concern that the industry may lose its competitive edge owing to cost inefficiencies if the government does not soon make changes to the RoSCTL framework. The absence of support would cause the demand to move once more to other low-cost nations.

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