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Facing tough times, exporters in Tiruppur, India bank on falling rupee for growth

"Tiruppur’s garment industry, which has around 3,500 small, medium and large garment manufacturers, generates around Rs 45,000 crore ( US$ 6.16 bn) every year until last year, it had been growing at a rate of 20 per cent year-on-year. After GST was implemented, the 5.5 per cent excise rebate was included in GST. After the exporters made strong representations to the government, the commerce ministry increased MEIS from 2 per cent to 4 per cent, but also reduced ROSL from 3.6 to 1.7 per cent. So, after all the adjustments, exporters were enjoying only a 7.7 per cent of drawbacks, which meant they lost more than 5 per cent of what they earlier received as rebates."

 

Facing tough times exporters in Tiruppur India bank on falling rupee for growth 002Tiruppur, which recently witnessed various disruptions, is struggling to survive. Growth in India’s largest knitwear and readymade garments cluster was pushed to negative by a year of disruptions starting with demonetisation followed by the implementation of Goods and Services Tax (GST) system which sucked out liquidity from the market.

GST negatively impacts industry

Tiruppur’s garment industry, which has around 3,500 small, medium and large garment manufacturers, generates around Rs 45,000 crore ( US$ 6.16 bn) every year until last year, it had been growing at a rate of 20 per cent year-on-year. After GST was implemented, the 5.5 per cent excise rebate was included in GST. After the exporters made strong representations to the government, the commerce ministry increased MEIS from 2 per cent to 4 per cent, but also reduced ROSL from 3.6 to 1.7 per cent. So, after all the adjustments, exporters were enjoying only a 7.7 per cent of drawbacks, which meant they lost more than 5 per cent of what they earlier received as rebates.

Thanks to the hasty implementation of GST, the refund process has become a slow and delayed one. While VAT refund came in three months earlier, GST refund is taking anywhere between 3-6 months. As the government is trying to hasten the refund process, GST offices continue to be understaffed. In Tiruppur, which has 1100 registered companies, there are only 10 officers processing refunds.

New avenues to explore

The bleak outlook at Tiruppur’s garment exports market has forced many to look for other avenues of growth such as Ethiopia.Facing tough times exporters in Tiruppur India bank on falling rupee for growth 001 The country offers several incentives to garment exporters in a bid to become the next Bangladesh. The biggest advantage Ethiopia offers is duty-free entry into both the European Union and India. Apart from that, labor too is cheap and abundant. The country currently produces garments for French company Decathlon from this facility.

However, the efficiency levels in Ethiopia are low, given the raw and untrained labor. And this takes away most of the benefit of lower costs, at least for now. The labor too, he says, isn’t reliable. Also, production in Ethiopia can now only cater to basic styles. Any new style will require at least a few months of training. Connectivity in terms of mobile networks is very poor, workers are very raw.

Another revenue stream that several garment exporters in Tiruppur have been turning to is the domestic market. The apparel market in India is growing at nearly 10 per cent every year. Fall in exports led to a huge number of exporters, especially smaller ones, shifting to the domestic market to cater to companies such as Reliance, Big Bazaar, Pantaloons and Arvind Mills.

Falling rupee offers better value

For exporters, a falling rupee is advantageous as it gives them a better value for their goods against the euro and dollar. If the rupee had not depreciated, exports from Tiruppur would have been nearly nil. However, importers have also been watching the Indian rupee lose value. Knowing exporters have an advantage, importers too want them to pass on at least 10 per cent of the advantage to them. Given the competitive scenario globally, Tiruppur exporters are being forced to pass on the advantage to their customers. Exporters now expect the rupee to fall further. They hope that the upcoming general elections next year and strong policies by the government will improve the situation in the country.

 
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