Such has been the impact of excise duty on branded garments that smaller garmenters are increasingly moving from the organised segment to the unorganised. Garmenters are moving to manufacturing and marketing unbranded apparels as well as opting for to bulk orders.
In fact, the Clothing Manufacturers Association of India (CMAI) had conducted a survey to showcase the impact of the excise duty on garmenters. "We recently did a survey among our members to gauge the impact of the excise duty on branded garments. We found that decline in sales were evident primarily for the organised apparel sector which currently valued at Rs 40,000 crore. While the excise duty still remains, smaller players are trying to avoid the impact by going back to the unorganised segment," said Rahul Mehta, president of the Clothing Manufacturers Association of India (CMAI).
As per the survey, the reduction was to the tune of 17 per cent of sales during the last three months. "This translates to a sales decrease amounting to Rs 1,725 crore," the survey stated.
The step is mostly being taken by smaller garmenters who have a turnover of close to Rs 1-1.5 crore. According to industry experts, it is these garmenters who have not been able to take the hit on their margins.
What's more, since selling branded garments is taking a toll on their margins, the garmenters are not only selling unbranded products at retail level but also taking more and more bulk orders, said Sanjay Jain, president of Kolkata Association of Garment. According to Jain, the excise duty has also led to curtailing of capacity expansion at several apparel units.
In Gujarat, garmenters have resorted to removing their labels and selling unbranded apparels. "There are several members in our association who have begun removing their brand labels while selling apparels at the retail level. This is being done mostly by players with a turnover of around Rs 1.5 crore. We have made representations to the government but in vain," said Vijay Purohit, president of Gujarat Garment Manufacturers' Association (GGMA).
With demand also being impacted, garmenters have been selling products at extended discounts. Meanwhile, according to the CMAI survey, inventories have risen in the past three months by 42 per cent. "At any given point of time, there is an inventory worth Rs 3,300 crore (at cost) with the manufacturers/retailers," the survey further stated.